Roughly 16,000 borrowers who were scammed by their schools will have their federal student loans discharged, resulting in $415 million in relief, the Department of Education announced Wednesday.
The borrowers receiving relief attended four for-profit colleges that the agency found misled students in the process of luring them into enrolling and taking on debt to pay for school. The action announced Wednesday marks the latest in a series of moves by the Biden administration over the past several months canceling the federal student loans of students who say they’ve been wronged by their schools.
“Students count on their colleges to be truthful,” Secretary of Education Miguel Cardona said in a statement. “Unfortunately, today’s findings show too many instances in which students were misled into loans at institutions or programs that could not deliver what they’d promised.”
The announcement comes amid pressure for broad-based student debt cancellation and calls from advocates to do more for students who were defrauded by their colleges. It’s the latest in a saga over a process known as borrower defense to repayment that dates back to the Obama administration.
On the books since the 1990s, but rarely used until activist pressure
Since the 1990s, federal student loan borrowers have had the right to apply to the federal government to have their debt discharged in cases where their schools misled them. But it wasn’t widely used until 2015 when activists flooded the Department of Education with applications for loan cancellation on behalf of former for-profit college students, including those who attended Corinthian Colleges, which collapsed in bankruptcy amid allegations it lured students using inflated job placement and graduation rates.
Under that pressure, the Obama administration created a streamlined process for borrowers to apply to have their debt discharged. But during the Trump administration, cancellation under borrower defense essentially stalled. Officials from both administrations have faced pressure for years to discharge debt in batches when there’s evidence of wrongdoing during a particular period at a particular school.
New findings from the Department about misconduct at the various schools served as the basis for the 16,000 borrowers who are part of Wednesday’s announcement. In the past, borrowers who had their claims approved attended colleges that already shut down, making it difficult for taxpayers to recoup the funds from the schools accused of wrongdoing.
But about 1,800 of the borrowers who are part of Wednesday’s announcement attended DeVry University, which is still operating. Department of Education officials told reporters on a conference call that they plan to seek to recover the $71.7 million in federal student loans held by former DeVry students that the agency is discharging from the school’s parent company, Cogswell Education.
“There will be liabilities for the current owners of these schools to deter wrongdoing not just at DeVry but everywhere that it might otherwise occur,” James Kvaal, under secretary of education, told reporters.
Still, officials stopped short of saying that the findings announced Wednesday put DeVry at risk of losing access to federal financial aid funds.
Instead, the findings become relevant data as officials assess the school’s ongoing performance, said Richard Cordray, the chief operating officer of Federal Student Aid, an office within the Department that oversees the government’s student loan portfolio and monitors the schools and companies participating in the loan program.
“I don’t think we can say one way or the other that this is decisive of any future action,” Cordray said. “But it is certainly part of the mosaic that we will look at as we make those assessments.”
The agency found that between 2008 and 2015 DeVry advertised a 90% job placement rate to potential students, when the school’s actual job placement rate was 58%. In 2016, DeVry agreed to a $100 million settlement with the Federal Trade Commission over similar allegations. As part of the FTC deal, DeVry agreed to provide cash to some students and cancel the debt of students who took on loans made by DeVry. But no federal student loan relief came as part of the settlement.
Donna Shaults, senior director of university relations for DeVry, wrote in an emailed statement that the school is “deeply committed to student success,” adding that the students whose claims were discharged by the Department of Education attended the school several years ago, before they brought in a new board and leadership.
“Nonetheless, we do believe that the Department of Education mischaracterizes DeVry’s calculation and disclosure of graduate outcomes in certain advertising, and we do not agree with the conclusions they have reached,” Shaults wrote.
In addition to former DeVry students, the Department is discharging the debt of certain borrowers who attended three other schools that are now defunct. The discharges come as the Biden Administration is facing pressure to do more for students who were defrauded by their schools.
Pressure to do more for scammed students
The 16,000 borrowers who are part of Wednesday’s announcement represent a small fraction of students who were scammed by their schools and should have their debt wiped away, Eileen Connor, the director of Harvard Law School’s Project on Predatory Student Lending, said in a statement.
Students who attended ITT Technical Institute are one of the groups of borrowers Connor says the Department could be doing more to help. Connor’s organization represents 700,000 former ITT students in the school’s bankruptcy. The federal bankruptcy court has recognized those former students as creditors. Connor’s organization is urging the Department to cancel all federal student loans related to ITT regardless of when the borrower attended or whether they filed a borrower defense claim.
As part of Wednesday’s announcement, Department officials said they were cancelling the debt of a slice of those ITT students. About 130 borrowers who attended ITT’s nursing program will have $3.1 million-worth of debt discharged, officials said. The agency found that between 2007 and 2016 ITT told potential students that its nursing program would soon receive accreditation — which would be necessary for a potential student to get a job — when that actually wasn’t the case. Earlier this year, the Biden administration canceled $500 million in loans for about 18,000 former ITT students.
A report released by the Project on Predatory Student Lending on Wednesday based on internal company documents obtained as part of the case detailed ITT’s approach to luring students into enrolling and signing them up for student loans. Some of the practices highlighted in the report include requiring call center representatives to make 80 to 100 calls per day, filling out financial aid forms on behalf of students without their knowledge, and creating a fictional company to claim a student was employed there.
“This piecemeal approach barely scratches the surface of President Biden’s borrower defense backlog,” Connor said in a statement. “To me, this announcement indicates that the Department lacks the courage to take bold action to correct past wrongs, and is instead doubling down on an incoherent approach. There are hundreds of thousands of defrauded borrowers who are equally owed loan cancellation and zero reason to make them wait any longer.”
Advocates have also pressured the agency to hold executives and owners of for-profit colleges liable in cases where the schools they run or own collapse. In the agency’s press release announcing the student debt relief, the Department named owners and senior leaders who oversaw the schools during the periods of alleged misconduct, but didn’t mention any specific consequences for those individuals.
“We do intend to try to hold leaders of schools that fail students responsible in every case we can,” Cordray told reporters. Still, he noted that the conduct referenced in Wednesday’s announcement stretches back several years. “It gets difficult to seek relief as matters become more stale. It is something that is very much on our minds going forward, it is not so easy to do going aways into the past.”
Wednesday’s announcement is the latest in the Biden administration’s effort to provide what officials have called “targeted relief” to student loan borrowers. Through this approach, officials have canceled the federal student loan debt of borrowers in cases where it’s clear they’re legally owed a discharge, including because they were defrauded by their school, have a disability that’s so severe they’re unable to work, or are a public servant eligible for the Public Service Loan Forgiveness program.
So far that’s resulted in about $16 billion in relief for more than 680,000 borrowers, according to the Department of Education. Still, the Biden administration is facing calls for widespread relief that would impact a larger share of the nation’s more than 40 million borrowers who owe $1.7 trillion in student loans.