The US Department of Education announced Thursday that tens of thousands of student loan borrowers who have been defrauded by their schools will benefit from a student loan forgiveness that could total $ 1 billion.
The relief will be provided under the Distressed Borrower’s Repayment Defense Program. The Obama administration promulgated regulations governing this loan cancellation program in 2016 to provide student debt relief to students who have been misled, defrauded, or otherwise harmed by predatory colleges and universities – often for-profit schools.
Under former Education Secretary Betsy DeVos, however, the Education Department rewrote the rules governing the borrower advocacy program. New regulations that came into effect on July 1, 2020 have significantly weakened borrower defense relief for student loan borrowers and increased the burden of proof required to prevail. The ministry also instituted a controversial new policy of granting partial (instead of full) student loan relief for approved borrower protection applications.
Education Secretary Miguel Cardona, who was recently confirmed to replace DeVos, announced the ministry’s policy change regarding borrower defense demands. Borrowers will now be eligible to receive full waiver of the student loan, along with refunds for payments already made, as well as removal of associated negative credit reports.
“Borrowers deserve a simplified and fair path to access when they have been harmed by the bad conduct of their institution,” Secretary Cardona said in a statement. “Careful examination of these claims and the associated evidence has shown that these borrowers have been wronged and we will give them a fresh start on their debt.”
Importantly, the relief will only apply to about 72,000 student loan borrowers who have attended for-profit schools already approved by the Department of Education for borrower defense relief. It does not apply to the tens of thousands of additional student loan borrowers who are awaiting a decision, or whose claims were previously denied by the ministry. Eligible borrowers should be notified by the Ministry in the coming weeks.
The policy change also has no impact on a recent court ruling this week regarding the borrower’s defense against repayment program. The move largely upheld the stricter regulations passed for the program under former Secretary DeVos, which increases the burden of proof required for student loan borrowers to get their applications approved, requires borrowers to show they have suffered. financial harm and narrows the definition of misrepresentation.
To reverse these stricter regulations, the Biden administration could potentially enact new rules that are more favorable to borrowers in their stead. However, this could be a long and drawn-out process, as new regulations must comply with the Law on Administrative Procedures and include a significant contribution from the public. Secretary Cardona did not expressly say whether he would begin the process of drafting new regulations.
Alternatively, Congress could pass a law rescinding the current rules and establishing a borrower defense regime that makes it easier for student loan borrowers to obtain relief. Congress passed such legislation last year on a bipartisan basis, but the bill was opposed by President Trump. It is not known whether the bill will be adopted again this session.
“Giving up partial relief is a good start for a small subset of borrowers,” Toby Merrill, director of the Predatory Student Loans Project, said in a statement. “But what we need from the Department of Education is an overhaul of the current borrower advocacy process … The previous administration turned borrower advocacy into a total sham that was rigged to deny borrowers. complaints without any real consideration. The Biden-Harris administration must now either remedy these failings or else perpetuate a system that is stacked against the very students they are meant to protect. “
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