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Department of Education’s latest idea for student loan relief is deeply flawed, consumer groups say

Home-office-Hands Typing on Keyboard 5203846_1920A Trump administration rule that denies loan relief to many students cheated by their schools is deeply flawed and should be overturned, Public Citizen and the Project on Predatory Student Lending told a court Tuesday. The groups represent student borrowers in a lawsuit challenging the U.S. Department of Education’s new “partial relief” rule.

The rule details how the department will decide whether and how much relief to give borrowers who have demonstrated that they were cheated by the schools they attended. Under the rule, most borrowers whose claims are approved receive only partial or no relief on their student-loan debt.

The lead plaintiff, Sammia Pratt, attended a Corinthian-owned Everest school in Florida for accounting, based on the false promise that she’d be able to transfer credits to the University of Central Florida.

The school induced her to borrow tens of thousands of dollars in federal student loans and promised her job placement and career services that never occurred. Actually, Pratt’s degree hindered, rather than helped, her career development. Despite her detailed borrower defense application and Corinthian’s long and well-documented history of fraud, the department informed Pratt in February that it would grant only 10 percent relief.

“The Department of Education recognizes that I was defrauded by this school, but because of a ridiculous formula, I only get 10% relief,” said Pratt. “It’s insulting. I have worked hard to succeed despite all the harm that Everest caused to my life and career. I am not looking for a handout. I just want accountability and a process that is fair for everyone,”.

The lawsuit  was filed by Public Citizen Litigation Group and the Project on Predatory Student Lending in federal court on behalf of six former students of for-profit schools. The students seek to represent all borrowers who have had or will have the partial relief rule applied to them and who will receive less than full relief on their claims.

“These students were lied to and cheated by predatory schools, and every dollar of federal student loan money was based on those lies,” said Toby Merrill, director of the Project on Predatory Student Lending. “They have a legal right to cancel every dollar of those loans – not a percentage based on a formula cooked up by the Department of Education.”

Merrill said the department’s earlier partial relief scheme didn’t stand up in court, and this version isn’t any better.

Federal law allows students to seek cancellation of their federal student loans if the school they attended misled them. Since taking office, Education Secretary Betsy DeVos has made several failed attempts to block loan cancellation for students. This is the department’s second attempt at devising a “partial relief” methodology that denies most relief to defrauded student borrowers, Merrill said.

The Project on Predatory Student Lending challenged the first rule, which was blocked by a federal court in May 2018, after the court concluded that the rule likely violated the Privacy Act.

Under the new rule, issued in December 2019, the department ignores evidence submitted by borrowers about how their schools’ actions harmed them, said Adina Rosenbaum, the Public Citizen attorney representing the borrowers. Instead, it bases its relief determinations on a comparison of the median earnings of recent graduates of the borrower’s program to the earnings of recent graduates of other programs the department deems similar. As the lawsuit contends, although the department claims that its formula is based on statistics, it ignores basic statistical principles.

Copyright 2020, Rita R. Robison, Consumer and Personal Finance Journalist

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