Biden government cuts $ 1 billion student loan debt from defrauded borrowers

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Borrowers who have been scammed by their schools but received only a portion of their student loan debt under the Betsy DeVos-era Department of Education will settle their loans in full – a move that will result in an estimated $ 1 billion in debt relief from DOE announced Thursday.

These 72,000 borrowers have already approved their debt relief claims under the Borrower Defense Process, which allows borrowers who have attended the schools found to have misled them to dismiss their federal student loans.

In 2019, the Trump administration introduced a rule that used earnings data to determine how much damage a borrower has suffered and how much relief they are entitled to.

After reviewing the data and the approach used to calculate how much relief borrowers are entitled to this rule, agency officials found that the method “established very difficult, if not impossible, standards for borrowers to obtain full relief” a senior official from the Department of Education told reporters.

“Borrowers deserve a simplified and fair way of relief when they have been harmed by the misconduct of their institution,” Education Minister Miguel Cardona said in a statement. “A close examination of these claims and related evidence revealed that these borrowers have been harmed and we are giving them a fresh start on their debts.”

In addition to paying these borrowers’ debts, the ministry may also reimburse the amount that borrowers have already paid for the loans.

Thursday’s announcement is the latest in the battle for the borrower’s defense rule. Although the rule has been on the books since the 1990s, the rule was rarely applied until 2015 after the fall of the Corinthian colleges, a for-profit college chain that collapsed on charges of misleading students about job placement and graduation rates.

Former students of Corinthian and other for-profit colleges organized by activists inundated the ministry with calls for debt relief. In response to this pressure, the Obama administration created a streamlined process in 2016 for borrowers to apply for debt relief.

As part of DeVos, the ministry has increased the burden of proof on borrowers applying for debt relief under the law and implemented the partial relief rule.

The agency announced Thursday that it will no longer use the sub-rule to assess the level of relief borrowers will be entitled to in the future.

Borrower’s lawyers have urged the agency to do more. The department is still being sued by a group of 200,000 former for-profit college students whose debt relief claims have been blocked or denied.

Although the lawsuit concerns measures taken under the previous administration, Toby Merrill, director of the Project on Predatory Student Lending, said her clients are still waiting for relief and “unable to stop pushing.”

In a survey of more than 425 class members, the organization found that over a third of borrowers had applied for unemployment benefits in the past year. Additionally, 47% are frontline or key employees, including delivery drivers, postal workers and transport workers.

“What we have seen over time is that student loan borrowers’ rights are not and never have been enforced,” Merrill said, adding that borrowers had to go to court and elsewhere to seek enforcement of their rights .

In fact, Merrill’s organization represented borrowers who challenged the partial relief rule in question in Thursday’s announcement. In a statement Thursday, she called the news “a strong start for a small subset of borrowers,” but called for a complete overhaul of the system.

“The previous administration turned borrower defense into an all-out bogus defense that was rigged to deny claims without real deliberation,” Merrill said. “The Biden-Harris administration must now fix these shortcomings or maintain a system stacked against the very students they are supposed to protect.”

The Biden-era education ministry said Thursday that the announcement would be the first step in processing borrower defense applications and that the ministry is also planning to re-regulate.

The department’s senior official told reporters that there is a backlog of claims, as well as claims that were rejected by the previous government and that the department plans to review, but at the time had no announcements about the agency’s approach to these claims.

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