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The Education Department Is Dragging Its Feet On Student Debt Forgiveness

Hundreds of thousands could have their student loans cancelled due to fraudulent behavior, but the government has yet to even create an application process.

Posted on December 8, 2015, at 10:25 a.m. ET

Jacquelyn Martin / AP

A year and a half after the Education Department was urged by Democratic politicians to make it easier for defrauded students to have their loans forgiven, little progress has been made to create a lasting system.

A little-known clause in student loan notes requires the federal government to offer loan forgiveness to students if their college engaged in fraudulent behavior. The clause has been a beacon of hope for those saddled with debt from troubled for-profit colleges, some of whom have settled claims of predatory and misleading behavior in student recruitment.

Senators and state attorneys general have been joined by activists and consumer lawyers in pushing the Education Department to create a formal process for such loans to be forgiven.

So far, little progress has been made. The department has not yet said how it will process claims or decide on their merits, in part because it has decided to rely on negotiated rulemaking. That administrative process, which was announced in August, could drag well into 2016.

In the meantime, the government has yet to even release a form that students can fill out to apply for loan forgiveness, something advocates say is an urgent piece of the process. Instead, thousands have relied on a makeshift form created by an offshoot of Occupy Wall Street.

The department's actions over the past year and a half "tell us almost nothing about what the standards for these claims will be," said Eileen Connor, a lawyer with the New York Legal Assistance Group, which represents clients that have submitted borrower defense claims. "That's incredibly frustrating."

"Our aim is to ensure that every student who was denied a fair shake ... receives every penny of the debt relief they deserve efficiently and easily," Denise Horn, an Education Department spokeswoman, told BuzzFeed News in statement. "We want to make sure we have a process that is durable, clear and streamlined for borrowers. ... The Department is hard at work to create a streamlined application form for borrowers to assert a claim, and will work with key stakeholders to get their input."

Joseph Smith, who was appointed by the Education Department as the "Special Master for Borrower Defense" six months ago, wrote last Thursday that the department was "hard at work" developing rules and procedures that would guide the process. The department said it planned to use negotiated rulemaking to create long-term guidelines.

In a September report, Smith said his "paramount goal... is to develop a system for providing debt relief to borrowers that is fair, transparent, and efficient, with minimal burden on borrowers."

So far, Smith and the department's approach has been piecemeal. Some progress has been made for several thousand students at one for-profit college operator, the disgraced — and now shuttered — Corinthian Colleges, owner of Everest University and other schools.

The department has found classes of students for whom it says there is enough evidence of fraud to offer automatic forgiveness, using its own investigation and one by California's attorney general. Two such groups have been identified, both mostly made up of students in California.

Rather than automatically granting those defrauded students forgiveness, the department required them to apply individually. Of more than 40,000 students eligible in the first group — made up of students at a small Corinthian chain, Heald College, who enrolled after 2010 — just 3,356 students applied, according to an Education Department report released Thursday. Some thirteen hundred of those, or around 3% of eligible Heald students, have been granted forgiveness.

The Debt Collective, an activist group that has organized for-profit college students, called the department's approach a "Rube Goldberg-type contraption to prevent as many people as possible from seeking the relief they deserve."

Some politicians have said it's unfair to require students to apply individually, and complained of the slow pace at which the process has unfolded. After the Education Department announced it had granted relief to the 1,300 students, Senator Chris Murphy, a Democrat from Connecticut, said the progress was "not enough."

"There are tens of thousands of other students across this country who, under the law, are entitled to this same relief," Murphy said in a statement. Senators Dick Durbin and Rich Blumenthal called on the department to "pick up the pace and scope."

For activists, one of the central problems with the Education Department's approach is the lack of a basic application form that students can fill out to make a borrower defense claim. A form was created by the government exclusively for Heald students, sharply driving up claims: in the latest tally, more than 50% of all borrower defense applications came from Heald, despite the fact that the school makes up just a fraction of all Corinthian students.

An Occupy Wall Street offshoot, The Debt Collective, created its own form in the absence of an official one, publicizing it on social media in Facebook groups of graduates. Virtually all of the non-Corinthian students who have so far filed borrower defense claims used the Debt Collective's form, according to the group's estimates, including more than 900 students from the troubled Art Institutes chain.

"Students are scared and confused about the process," said Ann Larson, a Debt Collective representative who has been working with Art Institutes students. "The way it's been set up is quite baffling and illogical."