Student loan debt: Education Department cancels $415 million for victims of fraud

It’s the latest effort by the Biden administration to cancel student loan debt for borrowers who may already be eligible for debt relief but are still waiting for their paperwork to be processed. The agency has been chipping away at a backlog of forgiveness claims left over from the Trump administration that had been filed under a policy known as borrower defense to repayment.

Under US Education Secretary Miguel Cardona, the department has canceled about $2 billion in borrower defense claims from more than 107,000 individuals to date.

“The Department remains committed to giving borrowers discharges when the evidence shows their college violated the law and standards,” Cardona said in a statement.

The borrower defense policy allows students who were defrauded by their colleges to seek federal debt relief. The forgiveness process was simplified during the Obama administration when big for-profit colleges like Corinthian Colleges and ITT Technical Institute shuttered.

But the department stopped processing the borrower defense claims for months under former Education Secretary Betsy DeVos, who made it clear that she thought the rule was “bad policy” that puts taxpayers on the hook for the cost of the debt relief without the right safeguards in place.

Former DeVry students get relief

Wednesday’s action marks the first time the Education Department is approving borrower defense claims associated with a currently operating institution: DeVry University. The department estimates that approximately 1,800 former DeVry students are eligible for nearly $72 million in discharges. More borrowers could see relief as the department continues reviewing pending applications.

The Education Department found that DeVry University had misled prospective students from 2008 to 2015, falsely claiming that 90% of its graduates found jobs in their fields of study within six months of graduation — and making the statistic a centerpiece of a national advertising campaign. In reality, the institution’s job placement rate was around 58%, according to the Department of Education. Former students who demonstrate in their borrower defense claims that they had relied on the inflated statistic may be eligible for relief.

The government will seek to recoup the cost of the student loan discharges from the institution.

DeVry University spokeswoman Donna Shaults said in an emailed statement to CNN that “the Department of Education mischaracterizes DeVry’s calculation and disclosure of graduate outcomes in certain advertising, and we do not agree with the conclusions they have reached.”

She also noted that DeVry has a different board and leadership than it did between 2008 and 2015 and “has oriented our whole organization around helping people compete in a complex and changing labor market.”

The Education Department also announced new borrower defense discharges for some former students who attended Westwood College, the nursing program at ITT Technical Institute, the criminal justice programs at Minnesota School of Business/Globe University, Corinthian Colleges and Marinello Schools of Beauty. None of these institutions are currently operating.

More targeted debt relief

Under Cardona, the Education Department has now approved about $16 billion in federal student loan discharges for more than 680,000 borrowers, including the $2 billion in borrower defense claims.

It has canceled $7.8 billion for more than 400,000 borrowers who are unable to work because of permanent disabilities. It reached borrowers who were already eligible for the relief by automatically identifying them through a Social Security Administration data match.

The department has also overhauled the Public Service Loan Forgiveness program that cancels outstanding federal student loan debt for those who work in the public sector after they’ve made 10 years of payments. The Biden administration temporarily expanded the eligibility criteria so that it now applies to borrowers who have older loans that didn’t originally qualify as well as those who were in the wrong repayment plan but met the other requirements. Those changes have resulted in almost $5 billion in debt relief for 70,000 borrowers.

But the actions from the Education Department don’t go far enough for some borrower advocates. There are still tens of thousands of pending borrower defense claims.

“This piecemeal approach barely scratches the surface of President Biden’s borrower defense backlog,” Eileen Connor, director of the Project on Predatory Student Lending, said in a statement Wednesday. The group represents borrowers in an ongoing lawsuit over unprocessed borrower defense claims.

The Biden administration continues to be pressured by key Democratic lawmakers to offer more student debt relief.

Senate Majority Leader Chuck Schumer of New York and Sen. Elizabeth Warren of Massachusetts have repeatedly called on Biden to use executive authority to broadly cancel $50,000 in student loan debt per borrower. The President has so far resisted those calls, despite expressing support for Congress to cancel $10,000 per borrower.

Education Department officials say the agency has already canceled more student debt than any previous administration. It has also extended the pandemic-related pause on federal student loan payments that has been in place since March 2020. It’s now set to expire May 1.