BUZZFEED: A Little-Known Student Loan Protection Remains Mired In Mystery

Career College Central Summary:

  • They were searching for a way to help thousands of students nationwide who had been mired in debt by predatory for-profit colleges. And a group of Democratic senators found the solution buried deep in a federal promissory note signed by every student who takes out government loans: the “defense to repayment” provision, a little-known clause that has become a rallying point for lawmakers and activists in the wake of the shutdown of the for-profit giant Corinthian Colleges.
  • The defense to repayment clause, they say, obligates the federal government to forgive the federal loans of tens of thousands of former students at Corinthian’s Everest College chain, which has been accused of a litany of abuses, and potentially at other colleges that have broken state laws.
  • “Of course there’s always secret passageways and back doors, but they’re usually not within federal law,” said Toby Merrill, the director of the Project on Predatory Student Lending at Harvard Law School’s Legal Services Center. “It was really surprising that this exists.”
  • Earlier this week, hundreds of former Corinthian students, with the help of a group of activists, submitted defense to repayment claims to the Education Department. The department played a central role in Corinthian’s exit from the for-profit college world, essentially forcing it to sell off or close its campuses amid a storm of complaints, lawsuits, and investigations into the company’s Everest College chain.
  • Though state lawsuits seek debt relief for students, Corinthian, Everest’s parent company, is essentially bankrupt. With little to no cash on hand, it is operating on a lifeline from the federal government as it tries to find somebody to buy the last of its schools. Even if the states win their lawsuits, there’s nowhere near enough money left in the company to pay back Everest’s former students, who have somewhere around $1 billion in outstanding loan debt. The only relief is loan forgiveness from the federal government — meaning, essentially, that taxpayers would ultimately foot the bill.
  • Almost nothing is known about the defense to repayment clause: the Education Department has not specified how defense to repayment works or whether it has ever been used successfully in the past, and would not respond on the record to BuzzFeed News’ questions about its usage. There is no form for students to fill out, no fact sheet to consult. Legal aid lawyers, who have begun to file the defenses for poor clients mired in debt, are forced to do so with no guidance: The Education Department has not responded to a four-months-old Freedom of Information Act request by the New York Legal Assistance group meant to gather any possible shred of information about the clause, its usage, or its history.
  • That is making it exceedingly difficult for borrowers who believe they have been wronged by their schools to take advantage of the clause.
  • “We’re operating in a complete void of information,” said Eileen Connor, an attorney with NYLAG who has submitted two defense to repayment claims to the department on behalf of clients at another troubled for-profit school, Sanford-Brown. “We need to be able to understand the department’s reading of their own regulations.”

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