Education Department Scraps DeVos Loan Relief Standard (1)

The Biden administration will scrap standards issued by former Education Secretary Betsy DeVos that granted only partial loan forgiveness to defrauded student borrowers.

The announcement from Secretary Miguel Cardona is the first step in the Education Department’s wider overhaul of relief policies for borrowers whose schools engaged in fraud or misconduct.

About 72,000 borrowers with federal student loans will get $1 billion in additional debt relief after the decision, the department said. All of those borrowers attended for-profit colleges.

Progressives in Congress have called on President Joe Biden to cancel thousands in student loans for federal borrowers across the board via executive action. The White House has argued that Congress should provide broad debt relief through legislation. The Education Department could provide additional debt relief under existing regulations, however, for thousands of borrowers who claim they were defrauded.

“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Cardona said in a statement. “A close review of these claims and the associated evidence showed these borrowers have been harmed and we will grant them a fresh start from their debt.”

Photo: Chris Kleponis/CNP/Bloomberg

Education Secretary Miguel Cardona speaks during a news conference at the White House on March 17, 2021.

The decision only affects borrowers whose debt relief claims were already approved by the agency. More significant changes are coming to federal policies on student loan relief, however. The Education Department said it planned to undertake new rulemaking on “defense to repayment” regulations that govern loan forgiveness for borrowers who say they were defrauded or misled by their colleges.

DeVos Standard

DeVos issued defense to repayment regulations in 2019 that raised the bar for borrowers to get approval on loan forgiveness. The regulations were estimated to cut loan relief by $11 billion over 10 years compared to standards under President Barack Obama’s administration.

The Trump administration followed up on that rule by releasing a new standard that awarded only partial loan relief to borrowers whose claims were found to be valid. A previous attempt to cut relief to defrauded borrowers was blocked by a federal court.

DeVos Outlines Partial Relief for Defrauded Student Borrowers

House Democrats criticized the new standards and called on DeVos to provide full relief available to borrowers under the law. A senior department official said the Biden administration determined defrauded borrowers weren’t receiving the appropriate amount of loan relief given the harm they suffered and evidence presented in their claims.

The new standard announced Thursday will also apply to borrowers who already received some debt relief under the 2019 DeVos standard.

Rep. Bobby Scott (D-Va.), chair of the House Education and Labor Committee, called the announcement life-changing for thousands of borrowers.

“I applaud the Biden Administration for doing the right thing by making these borrowers whole, and I can only imagine the mixture of joy and relief that they are feeling today,” he said in a statement.

To contact the reporter on this story: Andrew Kreighbaum in Washington at akreighbaum@bgov.com

To contact the editors responsible for this story: Sarah Babbage at sbabbage@bgov.com; Gregory Henderson at ghenderson@bloombergindustry.com