Biden administration to cancel $1 billion in student-loan debt held by scammed borrowers

by Warrior2

Borrowers who were scammed by their schools but who only received partial relief from their student-loan debt under the Betsy DeVos-era Department of Education will have their loans fully discharged — a move that will result in an estimated $1 billion in debt relief, the DOE announced Thursday.

These 72,000 borrowers have already had their claims for debt relief approved under the borrower defense process, which allows borrowers who attended schools that were found to have misled them to have their federal student loans discharged.

In 2019, the Trump administration implemented a rule that used earnings data to determine how much harm a borrower experienced and therefore how much relief they were entitled to.

After reviewing the data and the approach that rule used to calculate how much relief borrowers were entitled to, agency officials determined that the methodology “created very difficult, if not impossible standards for borrowers to get full relief,” a senior Department of Education official told reporters.

“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Secretary of Education 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.”

In addition to discharging these borrowers’ debt, the Department will also reimburse any amount the borrowers already paid on the loans, if applicable.

Thursday’s announcement is the latest in the battle over the borrower defense rule. Though on the books since the 1990s, the rule was rarely used until 2015, in the wake of the fall of Corinthian colleges, a for-profit college chain that collapsed amid allegations it misled students about job placement and graduation rates.

Former students at Corinthian and other for-profit colleges, organized by activists, began flooding the Department with claims for debt relief. In response to that pressure, the Obama administration created a streamlined process in 2016 that borrowers could use to apply to have their debt discharged.

Under DeVos, the Department heightened the burden of proof for borrowers seeking debt cancellation under the law and implemented the partial relief rule.

The agency announced Thursday that it will no longer use the partial rule to evaluate the amount of relief borrowers are entitled to going forward.

Borrower advocates have called on the agency to do more. The Department is still being sued by a class of 200,000 former for-profit college students whose claims for debt relief have been stalled or denied.

Though the lawsuit concerns actions taken under the previous administration, Toby Merrill, the director of the Project on Predatory Student Lending, said her clients are still waiting for relief and “aren’t in a position to stop pushing for that.”

In a survey of more than 425 class members, the organization found that over one-third of borrowers had applied for unemployment benefits in the last year. In addition, 47% are frontline or essential workers, including delivery drivers, postal service workers and transit workers.

“What we’ve seen over time is that the rights of student loan borrowers are not self-enforcing and they never have been,” Merrill said, adding that borrowers have had to demand in court and elsewhere that their rights be enforced.

Indeed, Merrill’s organization represented borrowers challenging the partial-relief rule at issue in Thursday’s announcement. In a statement Thursday, she called the news “a strong start for a narrow subset of borrowers,” but called for a full overhaul of the system.

“The previous administration turned borrower defense into a total sham that was rigged to deny claims without any true consideration,” Merrill said. “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 Biden-era Department of Education said Thursday that the announcement was the first step in addressing borrower defense applications and that the department also plans on pursuing re-regulation.

The senior Department official told reporters that there is a backlog of claims as well as claims that were denied by the previous administration that the department plans to review, but didn’t have any announcements about the agency’s approach to those claims at this time.

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