$1 billion in student debt to be canceled for some borrowers. Here’s what to know
President Joe Biden’s administration says it will “streamline” student debt forgiveness for thousands of borrowers.
The announcement from the U.S. Department of Education last week comes as some Democratic lawmakers have been pushing for broader student debt cancellation. Here’s what you need to know, including how the forgiveness will work, which borrowers it affects and how we got here.
Who is affected?
Some borrowers who were defrauded by their colleges.
The Education Department says it will “streamline debt relief determinations” for the roughly 72,000 borrowers whose claims that their institutions “engaged in certain misconduct” were approved under the Borrower Defense provision, including those who received partial forgiveness under former President Donald Trump’s administration.
The Borrower Defense rules allow borrowers to apply for loan debt cancellation if they believe they were defrauded or misled by their institutions.
How the forgiveness works
The Education Department is doing away with a Trump-era “formula for calculating partial relief.” Instead, it will take a “streamlined” approach to granting full relief to eligible borrowers.
It says the relief includes:
▪ Full “discharge of borrowers’ related federal student loans.”
▪ A reimbursement for borrowers who have made payments on their loans.
▪ A request to credit bureaus to undo “negative credit reporting” related to the loans.
▪ A ”reinstatement of federal student aid eligibility.”
When will the cancellation happen?
The Education Department said the change took effect last week.
Those affected will receive notices in the coming weeks with “discharges following after that.”
How we got here
During former President Barack Obama’s administration, borrowers were granted full loan forgiveness if it was determined their institution committed fraud, and thousands of such claims were approved, NPR reports.
This came amid the discovery that some private, for-profit colleges had misled students or shut down due to federal pressure, according to CNN.
But Trump’s Secretary of Education Betsy DeVos changed how the cancellation was calculated, meaning some eligible borrowers received only partial relief based on their income, CNN reports. The change also resulted in a backlog of more than 200,000 claims.
The change announced last week brings back the Obama-era policy.
Why it matters
Students who attended some private, for-profit colleges accused their institutions — some of which have shut down — of lying to them about job prospects after graduation, the ability to transfer credits and other aspects.
And DeVos’s formula for calculating debt relief for these borrowers — which was based on a comparison of the median salary of applicants to that of graduates of similar programs — was criticized because it created “impossible standards” for full relief as many applicants did not complete their degrees, The Washington Post reports.
“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Secretary of Education Miguel Cardona said in a news release last week. “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.”
What about other borrowers?
The Education Department says last week’s announcement is the “first step in addressing borrower defense claims as well as the underlying regulations.”
“The Department will be pursuing additional actions, including re-regulation, in the future,” it says.
But roughly 44.7 million borrowers owe about $1.71 trillion in student loan debt, LendingTree estimates, and some Democratic lawmakers have pushed for Biden to provide more broad student loan debt forgiveness.
Some have argued that the Biden administration could cancel debt without Congress under the Higher Education Act of 1965, and last month, a group of Democrats introduced a resolution calling on Biden to use an executive action to cancel $50,000 in student loan debt for every person holding such debt.
“This is also a civil rights issue. A disproportionate burden of student debt falls on people of color often times because they were taken advantage of by a lot of these awful, despicable disgusting ... for-profit colleges,” Senate Majority Leader Chuck Schumer said during a press conference about the resolution.
Biden, however, has expressed doubt over whether presidents have the power to cancel debt through executive action. But he has said he supports canceling $10,000 in student loan debt per borrower.
This story was originally published March 24, 2021 at 10:41 AM with the headline "$1 billion in student debt to be canceled for some borrowers. Here’s what to know."
