October 6, 2022

The Government Accountability Office said the Education Department failed to identify many school closures in a timely way, lessening the discharge options for student loan borrowers.

The Education Department doesn’t alert student loan borrowers quickly enough about their eligibility for loan discharge in the wake of school closures, potentially causing them to suffer financially, a new government watchdog report finds.

READ: Democrats Cede ‘Party of Education’ Label to GOP: Poll
The Government Accountability Office, the nonpartisan investigative arm of the federal government, found in a new report published Wednesday that the Education Department failed to identify a third of school closures until two months or more after the colleges closed, meaning that borrowers impacted by the closures were not told about their loan discharge options until months after that. It did not identify 16% of closures 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 repay and worthless academic credits they cannot use,” Rep. Bobby Scott, Virginia Democrat and chairman of the 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 Education Department and five out of eight loan servicers of different types and sizes, which collectively service more than half of all student loan borrowers.

Of the five loan servicers, four used incomplete and potentially confusing information to alert affected borrowers of their eligibility for loan discharge, the report concludes. Moreover, the servicers did not provide the affected borrowers with sufficient outreach on how to secure loan discharge even after the borrowers – some of whom were at risk of defaulting on their loans – were notified about their potential eligibility.

“The Education [Department] does not ensure that all borrowers are quickly notified after a college closure about their potential eligibility for a loan discharge, limiting the ability of students to make informed decisions about their educational and financial options,” the investigators write in the 30-page report. “[The department] has not taken advantage of opportunities to ensure additional outreach is provided to borrowers who are suffering financial consequences for falling behind on loans that are eligible for a closed school discharge.”

About 246,000 federal student loan borrowers were enrolled at over 1,100 colleges that closed from 2010 through the end of 2020. The college closures ranged in size from small branch campuses to large college chains and included the high-profile shuttering of for-profit conglomerates, such as 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 in the wake of the abrupt closures of for-profit chains that enrolled thousands of students in hundreds of campuses across the U.S., sudden closures often derail students’ lives, leaving them with loans but no degree and few options for transferring, depending on the program of study. In fact, a report published last year by the GAO found that 43% of affected borrowers did not complete their program before their college closed and they did not transfer to another college – meaning that the closures were the end for a student’s education.

The time period GAO examined was a tumultuous one for borrowers, who were at the mercy of changing administrations and dueling preferences to loan forgiveness.

During the Obama administration, the Education Department established what’s known as an “automatic closed school discharge program,” which was set to wipe away the loans of students whose schools closed before they could complete their degree and who did not transfer their credits elsewhere. But the program was blocked during the Trump administration as part of former Education Secretary Betsy DeVos’ efforts to limit the amount of federal student loans forgiven. It was temporarily restored by an order from a federal judge after attorneys general from 18 states and the District of Columbia sued DeVos, and then eliminated again when she formally rewrote the regulations.

[ MORE: Feds Cancel $8.1B in Student Loan Debt ]
According to the report, the Education Department discharged about $1.1 billion in federal loans for over 80,000 borrowers enrolled in colleges that closed from 2010 through 2020.

But documents analyzed by GAO investigators found that Education Department officials have expressed concern that many borrowers are unaware of their eligibility for loan discharge because of insufficient and delayed outreach about the potential relief. The primary cause of the delays in identifying college closures, according to department officials interviewed by GAO investigators, is because not all colleges notify the department when they close as required by law within the 10 days. The reporting failures leave officials to monitor closures through social media or word of mouth among the higher education community.

The GAO investigators recommend in the report that the Education Department adopt new strategies to identify college closures in a timely manner, that it develop guidance for the information that loan servicers include when notifying borrowers about discharge options and that it ensure additional outreach is provided to at-risk borrowers who are potentially eligible for a discharge.

“College closures can have life-altering impacts on students. Closed school discharges remain one of the key ways that borrowers can receive loan relief after a closure, so it is essential that [the] Education [Department] provide borrowers with timely, complete and clear information,” the investigators concluded. “However, unless [the department] addresses the unnecessary delays in its outreach to borrowers, it will continue to leave borrowers at a disadvantage when they are trying to quickly make informed decisions about the future of their education and finances.”

Scott’s committee held a hearing last September about the need to improve the school loan discharge process, featuring testimony from a single mother whose $6,625 federal student loan ballooned to a $26,000 debt after her school abruptly closed before she finished the degree program.

That same month, the Education Department began the regulatory rulemaking process to consider revisions related to federal student loan discharges. It released its final proposal last month, which includes restoring the Obama-era one-year waiting period for automatic discharge for borrowers whose schools close, among other things. The public comment period expires on Friday, and department officials plan to issue the final regulation soon thereafter.

But the idea of simply restoring the automatic discharge program troubled GAO investigators, who underscored how quickly financial hardship can accumulate, a sentiment that Scott himself shares.

“The closed school discharge provision of the Higher Education Act was designed to support students whose colleges 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 students experience 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 relief to which they are legally entitled.”

Leave a Reply

Your email address will not be published.