Department of Education Rolls Back DeVos-Era Student Loan Cancellation Rules

By Noah Kotlarek


In early December 2019, then-Secretary of Education Betsy DeVos gave the greenlight for a new methodology of calculating and approving student debt relief claims made by those who were defrauded by for-profit colleges. The then-new methodology would compare the earnings of the filing and potentially defrauded borrowers to the earnings of a graduate from a similar program. The less the filing borrower earned compared to the average graduate of a similar program, the more she would receive in federal debt relief. Those filing who earned the least would be eligible to receive 100% debt relief. However, those who earned less than the graduate of a comparable program but more than that of those filing who earned the least would be eligible for federal debt relief equivalent to 75%, 50%, or 25% of their debt.

This new measure, dubbed the “partial-relief rule” by critics, was a departure from the Obama-era policy, under which all filing and approved students/graduates defrauded by for-profit colleges would receive 100% federal debt relief. Further, DeVos created a harsher statute of limitations for borrowers to prove that they were defrauded. DeVos defended her administration’s controversial new methodology, claiming that the new policy was not only fair to students but also to taxpayers who would ultimately be footing the bill for these defrauded students. Some critics questioned the legality of the new ruling, claiming that under the 1995 debt relief statute, denying defrauded students full loan cancellations was illegal. Others critiqued the new policy’s methodology, stating that the practice of comparing the filing person’s earnings to that of a graduate of a similar program was “nonsensical.”

On Thursday (March 18, 2021) to the delight of DeVos’s critics and defrauded students, the Department of Education announced it would be providing full debt relief to borrowers defrauded by for-profit colleges. This group includes both new filers and those who were previously granted only partial relief under DeVos’s rule. The Education Department’s new ruling, which will not only fully discharge these debts but also reimburse borrowers who have already made loan repayments, is estimated to cost the government, and therefore taxpayers, one billion dollars. This new ruling will help about 72,000 borrowers, most of whom attended the for-profit colleges ITT and Corinthian.  The amount of economic benefit that freeing these defrauded borrowers from their debts is currently unknown.

The current Secretary of Education, Miguel Cardona, believes that this relief represents a deserved “fresh start” for defrauded students who “have been harmed by their institution’s misconduct.” The true criminal is not DeVos but rather the for-profit colleges that defrauded its students. (Note, as of January 2017, DeVos did not have any “direct ownership stake in a private for-profit college;” although she did have invested money with firms that have stakes in the for-profit education sector.) However, DeVos’s measures cost borrowers who were either denied or granted only partial relief. Consequently, the Department of Education is still facing class-action lawsuits filed during DeVos’s reign by over 200,000 borrowers who applied for loan forgiveness. Allegations from these lawsuits include that under DeVos’s final year in office, (2020, the year after the implementation of the “partial-relief rule”), 130,000 claims for student loan forgiveness were rejected versus 9,000 annual claims rejected in the preceding five years. Plaintiffs also allege that about 91,000 applications were rejected without sufficient explanation.

Changes made by Cardona’s current Department of Education have been lauded by student loan borrowers and Democrats, but the Biden Administration still faces pressure to do even more for indebted students, who as of June 2020, collectively owe about $1.70 trillion (2012 dollars) in both public and private student loan debt. In 2012, that figure was $1.04 trillion (2021 dollars) and in 2003, “just” $253 billion dollars. Increased enrollment is not solely or mostly to blame. Undergraduate college enrollment has increased only 14% from 2003 to 2018. Admittedly, graduate school enrollment has increased more substantially, up 38% from 2000 to 2016, resulting in greater total student loan debt. However, this increased enrollment trend points to the true reason total student loan debt has increased so dramatically over the past two decades. An undergraduate education is no longer enough. Real wages have stagnated since the 1970s; while costs of living have increased. In order to attain higher standards of living in this climate and even to pay off existing undergraduate student loans, students must borrow even more to finance their graduate schooling in hopes that they’ll end up in a position better-suited for paying off both their undergraduate and graduate loans.

Policy changes and federal debt cancellations alone cannot solve this colossus of a problem. Societal, cultural, and economic paradigm shifts will have to occur on the global level at an even more colossal scale if we are to even hope that the level of personal indebtedness, which leads to national indebtedness, can be reduced.

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