Biden’s Education Secretary just canceled $1 billion of student-loan debt for about 72,000 defrauded borrowers

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  • The Dept. of Education just said it’s canceling debt for about 72,000 defrauded student borrowers.

  • This reverses a Trump-era policy that provided only partial debt-relief to the defrauded students.

  • Borrowers are still struggling to pay off debt after for-profit schools were shut down over scams.

  • See more stories on Insider’s business page.

Related: Highlights from Biden’s coronavirus anniversary speech

Although student debt cancellation for every American has not been implemented, debt accrued by students who were frauded by for-profit schools will see their loans forgiven in the coming weeks.

In his first major move as Education Secretary for President Joe Biden, Miguel Cardona on Thursday reversed a Trump-era policy that gave only partial relief to defrauded students. For-profit institutions that shut down years ago, like Corinthian Colleges and ITT Technical Institutes, violated federal law by persuading their students to take out loans, and Cardona’s new policy will help approximately 72,000 of those students receive $1 billion in loan cancellation.

Eligible borrowers will begin to receive notices over the next several weeks, according to the Department, and the discharge of the loans will follow.

“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Cardona said in a statement. “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.”

The debt-cancelation methodology from former Education Secretary Betsy DeVos compared the median earnings of graduates with debt-relief claims to the median earnings of graduates in comparable programs, and the bigger the difference, the more relief the applicant would receive. Cardona said that process did not result in appropriate relief determination and needed to be reversed.

According to the press release, full relief under the new regulations include:

  • 100% discharge of borrowers’ related federal student loans;

  • A reimbursement of any amounts paid on the loans, where appropriate;

  • Requests to credit bureaus to remove any related negative credit reporting;

  • And if applicable, a reinstatement of federal student aid eligibility.

In 2014, Corinthian Colleges – a for-profit company that enrolled students at over 100 campuses nationwide – announced bankruptcy after a series of investigations for defrauding students. According to a Senate document, the company made expensive private loans to students despite knowing ahead of time that most would default, and at its peak, Corinthian made more than $500 million from the Pell Grant program.

The Education Department fined Corinthian $30 million for misleading students.

Two years later, ITT Technical Institutes shut its doors after a series of fraud-related claims concerning loan disbursement, job placements, salaries, and more.

As a result, Senate Democratic Whip Dick Durbin in May, joined by other Democratic lawmakers, unveiled a plan to grant full student loan discharges to three categories of defrauded students in a COVID-19 relief package. The first two categories were for students who attended Corinthian Colleges and ITT Technical Institutes.

“The borrowers have been waiting years for the Department to provide them relief to which they are legally entitled,” Durbin said in a statement. “These borrowers have difficulty finding jobs and are often unable to provide for themselves or their families. They are unable to be productive participants in the economy because of ruined credit and are often prevented from completing their education due to their worthless debt.”

Although debt relief for defrauded students was not included in the lastest pandemic relief package, Durbin and other Democrats lauded the Biden administration for providing this relief to the affected students.

“For more than four years, defrauded borrowers and their families have lived under a cloud of education debt that they should not have to repay,” House Education and Labor Committee Chair Bobby Scott said in a statement.

“I applaud the Biden Administration for doing the right thing by making these borrowers whole, and I can only imagine the mixture of joy and relief they are feeling today. This announcement is life-changing for tens of thousands of people across the country.”

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