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Student Advocates Announce Closed School Discharges for Over 30,000 Student Borrowers

WASHINGTON, DC – Student Defense, the Project on Predatory Student Lending, and Housing and Economic Rights Advocates issued statements today responding to the U.S. Department of Education’s confirmation that it had discharged loans for over 30,000 student borrowers under the automatic closed school discharge provision of the 2016 borrower defense rule. The discharges include roughly $95.1 million in relief for approximately 7,700 former students of the predatory for-profit college, ITT Tech.

For years, the Department had fought against automatically discharging loans for students whose schools closed. Ultimately, Education Secretary Betsy DeVos and the Department were required to implement the rule after a successful lawsuit brought on behalf of students by the Project and Public Citizen (Bauer v. DeVos) that ended the illegal delay of the 2016 borrower defense rule, which included the automatic closed school discharge rule. The rule requires the Department to automatically (without application) discharge the loans of borrowers who qualify for closed school discharge and who do not subsequently re-enroll in another Title IV-eligible institution within three years.

After the court’s decision in Bauer v. DeVos, the Department continued to collect monthly payments from students eligible for an automatic discharge. In November of 2018, Student Defense filed a new lawsuit (Housing and Economic Rights Advocates v. DeVos) demanding that the Department immediately fulfill its legal obligations and implement the automatic closed school discharge rule. Following that lawsuit, the Department confirmed that it would identify eligible borrowers monthly, process loan discharges within 30-90 days of identification, and provide quarterly reports on its progress.

Despite the Department’s commitment, eight months later the Department still had not provided a single quarterly report or released complete data on the status of its implementation.  In December of 2019, Student Defense sent a letter raising the prospect of future litigation if the Department could not provide basic answers regarding the status of its implementation of the rule.

In response, on January 15, 2020, the Department sent Student Defense a letter confirming that automatic closed school discharges had been provided to approximately 30,000 borrowers, including roughly $95.1 million in relief for about 7,700 former ITT students.  The complete letter is available here.

Statement from Student Defense President Aaron Ament:
“This is an Administration that will only do the right thing when they are dragged into court, and sometimes even that’s not enough. It is good to see that in this case the Department of Education finally appears to be living up to its legal obligations, after years of stalling. The fact that so many students are eligible for this relief underscores how important the automatic discharge provision is, and how harmful the new borrower defense rule—which eliminates it entirely—will be.”

Statement from Project on Predatory Student Lending Director Toby Merrill:
“These “closed school discharges” are a result of students standing up and fighting for their rights. We’ve seen time and again that the Department of Education only acknowledges the legal rights of student borrowers when it is forced to do so by students and the courts – and even then, Secretary DeVos does so with “extreme displeasure." That is why students will continue to force the Department to follow the law and cancel all fraudulent student loan debt from predatory for-profit colleges, whether or not the student was attending when the school closed.”

Statement from Housing and Economic Rights Advocates Senior Attorney Joe Jaramillo: 
“We applaud the steadfast efforts of Student Defense and the Project on Predatory Student Lending in standing up for tens of thousands of student borrowers entitled to closed school discharges.  So many members of our client community have been harmed by the Department of Education’s delay in discharging these loans.  We will continue to work with our partners to hold the Department accountable and make sure student borrowers get the relief they are entitled to under law.”

Unfortunately, in September 2019 the Department issued new borrower defense regulations that gut fair, basic, and needed protections for hundreds of thousands of student borrowers across the country, including many who were defrauded by for-profit colleges. Those new regulations eliminate the automatic closed school discharge provision, meaning that, when future schools inevitably close, thousands of students will likely never receive the relief they are entitled to. The Project has vowed to challenge these new regulations.