Biden Administration to Forgive Defrauded Student Debt

• Tens of thousands of students misled by for-profit colleges could see their debt erased.
• Biden's Department of Education promises $1 billion in relief for defrauded students.
• The new rule removes Trump-era strictures on who may be granted full relief.

President Joe Biden's education secretary, Miguel Cardona, continues to roll back the policies of his predecessor, Betsy DeVos. His most recent changes, according to the Department of Education, clear the path for tens of thousands of students to collectively receive $1 billion in student loan relief.

Students who believe they've been cheated by their colleges can apply to have their federal student loans erased. A legal provision known as "borrower defense" allows borrowers to defend themselves against repaying their federal student loans if their schools misled them.

Students who believe they’ve been cheated by their colleges can apply to have their federal student loans erased.

Graduates have charged hundreds of colleges, nearly all for-profit institutions, with misrepresenting career readiness and job market opportunities and miring students in debt.

The federal government effectively endorses schools by backing their student loans. How the government takes responsibility for colleges' misconduct, however, has been legally murky for decades.

Former Rules Limited Whose Debt Could Be Erased

DeVos tightened borrower defense rules, requiring claimants to prove schools knowingly misled them, and instituting a formula to compare the earnings of graduates who filed claims against those of graduates from similar programs. Claimants who earned less would receive 25%, 50%, 75%, or 100% debt forgiveness based on how much less they earned.

The stricter rules resulted in the Department of Education denying 130,000 claims in 2020 alone, up from 9,000 rejections over the previous five years. Nearly two dozen state attorneys general sued the Trump administration over its approach to the borrower defense to repayment program, arguing that DeVos' policy erected "arbitrary impediments" to debt forgiveness.

But Biden's Department of Education believes the methodology didn't award appropriate relief. "Borrowers deserve a simplified and fair path to relief," said Cardona, promising that borrowers with cases against their schools will be granted full relief.

New Rules Pave the Way for Further Debt Forgiveness

As of March 18, the Department of Education assures full loan discharges to borrowers with defense claims. The department has rescinded DeVos' formula for calculating partial debt relief and instead adopted "a streamlined approach" that aims to help around 72,000 borrowers receive a total of $1 billion in loan forgiveness.

In addition to providing a 100% discharge of borrowers' federal student loans, the department will request credit bureaus to remove any related negative credit reporting and reinstate federal student aid eligibility.

Defrauded students will be the first to have their debt forgiven by the Biden administration. While Biden has so far ignored Democratic lobbying to cancel $50,000 of every student borrower's debt by executive action, signs point to widespread cancellation. A provision in the latest COVID-19 relief bill temporarily changes how debt forgiveness is taxed, laying the foundation for student debt forgiveness within the next four years.

Feature Image: JIM WATSON / Contributor / AFP / Getty Images