Biden cancels $500 million in student debt for victims of for-profit school fraud

The Department of Education is canceling $500 million in student loan debt for 18,000 former ITT Tech students defrauded by the now defunct for-profit college, another step the Biden administration is taking to address a backlog of more than 100,000 forgiveness claims left over from the Trump administration.

ITT Tech, which shut down in 2017 after the government pulled its federal funding, misled students about how much they could expect to earn after graduating and about the ability to transfer credits, the Department of Education said Wednesday.

The announcement comes three months after the Biden administration said it would cancel $1 billion in student loan debt for about 73,000 defrauded students who were deemed eligible for the relief under former Education Secretary Betsy Devos but received only partial loan forgiveness after she changed the cancellation calculation.

Known as Borrower Defense, the policy allows students who were defrauded by their college to seek debt relief. The forgiveness process was simplified during the Obama administration when big for-profit colleges like Corinthian and ITT Tech shuttered.

A years-long wait

Morgan Marler had trouble finding a job after she graduated from ITT Tech with an associate’s degree in information technology in 2016.

Other schools won’t accept her credits and she’s too scared to take on more debt to pursue another degree. Instead, her husband decided to rejoin the Army and she stays home to take care of their daughter. Marler is cautiously optimistic about the department’s announcement.

“I’ve been waiting for years so I won’t believe it’s true until I get an official letter,” she told CNN.

DeVos made it clear that she thought the rule was “bad policy” that puts taxpayers on the hook for the cost of the debt relief without the right safeguards in place and made changes to limit its reach. The revisions made by DeVos put the rule in limbo throughout the entire Trump administration. For about 15 months between 2018 and 2019, zero applications were processed while the total pending grew at one point to more than 200,000.

The department has since reversed DeVos’ changes under Education Secretary Miguel Cardona.

“Many of these borrowers have waited a long time for relief, and we need to work swiftly to render decisions for those whose claims are still pending,” Cardona said in a statement.

Some Democrats are pushing for broad debt forgiveness

Biden’s efforts on student loan debt don’t go far enough for some leaders in the Democratic Party — including Senate Majority Leader Chuck Schumer and Massachusetts Sen. Elizabeth Warren — who are calling for the broad cancellation of $50,000 per borrower.

Biden has resisted the pressure so far, but has said he would support a move by Congress to cancel $10,000 per borrower. A pandemic-related suspension of federal student loan payments, extended by Biden earlier this year, is in place until October.

Biden has also directed Cardona to write a memo on the president’s legal authorities to cancel debt. An executive action that broadly forgives federal student loans would be unprecedented, but a memo from lawyers at Harvard’s Legal Services Center and its Project on Predatory Student Lending says the Department of Education has the power to do so.

Biden did not include a student debt cancellation provision in his proposed $1.8 trillion American Families Plan, which calls for making community college free and expanding Pell Grants for low-income college students.

Student loan advocates say Biden’s moves to help victims of for-profit college fraud are good first steps but that the administration can move more quickly to address the backlog of Borrower Defense claims.

“It appears the Biden Administration genuinely wants to help people who are owed discharges,” said Alex Elson, vice president for policy and co-founder of the non-profit Student Defense and a former attorney at the Department of Education who helped establish the Borrower Defense program.

“But that makes it all the more confounding that they are so hesitant to use their authority to immediately and automatically help the countless additional borrowers who are still waiting,” he added.