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ED Announces Full Debt Relief for Approved Borrower Defense Claims, Rescinding DeVos-Era Policy

By Owen Daugherty, NASFAA Staff Reporter

The Department of Education (ED) will provide full debt relief for students who were defrauded by their institutions and had their claims approved through the borrower defense program, agency officials announced Thursday. The department also confirmed that it will be pursuing a “re-regulation” of borrower defense in the future.

ED said it will rescind the formula for calculating only partial relief for borrowers with already approved borrower defense claims and instead use a new approach for granting borrowers full relief, noting that the change will provide roughly 72,000 borrowers with a total of $1 billion in loan cancellation.

“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Education Secretary Miguel Cardona said in a release announcing the change. “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.”

Borrowers who received partial relief through borrower defense will now receive full relief and will be contacted by ED in the coming weeks, with the actual loan discharges to follow.

A senior department official said in a call with reporters announcing the changes that after conducting a review of the partial relief methodology that was put in place under former Education Secretary Betsy DeVos, ED determined borrowers were not being given the appropriate amount of relief considering the degree of harm they experienced.

All of the 72,000 claims are from borrowers who attended for-profit institutions, the official said, reiterating that this move applies only to claims already approved, and that ED is not making any announcements about additional claim approvals at this time.

“There's adjudication and then there's relief amount. We're not touching the adjudication process at this point,” the official said. “What we're talking about is once the claim is approved, how much they are granted relief.”

Additionally, full relief for borrowers will include requests to credit bureaus to remove any related negative credit reporting and reinstatement of federal student aid eligibility, if applicable.

The announcement providing full relief to already approved claims effectively marks a return to the Obama-era borrower defense rules that were in place at the end of the administration, which were then rewritten under DeVos and went into effect in July. 

DeVos announced the partial debt relief statistical method in December 2019 in an effort to implement a more stringent policy than the one previously in place. That method was criticized at the time by higher education experts for faulty math and a flawed formula. 

The policy provided debt relief to borrowers by comparing the median earnings of graduates with borrower defense claims to the median earnings of graduates in comparable programs.

The official said ED had not yet determined how it would determine relief for future borrowers’ claims, adding that the department is continuing to review the large backlog of claims and those that have already been denied.

“We are well aware that there is a very large ... backlog of claims to be approved, as well as a large number of claims that were denied for which there is some ongoing litigation,” the official said Thursday. “Both of those are items we’re continuing to review, but we don’t have any announcements about them at this time.”

While no additional measures regarding borrower defense have been announced by ED yet, the department noted more is to come. 

“This is the department’s first step in addressing borrower defense claims as well as the underlying regulations,” the release stated. ED “will be pursuing additional actions, including re-regulation, in the future.”

 

Publication Date: 3/18/2021


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