Big holdup for student loan borrowers claiming for-profit college fraud

Washington — Tens of thousands of former students who say they were swindled by for-profit colleges are being left in limbo as the Trump administration delays action on requests for loan forgiveness, according to court documents obtained by The Associated Press.

The Education Department is sitting on more than 65,000 unapproved claims as it rewrites Obama-era rules that sought to better protect students. The rewrite had been sought by the industry.

The for-profit colleges have found allies in the new administration and President Donald Trump, who earlier this year paid $25 million to settle charges his Trump University misled customers. And it’s yet another example of the administration hiring officials to oversee the industries where they had worked previously.

In August, Education Secretary Betsy DeVos picked Julian Schmoke Jr., a former associate dean at DeVry University, as head of the department’s enforcement unit. She also has tapped a top aide to Florida’s attorney general who was involved in the decision not to pursue legal action against Trump University to serve as the agency’s top lawyer. More than 2,000 requests for loan forgiveness are pending from DeVry students.

The Obama rules would have forbidden schools from forcing students to sign agreements that waived their right to sue. Defrauded students would have faced a quicker path to get their loans erased, and schools, not taxpayers, could have been held responsible for the costs.

Now, in a filing in federal court in California, acting Undersecretary James Manning says the department will need up to six months to decide the case of a former student at the now-defunct Corinthian Colleges and other cases like hers. Sarah Dieffenbacher, a single mother of four from California had taken out $50,000 in student loans to study to become a paralegal, but then couldn’t find a job in the field, defaulted on her debt and could face wage garnishment.

“ED will be able to issue a decision with regards to Ms. Dieffenbacher’s Borrower Defense claims within six months, as part of a larger group of Borrower Defense decisions regarding similar claims,” Manning wrote to the court on Aug. 28.

Department spokesman Liz Hill said the agency is working to streamline the process and resolve the claims as quickly as possible. “Unfortunately, the Obama administration left behind thousands of claims, and we will need to set up a fair and equitable system to work through them,” she said.

She said students with claims pending are not required to make payments on their loans.

But Dieffenbacher says the delay is costing her family dearly.

“They should be protecting the students, because students were led to believe they were protected,” she said in an interview. “And they are not, they are protecting Corinthian Colleges and for-profit schools.”

Alec Harris, a lawyer with Legal Services Center of Harvard Law School who is representing Dieffenbacher, said the inaction could put his client and her children on the street.

“This is a Department of Education that has seemingly sided with industry and stacked the deck against former students of predatory for-profit schools every step of the way,” Harris said.

Reid Setzer, government affairs director for Young Invincibles, an advocacy and research group, said the department’s delay is harming thousands of students.

“It’s kind of ridiculous,” Setzer said. “There have been massive delays since the change of administration.”

The Obama administration went hard after for-profit colleges that lured students into taking big loans with false promises. Chains including Corinthian Colleges and ITT Technical Institute were forced to close, and Obama’s Education Department approved about $655 million in loan cancellations for their students.