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Whatever Happened to the Borrower Defense to Repayment Claims for Attendance at a Fraudulent School?

A proposed court settlement between the Trump administration and defrauded borrowers is in jeopardy after the administration revealed its widespread denials of requests for student debt cancellation for those who attended schools who lied to them in order to get them to attend, the Washington Post reported recently.

The settlement required that borrowers who were still awaiting a decision on their Borrower Defense to Repayment (“BDTR”) application after 18 months would get 30 percent of their federal loans discharged for every month that the department is late, and those who are denied reserve the right to an appeal.  Not surprisingly, as a result, we have seen mass denials this summer.  I personally have seen around ten outright denials – no specifics, just a general denial of failure to state a claim.  I have seen two approvals – but these were only for 10% of the principal and waiver of interest during the review period.  A drop in the bucket.

This reminds me of the FTC lawsuit against DeVry.  They had them dead to rights with written misrepresentations in their marketing material regarding job placement rates.  The settlement?  Everyone got checks.  The problem was the checks were only for around $500.  For screwing up someone’s life forever.

The Post reports “Ninety-four percent of the debt-relief claims the Education Department has processed since reaching the agreement in April have been rejected, the department said in a court filing last week. The federal agency issued 78,400 decisions, of which 4,400 were approved and the remainder denied.”  The Department of Education acknowledges that at least 17 of the approvals resulted in no monetary reduction of loans due to a sliding scale.

Based upon that statement, and the couple I’ve seen with on 10% principal reductions, I doubt anyone has received full forgiveness.  There were 170,000 unresolved claims in total that the Education Department agreed to resolve.  Expect the other 92,000 to be dealt with before the end of the year with similar results.

The rejection letters lack detailed explanations for the denials, making it difficult for people to appeal the decisions.  Even if they were to appeal, it would still be Secretary DeVos’ department reviewing the appeal.

The settlement may be subject to challenge.  If a hearing occurs on the “fairness” issue of the settlement, everyone involved should object.  The class action attorneys say that the department’s hasty disposal of the claims without a clear cause violates the spirit of the agreement, which is still pending final approval.

Stupidest settlement ever.  Next to a coupon in the mail for further services that is.  I hope the Judge sees this for what it is and rejects this settlement which requires court approval.

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