Betsy DeVos announces changes to loan forgiveness that hurt defrauded students

The changes would hurt students who have minimum wage jobs, education experts say.

U.S. Education Secretary Betsy DeVos speaks during a dinner hosted by the Washington Policy Center, Friday, Oct. 13, 2017, in Bellevue, Wash. CREDIT: AP/Ted S. Warren
U.S. Education Secretary Betsy DeVos speaks during a dinner hosted by the Washington Policy Center, Friday, Oct. 13, 2017, in Bellevue, Wash. CREDIT: AP/Ted S. Warren

Students who were defrauded by for-profit colleges and have jobs will find it more challenging to get debt relief, thanks to a new decision by Education Secretary Betsy DeVos.

On Wednesday, DeVos announced changes to how the department decides how much students get for debt relief. The decision will affect 20,000 pending claims from students who were the victims of schools that convinced them to take out predatory loans and also misrepresented job placement rates and whether students can transfer credits.

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The new changes would provide tiers of relief to compensate students who attended schools that were part of the now defunct Corinthian Colleges, a for-profit chain. Those tiers will be based on current earnings of peers from a passing gainful employment (GE) program. If a student’s earnings are less than 50 percent of their peers’ earnings from a passing GE program, they will receive full relief. But if they are at 50 percent or more, they will only receive partial relief based on different tiers.

The data the department is relying on was collected under the gainful employment regulation, which punishes programs where students graduate but appear unable to repay debt. DeVos has previously delayed key provisions of the gainful employment rule — making it strange that she is now relying on it to limit debt relief for students.

In addition, higher education experts say that the problem with relying on this data is that it only shows the information for students who completed their career training programs, even though plenty of students who were defrauded didn’t finish their programs. It also punishes any student who simply found a minimum wage job, regardless of whether the job is related to the training they received.

Clare McCann, deputy director for federal higher education policy at New America, noted that the earnings of passing programs tend to be very low and hover around the minimum wage for those who work full-time.

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“Using GE passing programs doesn’t make a lot of sense because GE passing programs may not have good earnings and the other component of that is that the passing programs are based on a debt-to-earnings ratio and that may mean they just have very low debt and low earnings,” McCann said.

McCann added that earnings don’t necessarily capture the damage done to defrauded students. “It may or not be related to the way in which they were lied to,” she said. “The basis of many of the claims that have been approved is that the credits didn’t transfer, so maybe they started over and got a degree at another school. But they were still lied to about whether or not the credits transferred. It has nothing to do with whether or not they are making money.”

Ben Miller, senior director for Postsecondary Education at American Progress, tweeted that most part-time jobs at the minimum wage would disqualify students for full relief.

Moreover, the department may not even be authorized to use this data. The Washington Post obtained an email showing that the Social Security Administration told a Democratic staffer that in its “unofficial, non-legal, staff-level understanding … we do not believe [the Education Department] would be authorized to use earnings information we provide under any current agreement to make decisions about whether or not to grant debt relief to borrowers in certain vocations.”

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This latest action is the result of a long battle with the education department over debt relief for defrauded students. People who attended some for-profit colleges, including the now defunct Corinthian Colleges Inc. chain and ITT Technical Institutes, fought to access debt relief through a little-known rule created in the 1990s. This rule held that if colleges and universities that engaged in behavior that violated state law, borrowers could have federal student loans cancelled, be relieved of the obligation to repay all or part of the loan, or be reimbursed for the payment of the loan.

Student debt activists campaigned for the Obama administration to make changes to the process and let them access relief, but the process was slow. In March of last year, the department finally announced that many defrauded students would have a clear path to debt relief. After 16,000 claims were approved by the Obama administration, but not discharged, the Trump administration said it would review all claims but none of them were approved. On Wednesday, the department announced it approved 12,900 claims and denied 8,600 submitted by former Corinthian students.

To make matters worse, in October, the department also delayed regulations that simplify the claims process by inviting public comment on a plan that gives the department until the summer of 2019 to implement updates on the rule.

McCann said that this announcement unfairly puts students who did not get their claim reviewed by the end of the Obama administration at a disadvantage.

“What we’re talking about is taking everyone who was maybe in the same program who experienced similar misrepresentation and lies by their school and maybe even applied on the same day for a borrower defense discharge,” she said. “But the one who was unlucky enough to not get their claim reviewed by the end of the Obama administration could now wind up with as little as 10 percent of their debt discharged, whereas the person on Jan. 19 got 100 percent. Within the same rulemaking, within same regulatory regime, it’s not fair to treat students differently. This announcement was specific to Corinthian so that seems extremely unfair and arguably illegal.”

McCann added that although it is not illegal to come up with an entirely different relief framework while going through a rule-making process on borrower defense to repayment, it’s inadvisable.

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“It’s ill-advised for them to be simultaneously undertaking two regulatory processes for all intents and purposes, one of which is formal and another of which is informal, without any stakeholder input,” McCann said.