After Delays, New Plan for Student Debt Relief Raises Concerns

States, advocates and borrowers have claimed in court meanwhile that the students who were promised debt forgiveness are instead seeing their tax returns and wages garnished by the government. In addition to enforcing these collections actions, the department has come under scrutiny for its failure to act on a growing mountain of debt-forgiveness applications.

A Dec. 8 report from the inspector general found that the Education Department approved 31,773 applications before the change in administrations. No application has been reviewed since Jan. 20, but another 25,991 were submitted, bringing the total to 98,868 as of July 24, 2017.

The inspector general recommended that the department resume processing the applications. DeVos announced the department’s new formula for calculating debt forgiveness 12 days later.

The Education Department declined to comment on the new policy, pointing instead to a Dec. 20 press release where DeVos touted the new debt-forgiveness guidelines as more fair to all parties.

"We have been working to get this right for students since Day 1," she said. "No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly. This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified.”

Ashley Norwood with the nonprofit American Student Assistance sees any move forward from the Jan. 20 stall as a positive step. She expressed concern, however, that the new formula will deny borrowers the full relief to which they are entitled.

"As rulemaking for borrower defense to repayment plays out in the months ahead, we urge negotiators to consider a more fair and equitable process for relieving the loan obligations of borrowers who have been defrauded," Norwood said in an email.

Even with partial debt relief, many students who attended for-profit colleges will continue to struggle. During a phone interview on Monday, Norwood said the students who can least afford it are being hit the hardest by the repercussions of having attended for-profit schools that misled them.

"These people are the ones who went to career schools, they can't get into their careers, or they can't get into jobs that their programs were based on," Norwood said. "So these people are floundering right now. They're responsible for all this debit and they have nothing to show for it.”

The new formula drew swift condemnation on Capitol Hill as well.

"After almost a year of inaction – and over 100k defrauded students waiting for answers – @BetsyDeVosED has a stingy & ridiculous scheme for making many of them pay the fed govt money they don’t owe. It’s shameful," Sen. Elizabeth Warren, D-Mass., said in a tweet Thursday.

Miller with the Center for American Progress said he was concerned that the department’s new loan-forgiveness policy uses median incomes of qualifying schools. Some of the schools would not have passed the gainful-employment test, he said, but for the low debt levels of their students.

But wages can be low for some of these graduates. Miller said he understands the new policy to mean that anyone who has at least a minimum-wage job will likely have enough earnings to disqualify them from full relief.

For Miller, the question of whether a borrower making minimum wage will even be able to afford to repay partially forgiven loans has no bearing on the issue.

“The problem is not the size of their monthly loan payment, but that they have to repay debt for a thing that was worthless," he said. “Once a student has determined to have been ripped off, we should forgive the full amount of debt they took for that program.”

Abby Shafroth with the National Consumer Law Center's Student Loan Borrower Assistance Project homed in on another problem with the formula: it doesn't account for the cost differential in programs.

"For one thing, Corinthian was a lot more expensive than most other schools offering similar programs," she said in an email. “People paid more to attend Corinthian because the school convinced them - with false information - that it was better than the other schools and that they would get better employment results.”

According to a profile of Corinthian Colleges from the Senate Health, Education, Labor and Pensions Committee, a medical-assistant diploma program at Corinthian's Heald College in Fresno, Calif., cost $22,275, while the same program at Fresno City College was $1,650.

The cost differential is even more dramatic for a degree in paralegal studies. Corinthian-owned Everest College in Ontario, Calif., charged $41,149 for a program that cost only $2,392 at Santa Ana College.

That means students who graduated from these two different programs will carry vastly different debt loads.

"Under the department's method, if graduates of both programs earned $20,000 a year, then the department would say the borrower who paid nearly $40,000 more to attend Corinthian's program got good value from their investment and wasn't really harmed by Corinthian's lies, and therefore should only get 10 percent of their loans discharged," Shafroth said. "That is obviously not true."  

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