The Department for Education is not alerting student borrowers quickly enough to their eligibility for loan discharge following school closures, which could hurt them financially, according to a new government watchdog report.
The Government Accountability Office, the federal government’s nonpartisan investigative arm, found in a new report released Wednesday that the Department for Education did not identify a third of school closures until two months or more after the closure. colleges, meaning borrowers affected by the closures weren’t told their loan release options until months later. It did not identify 16% of closures for six months or more.
“Over the past decade, the abrupt closures of large, for-profit university chains have left hundreds of thousands of students in debt they cannot repay and worthless academic credit they cannot use. “said Representative Bobby Scott, Democrat of Virginia and president of Education and Labor. Committee, said in a statement.
The report analyzes data on colleges that closed from 2010 to 2020, as well as federal laws, regulations and documents from the Department of Education and five of eight loan servicers of various types and sizes, which collectively serve more than the half of all student borrowers. .
Of the five loan servicers, four used incomplete and potentially confusing information to alert affected borrowers of their eligibility for loan release, the report concludes. Moreover, managers did not adequately inform affected borrowers on how to obtain loan release, even after borrowers – some of whom were at risk of defaulting on their loans – were informed of their potential eligibility.
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“Education [Department] does not ensure that all borrowers are promptly notified after a college closes of their potential eligibility for loan release, which limits students’ ability to make informed decisions about their educational and financial options,” the investigators write. in the 30-page report. “[The department] failed to take advantage of opportunities to provide additional outreach to borrowers who face financial consequences for falling behind on closed school exit eligible loans.
About 246,000 federal student loan borrowers were enrolled at more than 1,100 colleges that closed from 2010 to the end of 2020. College closures ranged in size from small branch campuses to large college chains and included the high-profile closure for-profit conglomerates, such as as the ITT Technical Institute in 2016 as well as colleges operated by Dream Center Education Holdings in 2019 and by Concordia University in 2020.
As has been well documented following the abrupt shutdowns of for-profit chains that enrolled thousands of students at hundreds of campuses across the United States, sudden closures often derail student lives, leaving them with loans but no degree and few transfer options. , depending on the program of study. In fact, a report released last year by the GAO found that 43% of affected borrowers did not complete their program before their college closed and did not transfer to another college – this which means the closures have ended a student’s education.
The period reviewed by the GAO was tumultuous for borrowers, who were at the mercy of changes in administration and loan cancellation preferences.
Under the Obama administration, the Department of Education implemented what is called an “automatic closed school exit program,” which was to wipe out the loans of students whose schools closed before they could complete their studies and who have not transferred their credits elsewhere. But the program was stalled under the Trump administration as part of former education secretary Betsy DeVos’s efforts to limit the amount of federal student loans forgiven. It was temporarily reinstated by order of a federal judge after attorneys general of 18 states and the District of Columbia sued DeVos, then eliminated again when she officially rewrote the settlement.
According to the report, the Department of Education offloaded about $1.1 billion in federal loans for more than 80,000 borrowers enrolled at colleges that closed from 2010 to 2020.
But documents analyzed by GAO investigators revealed that Education Department officials were concerned that many borrowers were unaware of their eligibility for loan release due to insufficient and late outreach about the loan. potential relief. The primary cause of delays in identifying college closings, according to department officials interviewed by GAO investigators, is that not all colleges notify the department when they close as required by law within 10 days. Reporting failures leave officials monitoring closures through social media or word of mouth within the higher education community.
GAO investigators recommend in the report that the Education Department adopt new strategies to identify college closings in a timely manner, develop guidelines for what information loan officers include when notifying borrowers. discharge options and ensure that additional outreach is provided to at-risk borrowers who are potentially eligible for discharge.
“University closures can have life-altering effects on students. Closed school holidays remain one of the main ways borrowers can get loan relief after a shutdown, so it’s essential that [the] Education [Department] provide borrowers with timely, complete and clear information,” the investigators concluded. “However, unless [the department] resolves unnecessary delays in its outreach to borrowers, it will continue to put borrowers at a disadvantage when trying to quickly make informed decisions about the future of their education and finances.
Scott’s committee held a hearing last September on the need to improve the school loan discharge process, with testimony from a single mother whose $6,625 federal student loan reached a debt of $26,000 after his school abruptly closed before the end of the diploma program.
That same month, the Department of Education began the process of developing regulatory rules to consider revisions related to federal student loan forgiveness. He released his final proposal last month, which includes reinstating the Obama-era one-year waiting period for the automatic release of borrowers whose schools are closing, among other things. The public comment period expires on Friday, and ministry officials plan to release the final rule shortly thereafter.
But the idea of simply reinstating the automatic discharge program has troubled GAO investigators, who have pointed to how quickly financial hardship can pile up, a sentiment Scott himself shares.
“The closed schools exit provision of the Higher Education Act was designed to support students whose colleges have closed,” Scott said. “Unfortunately, the previous administration abandoned the automatic discharge process put in place by the Obama administration, adding to the confusion and distress experienced by students when their schools close.”
“In addition to reinstating the automatic discharge process, the Biden administration should implement GAO recommendations and further streamline the process for students to ensure they can quickly access the relief they are legally entitled to. right.”