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: Biden administration cancels $500 million of student debt of scammed students


Roughly 18,000 borrowers who were scammed by their college will have their federal student loans discharged, amounting to approximately $500 million in relief, the Department of Education announced Wednesday. 

These borrowers attended ITT Technical Institute, a for-profit college that collapsed in 2016 amid allegations the school used misleading job placement and other data to lure students into enrolling and taking on loans for degrees that proved worthless in the labor market. 

The 18,000 borrowers who will have their debt cancelled had filed claims seeking relief under the borrower defense rule, which allows borrowers who attended schools that were found to have misled them to have their federal student loans discharged.

‘Many of these borrowers have waited a long time for relief.’

— Secretary of Education Miguel Cardona

The Department said it will be notifying borrowers that their claims were approved in the coming weeks. 

Secretary of Education Miguel Cardona said in a statement announcing the news that the debt discharges represent the Biden-Harris administration’s “commitment to stand up for borrowers,” while noting that other former for-profit college students are still waiting for relief. 

“Many of these borrowers have waited a long time for relief, and we need to work swiftly to render decisions for those whose claims are still pending,” Cardona said. “This work also emphasizes the need for ongoing accountability so that institutions will never be able to commit this kind of widespread deception again.”

Wednesday’s announcement represents the latest in a battle dating back to the Obama administration over the fate of student-loan borrowers who attended for-profit colleges accused of fraud.

Earlier this year, the Department cancelled $1 billion in debt of 72,000 students who attended Corinthian Colleges, another for-profit college that collapsed amid allegations it misled students. 

Latest salvo in a long battle

But the Biden administration is facing pressure to do more; hundreds of thousands of former ITT students were subjected to the same conduct and are still waiting for relief, they say. The agency is also still being sued by a class of 170,000 former for-profit college students whose claims for debt relief have been stalled. 

Eileen Connor, the legal director of the Project on Predatory Student Lending, which is representing these students, called the Department’s decision to approve the 18,000 borrower defense claims “a step in the right direction,” in a statement Wednesday. 

Still, of the hundreds of thousands of borrowers still seeking relief, Conner said, “We cannot ask these borrowers to wait another day or pay another dollar toward federal student loans that never should have been made in the first place.” 

“The Department is right that ITT systematically cheated students for over a decade, but we need more from the Department of Education and our clients need it fast,” she added. 

How the Department of Education discharges debt

In order for borrowers to have their debt discharged under the borrower defense process, the Department of Education has to review their claim and agree they were misled by their school.

Borrower advocates have pushed the agency to discharge debt in batches when it’s clear borrowers who attended a college during a given period were exposed to the same illegal conduct. 

In the case of Wednesday’s announcement, the Department said it reviewed evidence and extended findings the agency had previously made about the way ITT portrayed employment prospects to potential students in California to include students wherever they attended the school. 

The agency found that between 2005 and 2016, ITT made “repeated and significant misrepresentations” to students about how much money they could expect to earn after graduation and the kinds of jobs they would be hired for. In addition, the Department found that ITT misled prospective students about their ability to transfer the school’s credits to other colleges. 

Evidence was provided by the Consumer Financial Protection Bureau, the Iowa Attorney General’s office and Veterans Education Success, an organization that works on veterans’ higher education issues.

Carrie Wofford, the president of Veterans Education Success, said in a statement that the courage of veterans and whistleblowers allowed the organization to provide the Department with evidence. 

“So many veterans came to us about how ITT Tech cheated them and stole their GI Bill,” Wofford said in the statement. 

Evidence echoes earlier findings

The agency’s findings echo evidence found elsewhere, including in 1,000 pages worth of testimony from former students submitted by Connor’s organization as part of ITT’s bankruptcy proceedings.

Dozens of borrowers said in those documents that hiring managers literally laughed after seeing the school on their résumé; others testified that they had better luck when they removed ITT from their résumé.

More than 18,000 ITT former students have already had their private loans cancelled through a deal between the CFPB state attorneys general and the company that managed private student debt on behalf of the school. In addition, in 2018, the judge overseeing ITT’s bankruptcy approved a settlement cancelling $600 million in debt 750,000 former students owed to the school. 

Borrowers said in 1,000 pages of testimony that hiring managers literally laughed after seeing the school on their résumé.

In the statement released Wednesday, Connor urged the Department to follow the court’s lead. “The bankruptcy court has recognized that all 700,000+ students were scammed by ITT and are the true creditors,” she wrote. 

Borrowers have had the right to have their debt cancelled in cases where they’ve been misled by their schools since the 1990s, but the authority was rarely used until 2015 in the wake of Corinthian’s fall. 

Former students at Corinthian and other for-profit colleges, organized by activists, began flooding the Department with claims for debt relief. In response to that pressure, the Obama administration created a streamlined process in 2016 that borrowers could use to apply to have their debt discharged.

Advocates are urging the Biden administration to swiftly cancel the debt of borrowers who attended schools like Corinthian and ITT.

Under former Secretary of Education Betsy DeVos, the Department raised the burden of proof for borrowers seeking debt cancellation, and implemented a rule that provided some borrowers who were found to have been scammed with only partial loan relief. 

Now, advocates are urging the Biden administration to swiftly cancel the debt of borrowers who attended schools like Corinthian and ITT, saying the evidence is clear they were misled and are entitled to relief under the law. 

“It appears the Biden administration genuinely wants to help people who are owed discharges,” Alex Elson, vice president for policy at National Student Legal Defense Network, an organization that represents student loan borrowers, including former for-profit college students, said in litigation.

“But that makes it all the more confounding that they are so hesitant to use their authority to immediately and automatically help the countless additional borrowers who are still waiting,” Elson added.

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