Yesterday, the Department of Education’s Office of Inspector General released a 38-page report analyzing Secretary of Education Betsy DeVos’ handling of the Borrower Defense to Repayment program.
Demonstrating that the program has completely stalled under her administration, it urged the Office of Federal Student Aid to resume the review process and create procedures and timelines to make it more efficient.
What is ‘Borrower Defense to Repayment’?
The Obama administration introduced the Borrower Defense to Repayment (BDR) rule as a way to provide debt relief to students defrauded by their school.
The legislation was prompted by the closing of Corinthian Colleges, which left approximately 16,000 students with debt and no degree. Although borrowers have been able to seek loan forgiveness from fraudulent colleges since 1995, BDR makes the application process much easier.
But a few weeks before the updated BDR was set to launch, DeVos announced that the Department of Education was putting the program on pause. Citing a “muddled process” and “significant costs” to taxpayers, she said it needed further review — and was sued over the decision.
How DeVos is handling debt relief for defrauded students
At the time of her announcement, Devos said nearly 16,000 BDR claims were currently being processed and wouldn’t be affected by the pause.
“Promises made to students under the current rule will be promises kept,” she said in a statement on June 14. “Some borrowers should expect to obtain discharges within the next several weeks.”
In late July, however, Department of Education documents revealed that no applications had been processed — and the new Office of the Inspector General (OIG) report confirmed this glacial pace.
In the six months prior to leaving office, the Obama administration forgave nearly 28,000 loans.
In 10 months of the Trump administration, the DOE has received more than 25,000 claims — but hasn’t approved a single one.
The OIG report criticized several aspects of the department’s handling of BDR, including its information system — it uses more than 1,000 spreadsheets to track data — and review process, noting it had reduced the size of its staff from 30 to six.
It said these “weaknesses” could harm borrowers by negatively affecting their credit reports and increasing the amounts they owe. That’s because if the Department of Education denies a borrower’s claim, the borrower is responsible for the interest accumulated while their loan was in forbearance.
As evidenced by the chart above, the Department of Education has flagged nearly 20,000 applications for approval or denial but has failed to notify the borrowers, leaving them in debt relief limbo.
The OIG report recommended that A. Wayne Johnson, chief operating officer for Federal Student Aid, take several steps, including:
- Resuming the review, approval, and discharge processes for qualifying claims
- Resuming consideration of whether additional categories of claims qualify for discharge
- Ensuring consistent documentation of the review process
- Establishing procedures for closing out claims flagged for denial
- Establishing time frames for the entire claims and discharge process as well as controls to make sure they’re followed
In a memo at the end of the report, Johnson agreed with the majority of the report’s findings, saying his department was working to improve the BDR process.
He added that, to protect borrowers, the department had authorized an “interest credit” for those whose claims are denied more than a year after submission and that approval for some Corinthian Colleges claims “is imminent.”
No mention was made of the Department of Education’s tentative plans to offer partial relief — rather than total forgiveness — to some defrauded students.
The response to the OIG report
With the release of the report, DeVos once again came under fire for supporting for-profit colleges rather than borrowers.
“Secretary DeVos needs to stop listening to the for-profit executives she hired and start following the recommendations of the department’s independent watchdog by providing much needed, and legally required, relief to students who were cheated out of their education and savings,” said Senator Patty Murray (D-Wash.), the top-ranking Democrat on the Senate’s education committee, in a statement published by PBS.
However, Liz Hill, the Department of Education’s press secretary, blamed the process created by the previous administration.
“The OIG report confirms the previous administration did not establish an adequate adjudication process for borrower defense claims,” she said in a statement emailed to Student Loan Hero. “Education Secretary Betsy DeVos is working to put a process in place that provides a consistent and reliable way to adjudicate pending borrower defense claims, provide fair relief to defrauded students, and also protect taxpayers.”
What should defrauded students do?
As it has been for many months, the future of BDR remains murky. If you’re struggling with high student loan debt, here are some steps you can take:
- Contact your student loan ombudsman to discuss your options.
- If your school made fraudulent claims or violated state laws, start the BDR process.
- If your loan payments are unaffordable, consider an income-driven repayment plan.
- Look into alternative student loan forgiveness programs.
And if you want the Department of Education to step up its game when it comes to BDR, contact your representatives and urge them to take action.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|