The Education Department announced plans Thursday to rescind the formula established by the Trump administration that provided only partial debt relief to student loan borrowers who were defrauded by their schools.
A new plan to grant full relief to all borrower defense claims approved to date, including for those who already received less than a full loan discharge, is expected to extend roughly $1 billion in additional debt relief to 72,000 borrowers.
“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Education Secretary Miguel Cardona said. “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.”
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In December 2019, the Trump administration announced a new methodology for processing a backlog of more than 210,000 borrower defense claims – a methodology that limited relief to those who were most seriously harmed and resulted in a large portion of the claims being denied or granted only partial relief. At the time, the new methodology represented a major shift from the more inclusive criteria for relief established by the Obama administration and was just one of several similar efforts to make it more difficult for borrowers who had been defrauded to seek relief.
Six months later, in one of the most egregious examples of those efforts, a whistleblower at the Education Department came forward with evidence of a top political appointee who tried to kill the development of a new website that allowed borrowers who had been defrauded to apply for debt relief, claiming it made the application process too easy.
It’s not surprising Cardona and his team moved quickly to reverse course on the methodology established by the previous administration.
Critics of the methodology, including congressional Democrats and Republicans, student loan advocacy groups, veterans groups and higher education policy experts, panned it for intentionally limiting the amount of relief borrowers can receive by lumping them together with borrowers from other schools and drawing on earnings from programs that aren’t comparable. The methodology is currently under investigation by the Education Department’s Office of Inspector General.
On a press call with reporters Thursday morning, senior Education Department officials said the Trump-era formula created a very difficult if not impossible standard for borrowers to be approved for full relief and in some cases potentially denied relief altogether.
Cardona underscored that Thursday’s announcement is just the Education Department’s first step in addressing the underlying “borrower defense” regulations established by the Trump administration, which revised the process for how student loan borrowers can seek debt relief if their college or university misled them about things like job placement rates or estimated annual earnings. The rule, finalized last year, makes it more difficult to qualify for relief.
In addition to discharging 100% of borrowers’ federal student loans, Education Department officials said Thursday that the department will also reimburse any amounts paid on the loan, request credit bureaus to remove any related negative credit reporting and reinstate federal student aid eligibility.
The new policy will be implemented immediately, Education Department officials added, and affected borrowers will receive notices from the department over the next several weeks with discharges following after that.