Financial Aid

Defrauded Borrowers Receive Debt Relief from Government

Kathryn Knight Randolph

December 28, 2017

Defrauded Borrowers Receive Debt Relief from Government
DeVos changes debt relief for those defrauded by for-profit schools.
It’s a rule that has been in place since 1994 – the Borrower Defense Rule – but it’s making its way back into headlines now thanks to a recent decision by Betsy DeVos and the U.S. Department of Education. The Rule was established to help protect borrowers who were previously misled by institutions about graduation rates, job placement, salary figures, etc. If an institution failed to deliver on its promises, students would be eligible for loan forgiveness. However, borrower defense claims have been put on hold for quite some time under the new administration. Now, the Department of Education has a plan, and is ready to, once more, provide relief to borrowers who have been cheated by their institutions. In response to the 2015 Corinthian Colleges scandal, a former for-profit school that defrauded students and declared bankruptcy thereby affecting 16,000 students, DeVos and the Department of Education have issued new debt relief policies under the Borrower Defense Rule. Debt relief will now be distributed on an earnings basis, according to a press release from the Department of Education. This means that student loans will be forgiven based on how much money the victims currently make:

CCI Earnings as a Percentage of GE Earnings

Amount of Relief

1% to 49% 100%
50% to 59% 50%
60% to 69% 40%
70% to 79% 30%
80% to 89% 20%
90% and above 10%

Source: U.S. Department of Education

In layman’s terms, a nurse’s earnings from Corinthian Colleges will be compared to the average nurse’s earnings from a similar institution and a debt relief percentage will be determined from there. If a Corinthian College graduate makes less than 50% of what a similar graduate makes in their field, full debt relief will be provided. However, if one makes 90% of the average earnings in their field, they will only receive 10% debt relief. This new policy is definitely a departure from the previous Obama Administration, which provided full debt relief to victims regardless of income. According to a recent report from the Department of Education Office of Inspector General, about $449 million in debt was forgiven for the 32,000 borrower defense claims granted between 2015 and the end of 2017. DeVos and her department hope to curb spending with the new policy. She explains in the Department of Education’s press release: “This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified." Currently, no changes will be made to pending claims, and the U.S. Department of Education plans to approve 12,900 claims and deny 8,600 claims on a rolling basis.

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Kathryn Knight Randolph

Associate Content Editor

Kathryn Knight Randolph is the Associate Content Editor at Fastweb. She has 17 years of higher education experience, working first as an Admissions Officer at DePauw University before joining Fastweb. In b...

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