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So deep in student debt, they're suing Betsy DeVos over delays in loan forgiveness

What to consider when paying off student debt
  • Seven plaintiffs have filed a class-action lawsuit against the U.S. Department of Education and Education Secretary Betsy DeVos, alleging they're illegally stalling on processing more than 158,000 applications for student loan forgiveness. 
  • Under the "borrower defense" rule, defrauded students can apply for loan relief if their schools were found to have misled them. 
  • The Education Department blamed a constant stream of politicized litigation for any holds on processing claims. 

Alicia Davis feels like she was scammed. As a student at Florida Metropolitan University from 2006 to 2008, she said she was told the cost of her online criminal justice program would be covered by Pell grants and scholarships. She was told her credits could be transferred to other schools. Graduating from the school, a subsidiary of the for-profit Corinthian Colleges, would lead to a job and a decent wage. 

None of it was true, said Davis, who accrued more than $22,000 in student loans from FMU. The 36-year-old is now one of seven plaintiffs suing the U.S. Department of Education and its chief, Betsy DeVos, for allegedly failing to offer relief to more than 158,000 student-loan borrowers who claim they were defrauded by for-profit colleges.

"They pretty much sold me a lie and a dream," Davis told CBS MoneyWatch. "Turns out pretty much all of it was a lie." 

More than 158,000 pending claims for loan forgiveness 

Davis and her co-plaintiffs are pinning their lawsuit on the "borrower defense" rule, which allows students to apply for loan forgiveness if their schools were found to have misled them. The rule was expanded during the Obama administration after Corinthian Colleges collapsed in 2015, spotlighting widespread fraud at some for-profit schools. Over 200,000 former students have applied for loan cancellation since 2015 — and the suit says three-quarters of those claims are still pending. 

Harvard Law School's Project on Predatory Student Lending, which filed the case on behalf of the plaintiffs, said the Department of Education has illegally halted processing forgiveness applications under DeVos's tenure, neither rejecting nor approving any claims. According to the complaint, the department "intentionally adopted a policy of inaction and obfuscation." The Education Department last approved a borrower-defense application in June 2018. 

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"The Department of Education has knowingly enabled for-profit colleges to defraud students," Eileen Connor, legal director at the Project on Predatory Student Lending, said in a statement. "It recklessly continued to act as a loan broker for disreputable schools despite clear records of abuse and misconduct," Connor added.  

The Harvard Law project, which also released an open call for testimonials from former for-profit students, said the online form received more than 200 submissions in 24 hours. The case was filed in the U.S. District Court for the Northern District of California, in San Francisco. 

Previously delayed 

The Education Department disputes the allegations, saying it's ready to finalize borrower-defense claims when other pending litigation over student loans is resolved and the courts allow it to proceed. Department officials also blamed the Obama administration for the backlog of claims, saying it failed to put into place an effective process to review a flood of applications. 

"The only thing stopping the Department from finalizing thousands of these claims is the constant stream of litigation brought by ideological, so-called student advocate special interests," spokeswoman Liz Hill said in a statement.

DeVos has been sued before for her stance on the Obama-era borrower-defense policy, which she tried to delay from being implemented in 2017, saying it too easily allows students to "raise his or her hand" to get "free money." A federal judge ruled against the delay last September, finding it unlawful and calling it "arbitrary and capricious." 

Instead, DeVos rolled out a more restrictive tiered relief system in December to partially compensate defrauded students based on their earnings. The plan has been frozen as part of a separate lawsuit. 

Key issue in 2020 

The latest lawsuit against DeVos has already won praise among dozens of progressive groups and Democrats, including Elizabeth Warren, who tweeted her support Tuesday saying, "If she doesn't care about helping defrauded students, then let's hope a federal judge will make her care." 

The lawsuit comes as student loan debt becomes a key issue on the presidential campaign trail. Both Senators Warren and Bernie Sanders announced plans to forgive student loan debt, which has climbed to nearly $1.6 trillion nationwide for 44 million Americans. While proposing different solutions, both presidential candidates seek to erase a burden making it difficult for Americans to reach traditional milestones, like owning a home or a car or starting a family.

U.S. Reps. Susie Lee and Rosa DeLauro released joint legislation Wednesday to improve protections of students, including veterans, at for-profit colleges, including bolstering and enforcing borrower defense against repayment. 

Davis, with her $22,000 in federal loans to attend FMU, said she had to start her education over from scratch after learning her college credits weren't transferable and her certifications were not recognized. She went on to amass an additional $75,000 in loans to get her bachelor's and master's degrees and is now a crime analyst at a law enforcement agency. 

But Davis, an Orlando resident, said her time at FMU continues to dog her in other ways: Even after establishing a borrower-defense claim in 2016, she received notices from the U.S. Department of Education threatening to garnish her wages. Having defaulted on her FMU loans at that time, she has had to explain her poor credit score to employers before any hiring offer. It has also prevented her from buying a car.

She hopes her suit can help others who may feel embarrassed or ashamed to move forward: "Then we can do the next step and close this next part of our lives and hopefully recover financially, emotionally and become stable," she said.