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DOE discharges an additional $1.5 billion in student loans
On August 30, the Department of Education announced $1.5 billion in debt relief for 79,000 borrowers who enrolled in a college accused of “routinely [misleading] prospective students by grossly misrepresenting that its credentials would benefit their career prospects and earning potential.” According to a Department investigation aided by significant evidence from the Colorado and Illinois attorneys general, the college engaged in widespread misrepresentations “in order to profit off student debt that burdened borrowers long after [the college] closed.” Borrowers’ student loans will be discharged regardless of whether an individual has applied for a discharge under the borrower defense to repayment program, and without requiring any additional action on behalf of the borrowers. The announcement builds on the previous approval of $130 million in borrower defense discharges for approximately 4,000 borrowers who had attended the college.
The Department also announced that it plans to engage in future rulemaking “to hold career programs accountable for leaving their graduates with mountains of unaffordable debt and poor job prospects,” and said it is planning “new actions to hold accountable institutions that have contributed to the student debt crisis including publishing lists of the worst actors.” With this recent announcement, the Department of Education “has now approved $14.5 billion in discharges for nearly 1.1 million borrowers whose colleges took advantage of them.”
Biden announces student debt cancellation
On August 24, President Biden announced a three-part plan for student loan relief. According to the Fact Sheet, the cumulative federal student loan debt is around $1.6 trillion and rising for more than 45 million borrowers. The President announced that the Department of Education (DOE) will, among other things: (i) provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE; (ii) provide up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples; (iii) propose a new income-driven repayment plan and cap monthly payments for undergraduate loans at 5 percent of a borrower’s discretionary income; and (iv) “propos[e] a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.” For income-driven repayment, Biden announced that the DOE is proposing a rule to, among other things: (i) reduce to 5 percent from 10 percent the amount that borrowers have to pay each month for undergraduate loans; (ii) guarantee that borrowers making less than 225 percent of the federal minimum wage are not required to make payments on their federal undergraduate loans; (iii) forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less; and (iv) cover the borrower’s unpaid monthly interest so that no borrower’s loan balance will grow when making monthly payments, “even when that monthly payment is $0 because their income is low.” The Fact Sheet also noted that if all borrowers claim the relief to which they are entitled under this plan, these actions “will [p]rovide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers,” will benefit primarily low- and -middle income borrowers, assist borrowers of all ages, and help narrow the racial wealth gap and promote equity by targeting those with the highest economic need.
The same day, the DOE announced a final extension of the pause on student loan repayment, interest, and collections through December 31. As previously covered by InfoBytes, in April, Biden extended the moratorium on collecting student loans through August 31, about which the DOE stated will allow “all borrowers with the paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.”
Earlier this week, the DOE announced that it will provide over $10 billion in debt relief for over 175,000 borrowers in 10 months through the Public Service Loan Forgiveness (PSLF) program. The recent announcement follows changes the DOE announced in October 2021 (covered by InfoBytes here) that, among other things, gave qualifying borrowers a time-limited PSLF waiver that allowed all payments to count towards PSLF regardless of loan program or payment plan. These include payments made on loans under the Federal Family Education Loan (FFEL) Program or Perkins Loan Program. The recently announced changes provide that student borrowers receive credit for payments made on loans from FFEL, Perkins Loan Program, and other federal student loans. To qualify for the program under the temporary changes, such borrowers must apply to consolidate their loans into a Direct Consolidation Loan by October 31. Additionally, the DOE announced that “under the temporary changes, past periods of repayment count whether or not borrowers were on a qualifying repayment plan or whether or not borrowers made payments.” To date, $32 billion in student loan relief has been approved for over 1.6 million borrowers.
Ed. Dept. discharges additional $3.9 billion
On August 16, the Department of Education announced that 208,000 borrowers who attended a large for-profit post-secondary education institution will receive full student loan discharges totaling $3.9 billion. The announcement builds on previous actions taken by the Department that have resulted in the approval of $1.9 billion in discharges for another 130,000 borrowers, including borrower defense findings that the institution “engaged in widespread and pervasive misrepresentations related to the ability of students to get a job or transfer credits” and lied about certain program accreditation. State attorneys general around the country, the CFPB, and Veterans Education Success also provided significant assistance in the Department’s findings. The Department referred in its announcement to a 2014 CFPB action, which alleged that the institution pressured students into taking out high-cost private loans even though it allegedly knew that most students would ultimately default. The Bureau ultimately announced a judgment barring the institution from offering or providing student loans, and obtained judgments against several entities accused of providing substantial assistance to the institution (covered by InfoBytes here). “While today’s action affects federal loans, and while past CFPB actions have addressed many of the private loans peddled by [the institution],” CFPB Director Rohit Chopra said in remarks following the announcement, he stressed that the Bureau “will continue our work with the Department of Education and other regulators to open up the books on in-house institutional lending programs—these are private loans pushed directly by schools—to ensure that they are not strongarming their students with illegal practices.”
