For-Profit Colleges Continue to Generate Most Loan Relief Claims

Thousands of student borrowers are awaiting relief from federal students loans they say were obtained through fraudulent and misleading actions by the colleges and universities they trusted with their educations. This week, Senator Patty Murray (D-WA) released new Education Department data on these 158,000 outstanding “borrower defense” claims for loan relief, data she obtained from department responses to questions for the record following a hearing in March. The data released includes up-to-date information on which colleges have had borrower defense claims made against them. As the newly released data further confirms, most claims come from students who attended for-profit institutions; in fact, the top twenty college operators generating claims are all for-profit companies or were for-profits in their recent history.

Borrower Defense Regulations and the DeVos Education Department

The Obama administration first introduced the current borrower defense rules in 2016, intending to improve and clarify the process for students to obtain loan relief if they were defrauded by an institution. However, a month before the Obama rules were set to take effect in July of 2017, the DeVos Education Department delayed their implementation and announced its plans to revise them. Courts eventually deemed the delay illegal, and the Department of Education was ordered to implement the current rule even as it attempts to rewrite the regulation. If finalized by November 1, 2019, the newly rewritten rules will take effect in mid-2020. In the meantime, despite the Obama-era regulations still being in effect, the department continues to defy court orders that require the rightful discharging of loans to borrowers.

Since the beginning of the Trump administration and DeVos’s secretaryship, the Department of Education’s refusal to discharge has allowed the number of pending borrower defense claims to reach 158,000.

Since the beginning of the Trump administration and DeVos’s secretaryship, the Department of Education’s refusal to discharge has allowed the number of pending borrower defense claims to reach 158,000. All the while, the department has stalled and dissembled, claiming that its staff’s hands are tied on the matter.

The data released this week by Senator Murray, which is summarized in Figure 1 below, provides updated information on a known trend—namely, that for-profit colleges are leading causes of borrower defense claims. In 2017, The Century Foundation published data on the schools generating the most borrower defense complaints (updated March, 2018), finding that the for-profit sector is still responsible for over 98 percent of complaints. The newly released data confirms that pattern: the top twenty college operators with the highest numbers of student borrower defense complaints are all for-profit conglomerates or nonprofit conversions (see Figure 1).

Figure 1

The school groups with the greatest increase in numbers of claims since TCF’s March 2018 update were Corinthian Colleges and ITT, two schools that had collapsed in 2015 and 2016, respectively. Education Corporation of America, which operated Virginia College and other for-profit chains that collapsed last year, also generated a huge spike in borrower defense claims, suggesting that in the run-up to its precipitous closure, ECA was misleading students in addition to mismanaging its finances.

Moreover, a deeper dive into Department of Education data released by Senator Murray shows that all of the forty-seven schools that had 500 or more pending borrower defense applications at that time were for-profit or were recently for-profit companies (covert for-profit schools) (see Figure 2).

Figure 2

Never More Urgent

The number of borrower defense claims keeps increasing, and there remains a pattern: for-profit schools continue to lead in borrower defense claims, especially those institutions who closed suddenly and without warning. Unfortunately, the Department of Education’s intention to rewrite the borrower defense regulation will likely do little to improve school behavior and lessen the need for relief: If the final regulation looks anything like the rule proposed by the department, then it will do far less than current law in providing relief for borrowers and holding schools accountable.

Tags: student debt, for-profit colleges, loan relief, borrower defense, for profit