Students who are cheated by their colleges will receive full loan forgiveness only if they end up earning far less than their peers, while others will receive relief between 25 percent and 75 percent of their debt under new rules unveiled Tuesday by the U.S. Education Department.
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The policy is a departure from the Obama administration, which provided full loan forgiveness in cases of fraud, and it marks the second time the Trump administration has attempted to provide only partial loan relief. A federal court blocked a previous attempt in 2018 after it determined the Education Department violated privacy laws to gather income information.
Education Secretary Betsy DeVos said the new policy provides a fair resolution to the “mess” inherited from the previous administration.
“We cannot tolerate fraud in higher education, nor can we tolerate furiously giving away taxpayer money to those who have submitted a false claim or aren’t eligible for relief," DeVos said in a statement.
The policy devises a new formula to determine how much federal debt students should have erased under the department's Borrower Defense program. The Obama administration expanded the program in 2016 to forgive debt for thousands of students harmed by the Corinthian Colleges chain, which shut down following findings that it had lied to students about job placement rates.
Since then, thousands of other students have applied for loan forgiveness after saying they were cheated by their schools, mostly for-profit colleges. But DeVos has been reluctant to provide full relief. In a call with reporters Tuesday, her principal deputy undersecretary said the forgiveness program had become a “backdoor” route to free college.
“We want to make sure we really serve the borrowers who truly have been the victim of misrepresentation and harmed by it,” Diane Auer Jones said. “We wanted to protect the taxpayers. There are people who believe we should forgive 100 percent but where does that end?”
The new formula attempts to quantify the harm done to a student by comparing their estimated earnings to those from similar programs at other schools across the country.
If the median earnings in their program is more than two standards of deviation below the median at comparable programs, students are eligible for full relief. Others will get either 25 percent, 50 percent or 75 percent of their debt erased depending on the median income in the program they attended.
The policy immediately drew fire from critics who say defrauded students deserve full loan forgiveness.
“The department is inventing another scheme to provide students less relief than the law allows,” said Rep. Bobby Scott, D-Va., chairman of the House's education committee. “It should not be controversial that victims of predatory schools deserve meaningful relief. The department’s continued resistance to making defrauded students whole is mystifying.”
The Project on Predatory Student Lending, a legal advocacy group based at Harvard University, said cheated students are entitled to full relief.
“This partial denial scheme will force thousands of families to pay fraudulent debts that never should have existed in the first place. It shows that the Department of Education will stop at nothing to try to extract payments on invalid debts and deny students their rights under law,” said Eileen Connor, the group's legal director.
The Education Department says former Corinthian Colleges students that had their claims approved by the Obama administration will get full loan forgiveness. Other Corinthian students will be entitled to at least 10 percent forgiveness.
Amid a legal battle over the loan forgiveness policy, the department had previously stopped discharging loans, leading to a backlog of more than 200,000 claims.
A federal judge in 2018 ordered DeVos to stop using a different partial relief formula after ruling it violated the Privacy Act when exchanging information with the Social Security Administration. Department officials say the issue has been resolved,and the new formula will use “publicly available” data gathered by the Education Department, the Social Security Administration and the IRS.
DeVos is announcing the change as she faces heavy criticism over her handling of the debt forgiveness program. A federal judge recently held her in contempt of court and fined her agency $100,000 after finding it collected payments from former Corinthian students in violation of a previous order.
At the same time, Democrats in Congress recently threatened to subpoena DeVos to explain her handling of the Borrower Defense program. Instead she agreed to face the House's education committee at a hearing scheduled for Thursday.