Student Loan Borrowers Defrauded by For-Profits Will Only Receive Partial Relief Under New DeVos Plan

By Lauren Camera, U.S. News

13 December 19

The department expects the ‘majority’ of the first batch of claims – numbering as high as 20,000 – will be ineligible for debt relief.

he Trump administration has announced a new plan for how it will process a backlog of more than 210,000 claims for student loan forgiveness from borrowers defrauded by for-profit colleges – a new strategy that includes a formula that will provide only partial relief to the majority of them.

"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 issued Tuesday. "This new methodology treats students fairly and ensures that taxpayers who did not go to college or who faithfully paid off their student loans do not shoulder student loan costs for those who didn't suffer harm."

Congressional Democrats were swift to blast Education Secretary Betsy DeVos and department officials for not granting borrowers full student loan forgiveness.

"Under the Borrower Defense rule, the Department of Education has the clear authority to provide full debt relief to students defrauded by their college," Rep. Bobby Scott, Virginia Democrat and chairman of the education committee, said in a statement. "Rather than simply exercising that authority and providing life-changing relief to defrauded borrowers, the Department is inventing another scheme to provide students less relief than the law allows."

But department officials say the law also gives DeVos the authority to create a new methodology for the debt relief that is in line with administration priorities – and in this case, for the Trump administration, that priority is limiting the relief to those who were most seriously harmed. It represents a major shift from the more inclusive criteria for relief established by the Obama administration.

"We believe, you know, the administration changed, and the secretary has the authority to establish relief and our secretary has done that," said Diane Auer Jones, principal deputy undersecretary at the Education Department, during a briefing with reporters Tuesday. "Our secretary is exercising her authority to establish a tiered relief methodology that we believe is fair to all borrowers and taxpayers."

The new methodology uses various publicly available earnings data to compare median earnings of graduates who have made borrower defense claims to the median earnings of graduates from comparable programs. If the median earnings from the school in question are lower than the median earnings for that program at all comparable schools, then the applicants will be determined to have suffered harm and will receive student loan relief – either in full or in part, depending on how much lower the median earnings are.

Notably, the department said it plans to award no less than 10% relief to all eligible borrower defense applicants who attended a program at the now-shuttered for-profit giant Corinthian Colleges, regardless of the median program earnings comparison.

Jones said that department officials rendered a large portion of the first batch of claims ineligible for relief for a number of reasons, including, among others, that the applicants did not have a federal loan related to the claim or that the applicants didn't make an allegation or provide sufficient evidence that the institution violated an applicable state law.

"The numbers are a little bit still flexing," she said. "The majority of them will be ineligible."

The department is sending out the first batch of notifications for anywhere from 15,000 to 20,000 borrower defense claims immediately.

Congressional Democrats argued the new methodology uses "faulty math" and doesn't provide meaningful relief to students who were duped by the for-profit colleges.

"If a student has been cheated or defrauded by their college, they should get their money back, plain and simple – but this new 'methodology' uses faulty math to justify denying borrowers the relief they are owed," Sen. Patty Murray, Washington Democrat and ranking member of the Health, Education, Labor and Pensions Committee, said in a statement. "While this step is deeply concerning, unfortunately, it's not surprising – because it is one more in a long list of examples of Secretary DeVos skirting her legal responsibilities to protect students and borrowers." 

Much of the criticism of the new plan was aimed at the decision not to notify for nearly three years the roughly 9,000 borrowers whose claims the Obama administration had adjudicated and found ineligible but didn't notify before the change in administrations.

Jones said department officials chose not to notify those individuals that their claims were ineligible because they didn't want other borrowers to panic. 

"We were worried about borrowers losing confidence," she said. "We were. We understand that if a borrower is holding this loan and all you hear about is ineligible, you're automatically going to think, 'Oh my gosh, do I have any chance?' Well if you have an eligible claim, then absolutely you have a chance."

"Can you imagine if ineligibles were sitting out here for five or six months," she asked. "Borrowers would panic."

She also said the department would cancel the interest that accrued on those loans over the course of the three years. Scott noted that making such a move in connection with delays in notification is ultimately only going to raise the price tag of relief for the federal government. 

"The Department's reluctance to process Borrower Defense claims is not only forcing students to put their lives on hold, it is also increasing costs for taxpayers," Scott said. "Once a student files a Borrower Defense claim, the federal government is on the hook for much of interest that accrues while they wait for the claim to be processed. The Department's failure to process any Borrower Defense claims over the past year – which has produced a backlog of more than 200,000 claims – is racking up an interest bill, even on claims that are ultimately denied, that will be paid by taxpayers."

The department's release of the new methodology comes just a day before DeVos is set to testify before the House Education and Labor Committee on how the department incorrectly collected federal student loan payments from borrowers who were defrauded by for-profit colleges. It will be the first time the secretary has appeared before Congress since April, eight months ago. 

It will also be the first time DeVos comes face-to-face with Scott and other congressional Democrats, who have have intensified their criticism of the secretary on the issue of for-profit colleges – both her handling of debt relief and her involvement in granting a for-profit college operator retroactive accreditation and non-profit status in order to make legal the flow of federal student aid to the schools.