Gabriel T. Rubin
April 13, 2022
The Biden administration is working to expand forgiveness of student loans of students who successfully claim they were defrauded by schools, a key component of its piecemeal approach to reducing educational debt.
For-profit colleges worry that the administration could make it too easy to apply for and obtain loan forgiveness, potentially damaging the schools’ reputations and forcing some to close.
President Biden’s Education Department has canceled, or discharged, around $2 billion in federal debt held by tens of thousands of former students of for-profit colleges using a regulation known as borrower defense to repayment, after it determined that the schools had deceived the students about their job prospects, broken state consumer-protection laws, or otherwise harmed them financially. Most of the schools have since shut down.
The department promises more such discharges as it streamlines the process and works through a backlog of more than 150,000 claims for debt relief under the program, many of which have sat unaddressed for several years.
The administration is updating the borrower defense regulation, aiming to make it easier for borrowers to apply for loan forgiveness under the program.
“The current borrower defense process involves different rules that may often be too complex and require borrowers to navigate many hurdles,” Fabiola Rodriguez, an Education Department spokeswoman, said. “The Department is committed to making this process as straightforward as possible to ensure borrowers can access the benefits they are entitled after being lied to by their colleges.”
The department’s new rule is likely to change the criteria for forgiveness in a number of ways opposed by for-profit schools, like extending time limits for submitting claims and making it easier for borrowers to show evidence of fraud. They particularly object to a proposal under consideration to create a group-claims process in which borrowers with similar experiences of being misled by a school could team up to allege they were defrauded. The schools want the government to continue to require each borrower to prove that he or she was individually harmed.
“Group discharges could create panic at institutions, as students may fear that borrower defense approval will cause the institution to close,” said Jessica Barry, a for-profit college president, during a December meeting of the department’s committee of stakeholders participating in the rule-making process.
As part of the rule-making process, the department convened a committee of so-called stakeholders—parties with interests in the outcome, including schools, borrowers and state attorneys general—to negotiate the details of the proposal before it is released for public comment. The group deadlocked on the central question of whether to allow group claims.