Department of Education to cancel $415 million in student loan debt

Approximately 16,000 borrowers who have been defrauded by their schools will be paid off federal student loans, which will result in assistance of $ 415 million, the education ministry said Wednesday.

The borrowers who received assistance studied at four nonprofit colleges that the agency found that misled students in the process of enticing them to enroll and take on debt to pay the school. The action, announced Wednesday, is the latest in a series of steps by the Biden administration over the past few months that are canceling federal student loans to students who say their schools have offended.

“Students are counting on their colleges to be true,” Education Minister Miguel Cardona said in a statement. “Unfortunately, today’s findings show too many cases of students being misled into loans at institutions or programs that could not deliver on what they promised.”

The announcement comes amid pressure on widespread student debt cancellation and urged lawyers to do more for students who have been tricked by their colleges. This is the latest in a saga about a process known as protecting a borrower to repay, which dates back to the Obama administration.

In books from the 1990s, but rarely used to pressure activists

Since the 1990s, borrowers of federal student loans have had the right to apply to the federal government for repayment of debts in cases where their schools have misled them. But it was not widely used until 2015, when activists flooded the Department of Education with loan cancellation statements on behalf of former nonprofit college students, including those attending Corinthian colleges that collapsed in bankruptcy amid allegations that they lured students through inflated labor. placement and completion rates.

Under such pressure, the Obama administration has created a simplified process for borrowers to apply for debt repayment. But during the Trump administration, the abolition in defense of the borrower essentially stopped. Officials of both administrations have for years faced pressure to repay debts in installments if there is evidence of irregularities during a particular period at a particular school.

The Department’s new findings on misconduct in various schools formed the basis for the 16,000 borrowers who are part of Wednesday’s announcement. Previously, borrowers who received claims were visiting colleges that had already closed, making it difficult for taxpayers to recover funds from schools accused of delinquency.

But about 1,800 borrowers included in the announcement on Wednesday were studying at the University of DeVry, which is still operating. Department of Education officials told reporters during a conference call that they plan to collect $ 71.7 million in federal student loans held by former DeVry students, which the agency is dropping out of the school’s parent company, Cogswell Education.

“The current owners of these schools will be responsible for crime prevention not only at DeVry, but also wherever they could occur,” James Quaal, deputy education minister, told reporters.

However, officials do not say the results, announced Wednesday, threaten DeVry to lose access to federal funding.

Instead, the findings become relevant data when officials evaluate the school’s current performance, said Richard Cordray, chief operating officer of Federal Student Aid, an office in the department that oversees the government’s student loan portfolio and oversees schools and companies involved in the loan. program.

“I don’t think we can say one way or another that this is crucial for any future action,” Cordray said. “But this is definitely part of the mosaic that we will be considering when we make these assessments.”

The agency found that between 2008 and 2015, DeVry advertised to potential students a 90 percent employment rate, when the actual amount of employment at the school was 58 percent. In 2016, DeVree agreed to a $ 100 million settlement with the Federal Trade Commission on similar charges. As part of the deal, the FTC DeVry agreed to give cash to some students and cancel the debt of students who took out loans made by DeVry. But there was no federal student loan under the agreement.

Donna Sholts, senior director of communications at DeVry University, wrote in an email that the school is “deeply committed to student success,” adding that students whose claims were rejected by the Department of Education visited the school several years ago before introducing a new one. advice and guidance.

“However, we believe that the Department of Education incorrectly characterizes the counting of DeVry and the disclosure of graduates’ results in certain advertisements, and we do not agree with the conclusions they came to,” Scholts wrote.

In addition to former DeVry students, the Department is collecting debts from some borrowers who attended three other schools that are currently out of operation. Discharges come at a time when the Biden administration is facing pressure to do more for students who have been deceived by their schools.

Pressure to do more for deceived students

The 16,000 borrowers who are part of Wednesday’s announcement represent a small proportion of students who have been defrauded by their schools and should be written off from their arrears, said Eileen Connor, Harvard Law School’s project director for predatory student lending.

Students who have attended the ITT Technical Institute are one of a group of borrowers. Connor says the Department could do more to help. Connor represents 700,000 former ITT students in the school’s bankruptcy case. The Federal Bankruptcy Court has recognized those former students as creditors. Conor calls on the Department to cancel all federal student loans related to ITT, regardless of when the borrower was present and whether or not a lawsuit was filed to protect the borrower.

As part of an announcement Wednesday, Department officials said they were canceling the debt of some of those ITT students. About 130 borrowers who participated in the ITT nursing program will repay a debt of $ 3.1 million, officials said. The agency found that between 2007 and 2016, ITT told prospective students that its nursing care program would soon receive accreditation, which would require a prospective student to get a job, but this was not the case. Earlier this year, the Biden administration cut off $ 500 million in loans to about 18,000 former ITT students.

The report, published by the Predatory Student Lending Project on Wednesday based on the company’s internal documents obtained as part of the case, details ITT’s approach to enticing students to enroll and subscribe to student loans. Some of the practices outlined in the report include requiring call center representatives to make 80 to 100 calls a day, filling out financial aid forms on behalf of students without their knowledge, and setting up a fictitious company to claim the student worked there.

“This separate approach has little to do with President Biden’s backlog in borrowing protection,” Connor said in a statement. “For me, this announcement shows that the Department lacks the courage to take bold action to correct past mistakes, and instead it doubles the inconsistent approach. There are hundreds of thousands of deceived borrowers who are equally obliged to cancel the loan and zero reasons to make them wait longer.

Lawyers have also pressured the agency to bring the heads and owners of nonprofit colleges to justice in cases where the schools they run or own are destroyed. In a press release from the agency announcing student debt relief, the department named owners and senior executives who oversaw schools during periods of alleged violations, but did not mention any specific consequences for those individuals.

“We intend to try to bring to justice school leaders who fail in all possible cases,” Cordray told reporters. However, he noted that the behavior mentioned in Wednesday’s announcement is several years old. “It is becoming difficult to seek relief as things become more protracted. This is something we think about a lot, going forward is not so easy to go back in time. ”

Wednesday’s announcement is the latest in the Biden administration’s efforts to secure what officials have called “targeted assistance” to student loan borrowers. Thanks to this approach, officials have abolished the debt of borrowers on federal student loans in cases where it is clear that they are legally obliged to discharge, including because they were deceived by the school, they have such a severe disability that they can not work or are a civil servant eligible to participate in a public service loan forgiveness program.

So far, this has led to assistance of about $ 16 billion for more than 680,000 borrowers, according to the Ministry of Education. However, the Biden administration is facing calls for broad assistance that will affect a larger share of the country’s more than 40 million borrowers, who owe $ 1.7 trillion in student loans.

See also: Have you benefited from the relief of student loan arrears? Know the tax implications

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