Judge Rebukes Borrower Defense Settlement Over ED’s Denials of Student Loan Relief Claims

By Hugh T. Ferguson, NASFAA Staff Reporter 

A federal judge has determined that a settlement reached over the Trump administration’s slowdown of loan forgiveness processing, for borrower’s subjected to fraud by their colleges, could not be agreed to due to the Department of Education’s (ED) blanket denials to ongoing applications.

“The Secretary’s new perfunctory denial notices undermine the proposed settlement, contradict her original justification for delay, raise substantial questions under the [Administrative Procedure Act], and may impose irreparable harm upon the class of student-loan borrowers,” wrote Judge William Alsup of the U.S. District Court in the Northern District of California, in his strongly worded rebuke of the department.

Back in May another federal court gave preliminary approval to a settlement reached in a borrower defense case, forcing ED to process 170,000 cases.

This ruling comes on the heels of a fairness hearing held on October 1 in which 14 of the more than 500 students in attendance provided testimony about the settlement, saying ED had been acting in bad faith by issuing blanket denials without any consideration of their claims.

Alsup in his mid-October opinion found the student’s testimony convincing and tore into ED’s oversight, saying their process for administering relief determinations “rings disturbingly Kafkaesque” and calling into question why many borrowers reported receiving almost identical denial notices.

While the judge determined that every case might not be entitled to relief, all borrowers are entitled to a comprehensible answer which the department is alleged to have obfuscated. 

“For eighteen months, the Secretary refused, largely on the grounds that such answers required backbreaking effort and, thus, substantial time,” Alsup wrote. “Now, the Secretary has begun issuing decisions at breakneck speed. But most are a perfunctory ‘Insufficient Evidence’ — without explanation.”

Congress in March passed a resolution to block implementation of DeVos’ borrower defense rule but was unable to override a presidential veto

Litigation over the settlement is now expected to continue, further delaying relief for thousands of student loan borrowers.


Publication Date: 10/21/2020

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