Reversing the Rollback: Bad Student Loans to Get Full Forgiveness

WASHINGTON (CN) — The Biden administration announced Thursday it will upgrade the last administration’s policy of giving only partial loan relief to defrauded college students.

Now under the stewardship of Secretary Miguel Cardona, the Department of Education is poised to cancel up to $1 billion in loans for roughly 72,0000 borrowers who already received partial reimbursements from his predecessor Betsy Devos.

"Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution's misconduct," 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."

The announcement is one that has been long awaited since former President Barack Obama’s Department of Justice cracked down on the for-profit schools industry.

After the federal investigation led to the collapse of for-profit education chains like ITT Technical Institute and Corinthian Colleges, students claimed that the schools’ lies about post-graduation job prospects triggered what is known as the borrower defense to repayment — essentially loan forgiveness.

With Devos in power, however, the Education Department first paused the processing those claims in 2017 and then reformulated the process for handling them.

Under the new sliding-scale methodology, regulators employed a complex formula to measure the median salary of graduates from the fraudulent for-profit colleges against the median salaries of graduates from similar schools.

If the graduates’ earnings were at a deficit, they would be entitled to relief. Congress tried to block DeVos' changes, but ultimately the House did not have enough votes to overcome President Donald Trump’s veto.

On a call with reporters, an agency official noted Thursday that the department is still reviewing a backlog of claims that haven’t yet been decided, as well as those that have already been denied. The department also indicated it will continue to look at rewriting the rules governing borrower protections.

The Trump administration’s announcement that it would be pausing applications in 2017 sparked a class action on behalf of more than 160,000 students “in limbo” — they said their loans had damaged their credit and made any sort of financial security impossible. Under a settlement in April 2020 with the Department of Education, students alleging fraud by for-profit colleges were promised decisions on their requests for debt relief within 18 months.

Twenty-two states and the District of Columbia also sued DeVos in July 2020 over her changes to the rule. The lawsuit was led in part by former California Attorney General Xavier Becerra, who was confirmed Thursday as Biden's health secretary.

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