Friday, March 17, 2023

Three quarters of a million student borrowers have filed "borrower defense" claims against colleges: They want their student loans canceled

 Dahn Shaulis posted a provocative commentary yesterday on Higher Education Inquirer. He reported on the recent settlement of Sweet v. Cardona, a class-action lawsuit accusing the U.S. Department of Education of mishandling borrower defense claims. 

In essence, the plaintiffs claimed they took out federal student loans to attend schools that misrepresented their offerings or violated various state laws.  As Shaulis pointed out, nearly all the schools affected by the lawsuit are for-profit colleges.

Under the settlement terms, DOE will cancel federal student-loan debt owed by 200,000 borrowers. The cost: about $6 billion. This is in addition to the $ 7.9 billion in loan relief to 690,000 students under the terms of earlier borrower-defense settlements.

Fourteen billion dollars in canceled loans owed by 890,000 students: that's a lot of misconduct. Which schools have been named by students filing borrower defense claims?

DOE attached an appendix to its announcement of the Sweet litigation listing more than 150 schools. The list of accused malefactors--almost all for-profit institutions--includes a for-profit law school and a for-profit Caribbean medical school.

As we might expect, the word has gotten out among student borrowers that President Biden's DOE is much more receptive to borrower defense claims than President Trump's callous crew.  As Mr. Shaulis reported, there are now 750,000 pending borrower defense claims, and they keep rolling in at the rate of 16,000 a month.

I'm all in favor of DOE's generosity toward students who took out federal loans to attend for-profit institutions and didn't get their money's worth. I have no sympathy for the for-profit colleges, many of which are owned by private equity funds that don't give a flip about the quality of education their institutions deliver.

Nevertheless, it is not feasible for DOE to continue entering into large borrower-defense settlements unless it cracks down on the chief offender--the for-profit college industry.

Basically, DOE is behaving like a wealthy parent who repeatedly pays the damages for a profligate son's mayhem without demanding that the kid stop misbehaving.  


  1. Richard, thanks for mentioning the Higher Education Inquirer article. US subprime higher ed debt is the real March Madness. And the fallout from this mania promises to get worse as fewer good jobs are created.

  2. That's incredible -- a huge number like this can only be produced by a massively dysfunctional sector!
    For comparison, there were 1.5 million insurance claims for damages resulting from the BP Oil Spill in the Gulf of Mexico in 2010-2012. Even Hurricane Katrina, which hit the Gulf Coast in 2005, resulted in an estimated 1.7 million insurance claims. The total amount paid out by insurance companies for those claims was around $41 billion.
    Hurricane Michael, which hit Florida in 2018, resulted in over 150,000 insurance claims, with insurance companies paying out over $7 billion for those claims.
    Higher Ed sector needs consumer protections like the environmental regulations that were put in place after the BP Oil Spill.

    1. You are absolutely right. More than three-quarters of a million Borrower Defense claims point to massive misconduct in the for-profit college industry. The only way to solve this problem is to quit allowing for-profit schools to participate in the federal student loan program.