The Department of Education is developing a formal process to forgive student loans if schools have broken the law, it said yesterday, in its first public acknowledgment of work on such a system.
The statement, buried at the end of a press release announcing a $30 million fine for the troubled for-profit college operator Corinthian Colleges, comes in the face of growing pressure from activists pushing for student debt forgiveness. The department had previously remained largely silent about how students might apply for forgiveness, saying only that it would consider all requests submitted, and leaving students and lawmakers in the dark.
The department said in the release that it is "working on a process to help federal student loan borrowers submit a defense to repayment of their federal student loans."
The so-called "defense to repayment" provision, a once-obscure clause in the promissory note signed by all federal student loan borrowers, says students could be eligible for loan forgiveness if their schools had "done something wrong" under state law. As part of an activist campaign, more than 250 former Corinthian students submitted defense to repayment claims to the department earlier this month, saying that they had been lied to by their school about job placement rates and the quality and cost of Corinthian's programs.
The Corinthian activists also demanded that the department develop a process for students to submit the claims, echoing requests from Democratic senators for the department to clarify how the defense to repayment clause would work. Lawyers who wanted to file such claims for clients who had been wronged by Corinthian and other schools said that, in the absence of any guidance or form to submit, they were left scrambling to put together the claims.
A Department of Education official provided previously unreleased details to BuzzFeed News about what students would need to do assert defense to repayment claims. The borrower, the department said, would need to "prove injury and the amount of his or her loss" as the result of a school's illegal acts. If injury is proven, "the Department writes down the loan in the amount of the loss proven by the borrower," the official said.
That language, which goes above and beyond the wording in the original promissory note by requiring a proof of injury and loss, has some onlookers raising eyebrows. "I'm concerned about the new requirements that the Department seems to be imposing," said Robyn Smith, an attorney with the National Consumer Law Center. "How does the department define 'injury' or 'loss'?"
The department is walking a fine line as it formalizes a process for student debt forgiveness, said Ben Miller, a senior education policy analyst at the New America Foundation. "You want to place reasonable demands on the borrower, but not go too far overboard," Miller said. "You don't want to trap them in a horrible web of red tape."
Corinthian activists, backed by an Occupy Wall Street offshoot called the Debt Collective, are calling for the department to issue blanket loan forgiveness to all Corinthian students "immediately."
Miller said he believes something on such a large and all-encompassing scale is unlikely. "It would be a very difficult sell," he said.
A department official told BuzzFeed News that the government would provide more information on the process it is developing "in the coming weeks."