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NSLDN Confirms ED Will Grant Automatic Closed School Discharges to Students After Three Years

In November 2018, the National Student Legal Defense Network, on behalf of Housing and Economic Rights Advocates (HERA), filed a lawsuit demanding that Secretary DeVos and the Department of Education immediately fulfill their legal obligations and automatically discharge the loans of tens of thousands of students whose schools or campuses have been closed for three years. The lawsuit came after a court ruling that the Department had illegally delayed implementation of the 2016 Borrower Defense Rule, including the automatic closed school discharge provision, and the Department continued collecting on loans it was required by law to discharge.

Since the lawsuit was filed, the Department has detailed how it will comply with the court's ruling and the 2016 rule, and has granted over $168 million in relief to more than 16,000 individual borrowers. In light of the evidence that the Department provided about its implementation of the rule, and with the expectation that the Department will fully comply with the rule going forward, HERA has agreed to dismiss the lawsuit.

The relief granted after the Department implemented the rule is significant, and highlights the importance of automatic discharge. For example, in the first 18 months after the closure of Corinthian Colleges, 7,858 borrowers were granted closed school discharges based on individual applications. According to the data obtained by NSLDN, an additional 8,400 Corinthian borrowers have now been granted relief under the automatic provision, nearly 4 years after the closure. Despite years of news coverage and outreach it is clear that many borrowers remained unaware of their right to a closed school discharge, but have finally received the benefit provided by law.

According to communications from the Department of Justice obtained during the course of the litigation, the Department of Education will:

  • Identify eligible borrowers approximately every 30 days, using National Student Loan Data System (NSLDS) data.
  • Process loan discharges within 30-90 days after identification. Once a discharge has been processed, servicers or guarantors should update the borrower’s credit report within approximately 30 days.
  • Provide quarterly reports on the implementation of the automatic closed school provision. The quarterly reports should include school-level data where possible, except in cases where there are fewer than 10 borrowers at a school receiving relief.

Through a separate process, affected borrowers will have their Pell grant eligibility restored as soon as a closed school has reconciled its records with the Department of Education.

Finally, the Department confirmed to NSLDN that if eligible borrowers previously received partial relief through a Borrower Defense application, they will receive full relief for the remainder of their loans associated with automatic closed school discharge.

Additional Documents:

  • A spreadsheet provided by the Department of Justice, showing data on the borrowers who received relief as of February 28, 2019. This includes over 16,176 borrowers receiving over $168,318,649 million in relief. Available here.
  • A sample email that the Department of Education is using to notify eligible borrowers. Available here.
Tags   Litigation