The Department also announced that it has notified another for-profit institution that it is required to pay millions of dollars for approved borrower defense to repayment discharges. The institution can present arguments as to why it should not be required to pay or request a hearing before the Department’s Office of Hearings and Appeals, the Department said.
District Court grants final approval to forgive $6 billion in student loans
On November 15, the U.S. District Court for the Northern District of California granted final approval to a class action settlement to forgive certain federal student loan borrower debt. According to the motion for preliminary approval, the plaintiffs are federal student loan borrowers who filed borrower defense (BD) applications with the Department of Education, requesting that the Department discharge their federal student loans because of misconduct committed by their schools. They brought the case to challenge the Department’s delay in making decisions on BD applications. The motion noted that the plaintiffs alleged, “the Department’s inaction was due to a deliberate and uniform policy abandoning BD decision making, a choice that caused a mounting backlog.” In a supplemental complaint filed after discovery, plaintiffs further alleged that the Department “adopted an unlawful policy that presumptively denied BD applications regardless of their merit, and then, pursuant to this policy, sent tens of thousands of legally insufficient denial notices (the ‘Form Denial Notices’) to borrowers, including some of the Named Plaintiffs.” The class consists of approximately 264,000 people who have a BD application pending as of June 22, 2022. The “automatic relief group” consists of applicants who attended one of more than 150 colleges for which the Department found common evidence of institutional misconduct. The motion also noted “it has determined that every class member whose relevant loan debt is associated with those schools should be provided presumptive relief under the settlement due to strong indicia regarding substantial misconduct by the listed schools, whether credibly alleged or in some instances proven, and the high rate of class members with applications related to the listed schools.” Under the terms of the settlement, $6 billion in loans will be canceled for the borrowers.
States request extension of PSLF forgiveness waiver
On July 29, a coalition of state attorneys general sent a letter to President Biden and Department of Education Secretary Miguel Cardona, requesting the extension of the deadline for individuals to file claims under the Public Service Loan Forgiveness (PSLF) program. As previously covered by InfoBytes, in October 2021, the Department announced several significant changes to its PSLF program, including that approximately 22,000 borrowers with consolidated loans (including loans previously ineligible) may be immediately eligible to have their loans forgiven automatically, and another 27,000 borrowers could have their balances forgiven if they are able to certify additional periods of public service employment. According to the AGs, “it is critically important to extend the waiver at least until new PSLF regulations take effect and to grandfather in waiver benefits for borrowers who miss administrative deadlines.” The AGs also asked the Biden administration to count all forbearance periods toward loan forgiveness, rather than making exceptions for servicemembers and longer periods of forbearance for everyone else. The letter stated that “[f]ailure to automatically count periods of forbearance toward loan forgiveness ignores pervasive and well-established servicing problems and inappropriately shifts the burden to borrowers to identify and prove that they were victims of servicer misconduct.” The AGs urged the Biden administration “to exercise its authority to synchronize the One-Time Adjustment and Limited PSLF Waiver into a unified adjustment policy.” The letter specifically stated that the “simplest way of doing so may be to incorporate certain critical aspects of the waiver into the One-Time Adjustment, including that qualifying employment at the time of forgiveness is not necessary and that consolidations (whether of FFEL or Direct Loans) occurring prior to the completion of the One-Time Adjustment do not negate past qualifying employment periods for PSLF.”
NYDFS releases best practices for promoting PSLF program and time-limited waiver
On July 13, NYDFS called on all federal student loan servicers to increase awareness of and enroll borrowers in public service loan forgiveness programs before a temporary waiver expires on October 31. NYDFS’s letter reminded servicers that under the Public Service Loan Forgiveness (PSLF) program, full-time government and certain non-profit employees may be eligible to have federal direct loans forgiven after making 120 qualifying monthly payments. Last October, the Department of Education announced temporary PSLF changes due to the Covid-19 pandemic. These changes provided qualifying borrowers a time-limited PSLF waiver, which allows all payments to count towards PSLF regardless of loan program or payment plan (covered by InfoBytes here). Expressing concerns that many borrowers may not learn of this opportunity before it expires in October, NYDFS encouraged servicers to adopt eight best practices to promote awareness of the PSLF Program and the waiver. These include “enhanced trainings for customer service staff, proactive communications with borrowers, and increased promotion of the PSLF program on servicer websites and on borrower account pages,” NYDFS said in its announcement.
The letter follows a December 2021 NYDFS request sent to federal student loan servicers asking for updates on steps taken to address the waived rules. NYDFS also reminded servicers that it “will diligently enforce all servicer legal requirements concerning the PSLF program and will consider the extent to which servicers engaged in proactive measures to promote the PSLF Waiver in future supervisory examinations.”
