USDOE ends Trump/DeVos limited debt-relief rule for defrauded college students!

Student Debt Relief Programs & Strategies

Dear Commons Community,

The United States Department of Education has ended a rule that limited debt relief for 72,000 borrowers who had graduated from fraudulent for-profit colleges.  The previous rule, which was put in place in December 2019 by former Education Secretary Betsy DeVos, limited how much debt relief a defrauded borrower would get for their borrower defense claim. The Trump-era rule was a response to an Obama-era rule in the wake of for-profit giant Corinthian Colleges shutting down in 2015, which led to tens of thousands of claims made by students. As reported by Yahoo Finance,

“We conducted a review of the partial relief methodology that was in place and determined that it was not granting appropriate levels of relief to borrowers given the degree of harm they witnessed,” a senior department official stated on a call with reporters. “The feeling was that [the methodology] didn’t quite go far enough.”

Full debt relief will be applied “for claims that have been approved to date,” the official added, meaning that defrauded borrowers who have already received partial forgiveness will get a full discharge. This process will be “rolled out over a couple of weeks.”

“For more than four years, defrauded borrowers and their families have lived under a cloud of education debt that they should not have to repay,” House Committee on Education and Labor Chairman Bobby Scott (D-VA) stated. “I applaud the Biden Administration for doing the right thing by making these borrowers whole, and I can only imagine the mixture of joy and relief they are feeling today. This announcement is lifechanging for tens of thousands of people across the country.”

Under existing law, borrowers with federal loans are eligible for loan forgiveness if a college or a university has misled them or engaged in other misconduct in violation of certain state laws. USDOE faced an onslaught of these claims, and the DeVos-led USDOE formula consequently developed a program to offer partial relief based on how much money they were earning at the time of filing the claim.

“The previous administration turned borrower defense into a total sham that was rigged to deny claims without any true consideration,” Toby Merrill, director of the Project on Predatory Lending, and an attorney representing some of the debtors who have filed suit against USDOE, said in a statement. “The Biden-Harris administration must now address these failings or else perpetuate a system that is stacked against the very students they are supposed to protect.”

The USDOE officially undid the DeVos-era rule yesterday morning, and the “more streamlined approach” will fully cancel $1 billion in student loans. According to Merrill, about 13,572 claims for debt relief were approved under the partial relief formula.

“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” USDOE Secretary Miguel Cardona said in a statement. “A close review of these claims and the associated evidence showed these borrowers have been harmed and we will grant them a fresh start from their debt.”

Alexis Goldstein, a senior policy analyst at Americans for Financial Reform, added that it “should not have taken so many years, so much tenacity from attorneys defending these defrauded borrowers, and the resilience of thousands of former for-profit college students who were not willing to give up, to get here.”

The borrower defense claims submitted by affected students — for loan forgiveness — was created in 1995 and barely used until the Corinthian Colleges closed in 2015, triggering a flood of claims.

“For years, Corinthian profited off the backs of poor people — now they have to pay,” then-California Attorney General Kamala D. Harris said in a 2016 statement. “This judgment sends a clear message: there is a cost to this kind of predatory conduct … My office will continue to do everything in our power to help these vulnerable students obtain all available relief, as they work to achieve their academic and professional goals.”

The Obama administration created special rules to address the problem, making it easier for defrauded students to get their loans cleared — with some getting automatic loan forgiveness if they qualified.

This was a good move on the part of Cardona and the USDOE.


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