Big holdup for borrowers claiming for-profit college fraud

WASHINGTON -- Tens of thousands of former students who said they were swindled by for-profit colleges are being left in limbo as the Trump administration delays action on requests for loan forgiveness, according to court documents obtained by The Associated Press.

The Education Department is sitting on more than 65,000 unapproved claims as it rewrites Obama-era rules that sought to protect students better. The rewrite had been sought by the industry.

The for-profit colleges have found allies in the new administration and President Donald Trump, who earlier this year paid $25 million to settle charges his Trump University misled customers.

And it's yet another example of the administration hiring officials to oversee the industries where they had worked previously.

In August, Education Secretary Betsy DeVos picked Julian Schmoke Jr., a former associate dean at DeVry University, as head of the department's enforcement unit.

She also tapped a top aide to Florida's attorney general who was involved in the decision not to pursue legal action against Trump University to serve as the agency's top lawyer. More than 2,000 requests for loan forgiveness are pending from DeVry students.

The Obama rules would have forbidden schools from forcing students to sign agreements that waived their right to sue. Defrauded students would have faced a quicker path to get their loans erased, and schools, not taxpayers, could have been held responsible for the costs.

In a filing in federal court in California, acting Undersecretary James Manning said the department will need up to six months to decide the case of a former student at the now-defunct Corinthian Colleges and other cases like hers.

Sarah Dieffenbacher, a single mother of four from California, had taken out $50,000 in student loans to study to become a paralegal but then couldn't find a job in the field, defaulted on her debt and could face wage garnishment.

"ED will be able to issue a decision with regards to Ms. Dieffenbacher's Borrower Defense claims within six months, as part of a larger group of Borrower Defense decisions regarding similar claims," Manning wrote to the court Aug. 28.

Department spokesman Liz Hill said the agency is working to streamline the process and resolve the claims as quickly as possible.

"Unfortunately, the Obama administration left behind thousands of claims, and we will need to set up a fair and equitable system to work through them," she said.

She said students with claims pending are not required to make payments on their loans.

But Dieffenbacher said the delay is costing her family dearly.

"They should be protecting the students, because students were led to believe they were protected," she said. "And they are not; they are protecting Corinthian Colleges and for-profit schools."

Alec Harris, a lawyer with Legal Services Center of Harvard Law School representing Dieffenbacher, said the inaction could put his client and her children on the street.

"This is a Department of Education that has seemingly sided with industry and stacked the deck against former students of predatory for-profit schools every step of the way," Harris said.

Reid Setzer, government affairs director for Young Invincibles, an advocacy and research group, said the department's delay is harming thousands of students.

"It's kind of ridiculous," Setzer said. "There have been massive delays since the change of administration."

The Obama administration went hard after for-profit colleges that lured students into taking big loans with false promises. Chains including Corinthian Colleges and ITT Technical Institute were forced to close, and Obama's Education Department approved about $655 million in loan cancellations for their students.

Under DeVos, no claims have been approved since she came to office seven months ago, according to Manning's July response to questions from Democratic Sen. Dick Durbin of Illinois, who is part of a group of lawmakers pressuring her to accelerate the process. The department is in the process of discharging loans for claims that had been approved by the previous administration.

Among the claims still pending are more than 45,000 filed by Corinthian students and over 7,000 by ITT students.

DeVos is working on rewriting two Obama-era regulations that were meant to prevent colleges from misrepresenting their services to students and from failing to provide them with an education that would enable them to find jobs.

In an interview with the AP last month, DeVos said, "Let's be clear, no student should be defrauded, and in case of fraud there should be remedy. But we also know this approach has been unevenly applied, and if there's going to be regulation around some institutions we believe it needs to be fairly applied across the board."

Democratic attorneys general from 18 states and the District of Columbia filed suit against DeVos in July over the rules, which were finalized under President Barack Obama and scheduled to take effect July 1.

"Since Day One of the Trump administration, Secretary of Education Betsy DeVos and the administration have sided with for-profit schools over students," Massachusetts Attorney General Maura Healey told reporters at the time.

"It seems more like they are trying to protect the industry than trying to help borrowers," said Clare McCann, deputy director for federal higher education policy with New America, a Washington-based think tank.

DeVos' announcement about the Schmoke hiring was met with criticism by Democrats. Sen. Chris Murphy of Connecticut tweeted, "This is a joke, right?"

The department defended its decision, saying Schmoke served only in an academic capacity at DeVry and was not involved in admissions, recruitment or corporate administrative activities.

Other Trump administration agencies also have hired staffers who previously worked on behalf of the industry they now regulate. For example, Nancy Beck, deputy assistant administrator at the Environmental Protection Agency, used to work at the American Chemistry Council, the industry's leading trade group.