How Education Dept. Is Now Handling Defrauded Loans

WASHINGTON, D.C.
Education Department officials recently announced a plan to grant partial debt relief to defrauded student borrowers based on the earnings of graduates who attended a particular program of study.

The department will issue about 12,900 approved claims with a wave of letters to borrowers in coming weeks, officials said, including some notices of partial relief. Another 8,600 denials will be sent to applicants at the same time. The letters would be the first notice from the department to borrowers in close to a year.

While the Obama administration granted full relief to borrowers, such as the thousands of former Corinthian Colleges students who sought to discharge their student loans after the collapse of the for-profit chain in 2015. This is the first clear indication of how the Trump administration and Betsy DeVos, the education secretary, who had criticized the department’s approach under Obama, plan to handle debt-relief claims.

“We have been working to get this right for students since day one,” DeVos said in a written statement. “No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly. This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified.”

The new formula for partial relief announced today will grant discharge amounts based on the typical earnings of a graduate who attended a specific program compared to the typical earnings for graduates who attended comparable postsecondary programs using gainful employment data collected by the department.

The department would use median or average earnings to make that determination – whichever is more generous to the individual applicant.

Borrowers who attended a program where earnings were 49 percent or less than those of graduates from a comparable program would receive full discharge. Above that, partial relief would be granted on a sliding scale.