Ed. Dept. discharges additional $5 billion
On June 1, the Department of Education announced the “largest single loan discharge the Department has made in history,” which includes discharging all remaining federal student loans borrowed to attend any campus owned or operated by a specific large for-profit post-secondary education company from its founding in 1995 through April 2015. The action will result in 560,000 borrowers receiving $5.8 billion in full loan discharges. According to the Department, the post-secondary education company engaged in “widespread and pervasive misrepresentations,” including guarantees that students would find a job. Additionally, the company “made pervasive misstatements to prospective students about the ability to transfer credits and falsified their public job placement rates.” The Department noted that the California AG’s investigation alleged that the company engaged in deceptive and false advertising and recruitment practices, as well as lied to its students about job placement. The Department noted it has approved $25 billion in loan relief to individuals since President Biden took office.
On June 2, CFPB Director Rohit Chopra released a statement regarding the discharge, referring to the company as a “ notorious repeat offender that defrauded its students and the public over many years.” Chopra also noted that the CFPB and state attorneys general actively pursued the company for its misconduct. Chopra pointed to when the Bureau “filed a lawsuit in 2014, obtained a default judgment and secured $480 million in private student loan cancellation in 2015, and won another $183 million in loan cancellation in 2017.” Chopra further noted that “[i]n 2016, then-California Attorney General Kamala Harris won a $1.1 billion judgment against [the company].”
CFPB enters proposed final judgment in TSR and CFPA violation suit
On April 29, the CFPB filed a proposed stipulated final judgment and order in the U.S. District Court for the Central District of California resolving allegations that a student loan debt relief business and a general debt-settlement company, along with their owner and CEO (collectively, “defendants”), engaged in wrongful fee-charging practices and deceptive telemarketing. As previously covered by InfoBytes, the CFPB filed a complaint against the defendants for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by charging illegal advance fees and using deceptive tactics to induce consumers to sign up for services. According to the complaint, from 2015 to the present, the defendants allegedly charged consumers upfront fees for the debt-relief company to file paperwork with the Department of Education to obtain loan consolidation, loan forgiveness, or income-driven repayment plans. Some consumers paid the upfront fee using a third-party financing company and paid an APR between 17 and 22 percent. The CFPB also alleged that the defendants required some consumers to pay the fee in installments into a trust plan, which carried a $6 monthly banking fee paid to the administrator of the trust accounts. The Bureau alleged that the defendants failed to provide the proper disclosures under the TSR. Moreover, the complaint asserted that from 2019 to the present, the defendants violated the CFPA by representing to consumers that they were turned down for a loan in order to pitch the company’s settlement services. Under the terms of the proposed settlement, the student loan debt relief business and the general debt-settlement company are permanently banned from engaging in debt relief services, and the CEO is banned for five years.
The CEO is also required to pay a civil monetary penalty of $30,000 to the CFPB.
Ed. Dept. discharges additional $238 million
On April 28, the Department of Education announced it will deliver relief to tens of thousands of borrowers harmed by “pervasive and widespread misconduct” at a beauty school. According to the Department, the students attended the beauty school between 2009 and 2016, during which it “engaged in pervasive and widespread misconduct that negatively affected all borrowers who enrolled.” The 28,000 borrowers will receive loan discharges totaling approximately $238 million, which will provide relief to borrowers who enrolled at the beauty school during this period, including those who have not yet applied for a borrower defense discharge. According to Secretary of Education Miguel Cardona, the Department will “continue to strengthen oversight and enforcement for colleges and career schools that engaged in misconduct and uphold the Biden-Harris Administration’s commitment to helping students who have been harmed.” The Office of Federal Student Aid also announced it is hiring four employees for its enforcement unit.
Education Dept. rolls out new plan for IDRs
On April 19, the Department of Education announced additional changes to the federal student loan program designed to reduce or eliminate federal student loan debt for many borrowers. In particular:
- To address long-term forbearance steering, Federal Student Aid (FSA) will conduct “a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness” under the income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.
- Borrowers “steered” into shorter-term forbearances may file a complaint with the FSA Ombudsman to seek an account review.
- FSA will also partner with the CFPB to conduct regular audits of servicers’ forbearance use, and will seek to improve oversight of loan servicing activities.
- Loan servicers’ ability to enroll borrowers in forbearance by text or email will be restricted.
- FSA will conduct a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans, and will count any month in which a borrower made a payment toward IDR, regardless of the payment plan. Borrowers who meet the required number of payments for IDR forgiveness based on the one-time revision will receive automatic loan cancellation. Moreover, months spent in deferment prior to 2013 will count towards IRD forgiveness (with the exception of in-school deferment) to address certain data reliability issues.
In addition, FSA plans to reform its IDR tracking process. New guidance will be issued to student loan servicers to ensure accurate and uniform payment counting practices. FSA will also track payment counts on its own systems and will display IDR payment counts on StudentAid.gov beginning in 2023 so borrowers can monitor their progress. The Department also plans to issue rulemaking that will revise the terms of IDR and “further simplify payment counting by allowing more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.”