- When a school closes, student loan borrowers are often eligible for debt relief.
- However, a new GAO report found problems communicating this relief to borrowers.
- For example, dismissal notices contained grammatical errors that looked like a scam.
When a school closes its doors, students who have taken out a loan are often entitled to have that debt forgiven. But poorly written notices from lending companies could lead borrowers to believe the relief is a scam.
On Wednesday, the Government Accountability Office (GAO) released a report analyzing school layoffs, or post-school debt forgiveness, for borrowers who do not complete their education elsewhere. Turns out there were a lot of problems actually letting the borrower know they could erase their debt.
For example, GAO found that the Department of Education is often slow to recognize school closures, meaning it can take a long time for borrowers to know they are eligible for relief and there is a lack of outreach to those at risk of default, which is what poses an additional risk to these borrowers.
Another problem arises with the debt relief notice itself. Not only will lenders not describe the eligibility or relevance of the notice to borrowers, the notices often contain “grammatical errors and incomplete sentences,” the report says. The errors can make the notices to borrowers look fraudulent, causing them to miss out on forgiveness.
“The education system specifically warned borrowers to be wary of letters of credit that contain spelling and grammatical errors,” the report says. “These errors could lead borrowers to think the letter is a scam and therefore may not be trustworthy. Two organizations representing student borrowers said that during a college shutdown, so much misinformation is directed at borrowers that it’s difficult for borrowers to know who to trust.”
The studentaid.gov website provides a list of ways a borrower can identify fraud, including communications with incorrect grammar or spelling. “If you notice unusual capitalization, inappropriate grammar, or incomplete sentences in the communication you receive, it is likely a red flag that the company is not affiliated with ED,” the website reads.
The problem is that some legitimate communications that attempt to inform borrowers about school dismissal are actually connected to the department and contain the kinds of errors that the department has flagged as evidence of fraud.
Noting that the division typically does not provide guidance to lending companies on the content of notices and has provided templates only in “extraordinary circumstances,” GAO recommended that Federal Student Aid develop guidance on the content of dismissal notices. Federal Student Aid director Richard Cordray responded in a letter that the agency had provided lending companies with a template letter to address the issues raised in the GAO report.
Both lawmakers and proponents have worked to ensure borrowers aren’t left in the dust when a school closes, leaving them with large amounts of student debt. The Student Defense advocacy group, along with three attorneys general, called in 2020 for the Department of Education to restore the 2020 automatic school dismissals that were introduced under former President Barack Obama but repealed under former President Donald Trump.
And House Education Committee Chairman Bobby Scott, in a statement following GAO’s findings, wrote that “sudden closures of large for-profit college chains have left hundreds of thousands of students with debt they cannot pay back and worthless academic loans that… cannot use it”.
“Unfortunately, the previous administration abandoned the automatic discharge process instituted by the Obama administration, adding to the confusion and distress faced by students when their schools close,” Scott added. “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.”
Have you received a reminder from a student loan institute with grammatical and/or spelling mistakes? Contact Ayelet Sheffey at firstname.lastname@example.org.