AG Grewal to Education Secretary: U.S. Must Immediately Discharge Federal Loans of Eligible Students Whose Schools Closed

TRENTON – Acting to protect federal student loan recipients whose schools closed before they could complete their education, Attorney General Gurbir S. Grewal today called on the U.S. Department of Education to immediately discharge the loans of borrowers eligible for such closed-school relief.

In a letter to Education Secretary Betsy DeVos, Attorney General Grewal joined Attorneys General from throughout the U.S. in calling on the Secretary to implement federal rules that automatically discharge federal student loans for borrowers who attended a school that closed on or after November 1, 2013, and who did not subsequently enroll in another Title IV-eligible program within three years of the closure. California Attorney General Xavier Becerra and Massachusetts Attorney General Maura Healey led the effort.

The rules, which were adopted in 2016, took effect on October 16, 2018, after a federal judge concluded that Secretary DeVos had acted unlawfully in delaying their implementation.

Approximately 1,400 schools throughout the U.S. closed in 2014 and 2015 – the first two years covered by the rules. Thirty-two campuses located in New Jersey were among those that closed during that two-year period. Approximately 2,200 New Jersey residents were affected by the unscrupulous practices of Corinthian Colleges, which collapsed amidst multiple investigations of its predatory conduct.

Under the 2016 rules, tens of thousands of borrowers who attended such schools are entitled to have their federal student loans automatically discharged without taking any action on their own. The Education Department has estimated that closed-school discharges under the 2016 rules will save student loan borrowers more than $1.7 billion through 2026.

“The Department of Education has been dragging its feet on discharging hundreds of millions of dollars in student loans,” said Attorney General Grewal. ”It should not have taken a federal court order for the agency to comply with its own rules, but now that the court has ruled, it’s time for Secretary DeVos to do the right thing and relieve affected borrowers of their student loans.”

In the past, schools investigated by federal and state authorities for fraudulent and predatory practices have closed and declared bankruptcy once their conduct was uncovered, leaving students with debt and no degree. Although the Education Department offered loan discharges for students at closed schools before 2016, many students did not apply for relief. The 2016 rules were designed to make the discharge process automatic, so that more students could benefit.

“Closed school relief is critical for these borrowers,” the letter from the Attorneys General asserts. “As the Department is aware, research has consistently shown that students who do not complete their educational programs are among the most likely to default on their loans.”

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