US students defrauded by colleges could see full debt relief

Defrauded students who received only partial relief from their federal student loan obligations could now see that entire debt wiped out, after the Biden administration rolled back a Trump-era formula.

'These borrowers have been harmed, and we will grant them a fresh start from their debt,' said United States Secretary of Education Miguel Cardona [AP Photo/Andrew Harnik]

Students who were defrauded by their colleges and received only partial relief from their federal loans could now see them fully cancelled, the administration of United States President Joe Biden announced Thursday, reversing a Trump administration policy.

The change could lead to $1bn in loans being cancelled for 72,000 borrowers, all of whom attended for-profit schools, the US Department of Education said.

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

The department said it was rescinding the formula used by the administration of former US President Donald Trump to determine partial relief and putting in place “a streamlined path to receiving full loan discharges”.

The decision applies to students who already had their claims approved and received only partial relief, the department said.

A senior department official briefing reporters said the agency was continuing to review both the backlog of claims yet to be decided and those that have been denied.

The department described Thursday’s action as “a first step” and said it would be looking at rewriting the regulations down the road.

In addition to having their loans fully cancelled, students will be reimbursed for any payments made on the loans and have their eligibility for federal student aid reinstated. The department said it also would ask credit bureaus to remove any negative ratings tied to the loans.

“Abandoning partial relief is a strong start for a narrow subset of borrowers, but what we need from the Education Department is an overhaul of the current borrower defense process,” said Toby Merrill, director of the Project on Predatory Student Lending, which represents former for-profit college students.

“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 borrower defense to repayment programme allows students to have their federal loans cancelled if they were defrauded by their colleges. The administration of US President Barack Obama had expanded the programme aimed at helping students who attended for-profit colleges. But Trump’s education secretary, Betsy DeVos, pulled it back, saying it had become too easy for students to have their loans erased, and revised the programme to make it harder for them to get relief, including providing only partial cancellation of the loans.

Congress voted to overturn DeVos’s changes last March, but that was vetoed by Trump.

Nearly two dozen state attorneys general had sued the Trump administration over its implementation of the borrower defense to repayment programme, which allows borrowers to have their loans cancelled if their colleges made false claims to get them to enroll. One of the plaintiffs in that suit was California Attorney General Xavier Becerra, who faced a confirmation vote Thursday to be Biden’s health secretary.

The lawsuit, which was filed last July, argued that DeVos had changed the policy without justification, failed to provide a meaningful process for students to get their loans forgiven and created “arbitrary impediments” for them, including forcing them to prove that their schools knowingly misled them.

Representative Bobby Scott, chairman of the House Committee on Education and Labor, said DeVos had used a “nonsensical formula” to compute relief and that Thursday’s action would be “life-changing for tens of thousands of people across the country”.

Source: AP