Education Department could scale back loan help for defrauded students

The Education Department is considering only partially forgiving federal loans for students defrauded by for-profit colleges, according to department officials, abandoning the Obama administration's policy of erasing that debt.

Under President Barack Obama, tens of thousands of students deceived by now-defunct for-profit schools had over $550 million in such loans canceled.

But President Trump's education secretary, Betsy DeVos, is working on a plan that could grant such students just partial relief, according to department officials. The department may look at the average earnings of students in similar programs and schools to determine how much debt to wipe away.

The officials were not authorized to publicly comment on the issue and spoke on the condition of anonymity.

If DeVos goes ahead, the change could leave many students scrambling after expecting full loan forgiveness, based on the previous administration's track record. It was not immediately clear how many students might be affected.

DeVos has come under criticism for delaying consideration of over 65,000 applications for loan forgiveness. The agency hasn't approved a single claim since DeVos took office in February.

The department declined to comment. But the Trump team has given hints of a new approach.

In August, the department extended its contract with a staffing agency to speed up the processing of a backlog of loan forgiveness claims. In the procurement notice, the department said that “policy changes may necessitate certain claims already processed be revisited to assess other attributes.” The department would not further clarify the meaning of that notice.

DeVos' review caused an outcry from student loan advocates, who said the idea of giving defrauded students only partial loan relief was unjustified and unfair because many of their classmates had already gotten full loan cancellation. Critics say the Trump administration, which has ties to the for-profit sector, is looking out for industry interests.

Earlier this year, Trump paid $25 million to settle charges his Trump University misled students.

Sen. Patty Murray (Wash.), the top Democrat on the Senate committee overseeing education, criticized DeVos' plan as “appalling.”

“Secretary DeVos needs to stop listening to the corporate executives she's hired at the Department of Education, and instead do the right thing and start helping the defrauded students who are desperately seeking her help,” Murray said in a statement Monday.

Eileen Connor, a litigator at Harvard University's Project on Predatory Student Lending, which has represented hundreds of defrauded students of the now-shuttered Corinthian Colleges, said that defrauded students deserve to have their debts erased completely.

“Anything other than full cancellation is not a valid outcome,” Connor said. “The nature of the wrong that was done to them, the harm is even bigger than the loans that they have.”

“Even more importantly, it is completely unfair that a happenstance of timing is going to mean that one student who's been defrauded is going to have full cancellation and the next is not,” she added.

A federal regulation known as borrower defense allows students at for-profit colleges and other vocational programs to have their loans forgiven if it is determined that the students were defrauded by the schools. That rule dates to the early 1990s. But it was little used until the demise of Corinthian and ITT for-profit chains in recent years caused tens of thousands of students to request that the government cancel their loans.

In the last few months of the Obama administration, the Education Department updated the rule to add protections for students, shift more financial responsibility onto the schools and prevent schools from having students sign away their right to sue a school.

That change was set to take effect in July, but DeVos has frozen it and is working on a new version. She argued that the Obama regulation was too broad and could cancel the loans of some students without a sound basis.

Abby Shafroth, an attorney at the National Consumer Law Center, said the agency could be faced with lawsuits, especially from Corinthian students, whose classmates had received full forgiveness.

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