The U.S. Department of Education announced Thursday it is scrapping a controversial formula, championed by former Education Secretary Betsy DeVos, that granted only partial student loan relief to borrowers who were defrauded by private, for-profit colleges. It will instead adopt what it's calling a "streamlined approach" for granting borrowers full relief.
In a call with reporters, a senior official said the department had reviewed the DeVos-era formula "and determined it was not granting an appropriate level of relief to borrowers," given clear evidence they had been defrauded. The senior official said the formula relied on math that made it "very difficult if not impossible" for some borrowers to qualify for full relief.
The department estimates the change would ultimately help approximately 72,000 borrowers who have had their claims approved, but who received less than full relief under the previous formula — and that they will receive a combined $1 billion in loan cancellation.
The change revolves around a provision in federal law, commonly known as Borrower Defense, that allows borrowers who believe they have been cheated by a college or university to apply to have their debts erased. During the Obama administration, the Education Department approved thousands of claims from former students of Corinthian Colleges and ITT Technical Institute.
One department memo from the last days of Obama's presidency begins: "Corinthian Colleges, Inc. ('Corinthian') consistently represented that all graduates obtained jobs after graduation or, relatedly, that its students were guaranteed employment after graduation. These representations were false and misleading. Accordingly, the Borrower Defense Unit recommends full relief for Corinthian borrower defense (BD) applicants."
Another memo, dated Jan. 10, 2017, arrived at the same conclusion for California-based students who alleged they were lied to by ITT Technical Institute, and likewise recommended full relief.
But DeVos criticized the department's old approach to Borrower Defense for being too generous and unveiled the partial-relief formula in December 2019. The formula compared the earnings of Borrower Defense applicants to the earnings of graduates from similar school programs; if the earnings were similar, DeVos' department argued, borrowers were not ultimately harmed by a school's deception. This approach, DeVos said at the time, "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."
In a statement, DeVos' successor at the department, Miguel Cardona, made clear he sees things differently: "A close review of these claims and the associated evidence showed these borrowers have been harmed and we will grant them a fresh start from their debt."
The department has also pledged to restore borrowers' eligibility for federal student aid and to petition credit bureaus on behalf of borrowers to remove related negative credit reporting.
Thursday's announcement is likely just the first step of many the department will take to roll back the previous administration's changes to Borrower Defense, policies that are also being challenged in court.
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