Borrowers Challenge DeVos on 'Tiered Relief' in Class Action Lawsuit

By Allie Bidwell, NASFAA Senior Reporter

A group of student loan borrowers who attended for-profit institutions are taking their struggle for debt relief to the courts, as they pursue a class action lawsuit against the Department of Education (ED), specifically taking issue with a process to award partial relief to borrowers based on their earnings.

Education Secretary Betsy DeVos in December announced ED would institute a tiered relief process for borrower defense to repayment claims filed by former Corinthian Colleges students. Under the new system, students will receive full relief as a result of their claims only if their earnings are currently less than 50 percent of their counterparts’ from passing gainful employment (GE) programs. Students earning at least 50 percent of what their peers earn from programs that pass GE standards will be compensated proportionally for the difference.

But in court documents filed last week, Department of Justice attorneys argue on behalf of ED that because the borrowers "have not shown that they will suffer irreparable injury absent the injunction, nor have they established their entitlement to the extraordinary mandatory injunction they seek," the court should deny their request for full debt relief.

"Through its review process, the Department came to the common sense conclusion that the relief for successful borrower defense claims should be based on a measure of the actual harm suffered as a result of the school’s misconduct, namely, the lack of value the borrower actually received from the educational program attended," the attorneys write in the documents.

The attorneys argue that ED is not bound to give full relief to any borrower defense claim and has the discretion to discharge "all or part" of a loan in a successful claim.

But since the process was implemented, some policymakers have been critical of the method and the idea of partial relief in general. A negotiating committee convened to rewrite the federal borrower defense regulations discussed partial relief at length during three negotiating sessions over the course of several months.

Clare McCann, deputy director for federal policy at New America, wrote in December that there are several reasons a tiered relief system could be problematic, including the fact that Corinthian borrowers who filed claims prior to the implementation of the system were treated differently. DOJ lawyers wrote in the new court documents that the initial process was an emergency measure taken to provide relief to a flood of claims on an ad hoc basis. That does not mean, the lawyers wrote "that the agency bound itself, forever, to award relief on precisely the same basis, and in exactly the same measure, once it had an opportunity to engage in further review of this process."

But McCann also said using GE data for the earnings threshold is not ideal. That data "are also not designed to measure whether earnings are adequate; they measure whether earnings are adequate relative to the amount of debt taken on."

"GE doesn’t measure whether borrowers are making at least the poverty level, or even minimum wage. It is simply a measure of how tolerable the debt amount is at a school," McCann wrote. "So to get full relief under the Department’s new plan, a borrower from that program would need to be fully unemployed."

The DOJ attorneys said in the court documents that nearly 9,000 claims have been approved for partial relief, and if ED were to give full relief to those 8,809 borrowers, it would result in more than $70 million in discharged loans — as opposed to the $13.4 million in partial relief — and "subject the Department to approximately $500,000 in additional administrative costs."

"These savings are in the public interest and demonstrate that a preliminary injunction is inappropriate," they wrote.


Publication Date: 4/18/2018

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