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Defrauded student loan borrowers ask government to return their refunds [1]
['Danielle Douglas-Gabriel']
Date: 2023-08-07
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After years of struggling to make payments on her federal student loans, Jessica Ellis was getting a fresh start. The Education Department informed the single mother in January that it would cancel most of the debt she amassed for a degree in criminal justice from ITT Technical Institute, a for-profit chain accused of defrauding students.
Not only would her loans be forgiven, but the email said the government would also return the nearly $7,000 in state and federal tax refund dollars it had seized to pay down her education debt. By February, Ellis, 32, received an $800 check for her Arizona state tax refund. But the federal check never arrived.
When she called the department to inquire, Ellis learned that the money was once again seized to pay down another loan, one originated through the defunct Federal Family Education Loan (FFEL) program.
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“There was absolutely nothing in that letter saying my refund could be taken,” said Ellis, who lives in Phoenix. “That money would have made a huge difference. So it’s very disheartening.”
Ellis is among the 1 million borrowers the Biden administration has earmarked for student loan cancellation because their colleges committed fraud. As part of the debt relief, these borrowers are entitled to a refund of payments made on their loans. But some were surprised to learn the Education Department applied the refund to other debts without their consent.
The department says it has long been the federal agency’s policy to reallocate refunds to other outstanding loans. Yet in the wake of complaints, the department changed course in March and instructed servicing companies to issue full refunds instead of using the money to offset outstanding debt. But the policy applied only to loan discharges processed after March, leaving borrowers like Ellis in the lurch.
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Now attorneys at the legal outfit Project on Predatory Student Lending are pressing the Education Department to apply the policy change retroactively. The organization, which has represented former for-profit college students in high-profile cases, recently wrote the department after hearing from Ellis and others about their refunds.
In the letter dated July 27, attorneys accused the department of violating its own policy by applying the refunds to other federal loans despite the pandemic pause on debt collection. They also insisted the department lacks the authority to use refunds for federal student loans that are not in default.
It is unclear how many borrowers have had their refunds seized. The Education Department declined to provide a figure, but attorneys at the Project on Predatory Student Lending suspect the number could be in the tens of thousands because of the sheer volume of discharges the department approved before March.
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“There should be parity in the department’s policy on these refunds,” said Eileen Connor, president and director of the Project on Predatory Student Lending. “If it was willing to make a change going forward, why not apply that policy to everyone?”
The Education Department said it is reviewing the group’s request.
Since taking office, the Biden administration has approved $14.7 billion in relief for borrowers whose colleges took advantage of them or closed abruptly — more debt relief than any other administration, according to the Education Department.
When President Biden entered office, there were stacks of petitions from former students of for-profit schools requesting that the department cancel their debt under a statute known as “borrower defense to repayment.” Claims piled up amid college closures and the Trump administration’s efforts to delay and limit loan cancellation. Education Secretary Miguel Cardona ended the Trump-era policies and began clearing the backlog with sweeping group discharges.
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Still, the administration initially struggled to work through the files. It took months for the department’s Federal Student Aid office to create a system for canceling large batches of loans. And some student loan servicing companies, which discharge the debt, also were delayed in coming up with a process.
In November, barely 5 percent of former students with approved discharges had had their debts cleared, according to three people at the department who spoke at the time on the condition of anonymity because they were not authorized to discuss the matter publicly. That figure has since grown to about 50 percent, according to the department. Still, Connor and other student advocates say they worry about the pace. They question whether borrowers who are covered by group discharges yet never filed a claim could be forced to pay their loans once the pause ends in October.
The Education Department said that no one who has been approved for a student loan discharge will be required to make payment on their loans — and noted that there is a 12-month grace period that applies to all borrowers once the pause ends.
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As for the processing discharges, the pace is slow because providing relief is a “complex, multi-step process,” a department statement said. “The Department will continue to work as quickly as possible through this process to maximize relief for borrowers.”
Ellis said she remains grateful that at least some of her federal student loans have been canceled but said the refund would have been tremendously helpful. She recently moved back in with her mother and lost her car in an accident. Even with a steady job as a mortgage servicer, Ellis said, she is just getting by. Her degree from ITT Tech never opened any doors for her and left her exactly where she started, if not worse off because of the debt.
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[1] Url:
https://www.washingtonpost.com/education/2023/08/07/borrower-defense-refund-student-loan/
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