The Department of Education is not quick enough to warn student loan borrowers about their eligibility for credit relief after school closures, potentially causing them to suffer financially, according to a new government surveillance report.
The Government Accountability Office, the federal government’s impartial investigative arm, found in a new report released Wednesday that the Department of Education was unable to identify a third of school closures until two months or more after the colleges closed, meaning borrowers are aware of the closures affected were not informed about their options for credit relief until months later. 16% of closures went unidentified for six months or more.
“Over the past decade, abrupt closures of large for-profit college chains have left hundreds of thousands of students with debt they cannot pay back and worthless academic credit they cannot use,” said Rep. Bobby Scott, Virginia Democrat and chairman by Education and Labor Committee said in a statement.
The report analyzes data on colleges that closed between 2010 and 2020, as well as federal laws, regulations and Department of Education documents, and five out of eight loan servicers of various types and sizes, which collectively serve more than half of all student loan borrowers.
Of the five loan servicers, four used incomplete and potentially confusing information to alert affected borrowers to their eligibility for credit relief, the report concludes. In addition, the servicers did not provide affected borrowers with sufficient information on how to secure credit relief, even after borrowers – some of whom were at risk of defaulting on their loans – were informed of their potential eligibility.
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“The education [Department] does not ensure that all borrowers are quickly notified of their potential eligibility for loan relief following a college closure, limiting students’ ability to make informed decisions about their educational and financial options,” the investigators write in the 30-page document Report. “[The department] failed to take advantage of opportunities to ensure additional outreach to borrowers facing financial consequences for defaulting on loans eligible for closed school release.
Approximately 246,000 federal student loan borrowers were enrolled at over 1,100 colleges that closed from 2010 through the end of 2020, as did ITT Technical Institute in 2016 and colleges operated by Dream Center Education Holdings in 2019 and by Concordia University in 2020.
As is well documented following the abrupt closures of for-profit chains that have enrolled thousands of students at hundreds of campuses across the US, sudden closures often disrupt students’ lives, leaving them with credit but no degrees and few opportunities for transition back , depending on the course. In fact, a report released last year by GAO found that 43% of affected borrowers did not complete their program prior to their college’s closure and they did not transfer to another college – meaning that the closure spelled the end of a college’s education students meant.
The period GAO surveyed was a turbulent one for borrowers, who were at the mercy of shifting administrations and dueling preferences for loan forgiveness.
During the Obama administration, the Department of Education instituted what it called an “automatic dismissal of closed schools” program designed to eliminate the loans of students whose schools were closed before they could graduate and who did not have their credits sent elsewhere had transferred. However, the program was blocked during the Trump administration as part of former Secretary of Education Betsy DeVos’ efforts to cap the amount of federal student loans made available. It was temporarily restored by a federal judge’s order after attorneys general from 18 states and the District of Columbia sued DeVos, and then removed again when she formally rewrote the regulations.
According to the report, the Department of Education has settled about $1.1 billion in federal loans for over 80,000 borrowers enrolled in colleges that closed from 2010 to 2020.
However, documents analyzed by GAO investigators found that Department of Education officials have raised concerns that many borrowers are unaware of their eligibility for credit relief due to insufficient and delayed education about the potential relief. According to department officials interviewed by GAO investigators, the primary reason for the delays in identifying college closures is that not all colleges notify the department when they close within the 10-day period required by law. The reporting errors leave officials to monitor closures via social media or word of mouth in the college community.
GAO investigators recommend in the report that the Department of Education adopt new strategies to identify college closures in a timely manner, develop guidelines for the information credit servicers include when notifying borrowers about layoff options, and ensure that additional Contact options are provided – Borrowers at risk who are potentially eligible for relief.
“College closures can have life-changing effects on students. Firing closed schools remains one of the primary ways borrowers can obtain credit relief following a closure. Therefore, this is of crucial importance [the] education [Department] provide borrowers with timely, complete and clear information,” the investigators concluded. “Indeed, unless [the department] addressing the unnecessary delays in contacting borrowers will continue to penalize borrowers as they seek to make quick, informed decisions about their educational and financial futures.”
Scott’s committee held a hearing last September on the need to improve the school loan relief process, with testimony from a single mother whose $6,625 federal student loan spiraled into a $26,000 debt burden after her school was abruptly closed before she finished her studies.
That same month, the Department of Education began the regulatory rulemaking process to consider revisions related to federal student loan relief. It released its final proposal last month, which includes restoring the one-year waiting period for auto-discharge for Obama-era borrowers whose schools close. The public comment period expires on Friday, and officials at the ministry plan to issue the final regulation soon thereafter.
But the idea of simply reinstating the automatic layoff program worried GAO investigators, who stressed how quickly financial troubles can pile up, a view Scott himself shares.
“The college statute’s dismissal of closed schools provision was designed to support students whose colleges are closed,” Scott said. “Unfortunately, the previous administration abandoned the automatic dismissal process instituted by the Obama administration, adding to the confusion and distress faced by students when their schools close.”
“In addition to restoring the automatic discharge process, the Biden administration should implement the GAO’s recommendations and further streamline the process for students to ensure they can quickly access the discharge to which they are legally entitled.”