Colleges nationwide have been facing numerous complaints accusing them of financial deception as the Biden administration seeks to expand regulations for federal student loan forgiveness.
The Education Department announced on Tuesday that it would impose a record $37.7 million fine on the largest Christian university in the country and encourage more than 7,500 former students to file federal borrower defense to repayment (BDR) claims in order to cancel their loan debts.
The allegations against for-profit Grand Canyon University include false advertising of the cost and coursework required to complete certain doctoral degrees. The university denies these accusations.
BDR claims allow borrowers to request the discharge of their federal student loans if they can prove that the college misled them or engaged in other misconduct in violation of state law.
The Education Department has been sending thousands of BDR notices to nearly every college and university over the past three months, aiming to clear the backlog of claims filed from 2016 through 2022 by financially struggling dropouts and graduates. The Trump administration had previously ignored complaints about loan repayment difficulties.
As part of a class-action settlement last year, the department has been ordered by a federal court to process $6 billion in claims by July 2025.
According to a progress report by the Education Department’s Federal Student Aid office, between May 1 and July 29, the debts of 11,779 claimants were forgiven, none of the applicants were denied, and 2,041 others were asked to revise and resubmit their paperwork. Another 60,429 claims sent to campuses were still pending.
The BDR program, established in 2016 during the Obama administration, has primarily helped former students cancel loan debts after attending for-profit universities that engaged in questionable advertising practices or colleges that suddenly closed.
However, higher education insiders have stated that claims sent to nonprofit schools in recent months have caused confusion. The number of claims sent to nonprofit schools since July remains unclear.
Some critics believe that the Education Department’s new BDR standards, which aim to screen out frivolous complaints before sending them to colleges, could make it easier for loan forgiveness activists to make bulk claims appear legitimate. This has raised concerns that schools may have to pay for losses without proper due process.
Efforts to cancel federal student loan debts have intensified under President Biden, who promised to address this issue during his 2020 election campaign. The Biden administration has already forgiven more than $117 billion in student loan debts, including $14.8 billion in BDR claims for 1.1 million borrowers who claim their colleges misled them.
However, this is just a small portion of the estimated $1.77 trillion in federal student loan debt that Americans owe in 2023, marking a 66% increase over the past decade. The amount of canceled debts may increase as the Education Department continues to take action on BDR claims at nonprofit schools.
As of January 31, the Department of Education listed 464,724 out of 779,785 BDR applications as “pending.” Unfortunately, the agency has stopped publishing its monthly reports without any explanation.
Amidst the surge in BDR claims, Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators, has advised nonprofit colleges and universities to consult with their legal counsel before deciding whether to respond to the claims.
It is crucial for schools to have clarity from the Department of Education regarding the ongoing situation, as the decision to respond or not does not affect whether the claim is approved or denied, nor does it impact the government’s ability to seek repayment from the schools.
