Department of Education to forgive loans for thousands of students whose colleges closed

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WASHINGTON – The Trump administration plans to forgive $150 million in federal student loans tied to colleges that closed in recent years, following a court order enforcing an Obama-era policy the administration had sought to dismantle.

The Education Department has identified about 15,000 people who are eligible for automatic debt cancellation after borrowing money to enroll or help their children attend colleges that shut down on or after Nov. 1, 2013. Eligible borrowers are not required to take any action; the Education Department will begin notifying them Friday by email. The process could take longer than 90 days and not everyone will have the full amount of debt forgiven.

According to the Education Department, nearly half of the people identified received loans to attend defunct for-profit chain Corinthian Colleges, while the remainder were enrolled in schools that closed between Nov. 1, 2013, and Dec. 4, 2018.

“While it shouldn’t take a court order, today’s announcement is welcome news for 15,000 borrowers whose colleges closed,” James Kvaal, president of education nonprofit the Institute for College Access and Success, who served in the Obama White House and Education Department, said in a statement Thursday. “But these 15,000 borrowers are a small fraction of those eligible for loan discharges because their schools closed or committed illegal acts. It’s long past time for the Department of Education to meet its legal obligations to students.”

The 2015 collapse of Corinthian, a chain felled by charges of fraud and predatory lending, prompted the Education Department to update rules governing how students defrauded by colleges can erase their debt. The update included a provision to grant automatic debt cancellation to borrowers whose schools closed because so few people took advantage of the benefit.

Education Secretary Betsy DeVos derided the Obama-era policies as a handout to students at taxpayers’ expense. She shelved the changes before they were slated to take effect in June 2017, spawning lawsuits from former students and state attorneys general. In September, a federal judge denounced the move as “arbitrary and capricious” and said the rules should take effect. A month later, the same judge shot down a bid by the California Association of Private Postsecondary Schools, an industry group, to block the rules.

Now, DeVos must implement the long-delayed regulations despite her objections and a failed attempt to rewrite the rules.

“We’re glad to see the first wave of discharges is on its way, but many thousands of students are still waiting for relief,” said Julie Murray, an attorney who represented the students who sued the department. “The department must do more to implement this rule, and do it quickly. There’s no time to spare.”

By law, anyone enrolled at a school at the time it closes or who withdrew 120 days before a shutdown is entitled to have their federal loans canceled, unless they continue their studies elsewhere.

Granting automatic closed-school discharges is the first of many steps the Education Department must take to adhere to the court ruling. The crux of the regulatory overhaul centers on another path to debt forgiveness known as a borrower defense to repayment. Students can apply to have their federal loans discharged if they can prove a school used illegal or deceptive tactics in violation of state law to persuade them to borrow money for college.

The Obama administration tried to simplify the process for students and shift more of the cost of discharging loans onto schools, much to the chagrin of for-profit colleges that said they were being unfairly targeted.

While the regulation languished, DeVos published a proposed stringent replacement this summer that placed the onus on students to prove schools knowingly deceived them. But the Education Department missed a key deadline last month for the latest rules to take effect next summer.