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Financial Services Law Insights and Observations

Ed. Dept. discharges additional $3.9 billion

Federal Issues Student Lending Department of Education Consumer Finance Discharge

Federal Issues

On August 16, the Department of Education announced that 208,000 borrowers who attended a large for-profit post-secondary education institution will receive full student loan discharges totaling $3.9 billion. The announcement builds on previous actions taken by the Department that have resulted in the approval of $1.9 billion in discharges for another 130,000 borrowers, including borrower defense findings that the institution “engaged in widespread and pervasive misrepresentations related to the ability of students to get a job or transfer credits” and lied about certain program accreditation. State attorneys general around the country, the CFPB, and Veterans Education Success also provided significant assistance in the Department’s findings. The Department referred in its announcement to a 2014 CFPB action, which alleged that the institution pressured students into taking out high-cost private loans even though it allegedly knew that most students would ultimately default. The Bureau ultimately announced a judgment barring the institution from offering or providing student loans, and obtained judgments against several entities accused of providing substantial assistance to the institution (covered by InfoBytes here). “While today’s action affects federal loans, and while past CFPB actions have addressed many of the private loans peddled by [the institution],” CFPB Director Rohit Chopra said in remarks following the announcement, he stressed that the Bureau “will continue our work with the Department of Education and other regulators to open up the books on in-house institutional lending programs—these are private loans pushed directly by schools—to ensure that they are not strongarming their students with illegal practices.”

The Department also announced that it has notified another for-profit institution that it is required to pay millions of dollars for approved borrower defense to repayment discharges. The institution can present arguments as to why it should not be required to pay or request a hearing before the Department’s Office of Hearings and Appeals, the Department said.