DeVos cancels $150M in student loan debt after losing court battle

Betsy DeVos

A federal judge in September ruled that Betsy DeVos’ efforts to stop the 2016 “borrower defense” regulations from taking effect was illegal. | Saul Loeb/AFP/Getty Images

The Trump administration said Thursday it will cancel thousands of borrowers’ federal student loans, carrying out an Obama-era policy that Education Secretary Betsy DeVos had fought to kill.

The move comes as DeVos is being forced to implement a package of regulations that created more protections for student loan borrowers who were affected by a school closure or defrauded by their college.

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A federal judge in September ruled that DeVos’ efforts to stop the 2016 “borrower defense” regulations from taking effect was illegal. And in October, the same judge rejected a bid by for-profit colleges to immediately stop the regulations, clearing the way for them to take effect.

Education Department officials said Thursday that they will cancel the loans of about 15,000 borrowers who qualified for “closed school” loan discharges but who haven’t yet applied for that benefit. Those student loans total approximately $150 million.

Department officials said they would begin notifying borrowers Friday by email that they will receive the loan discharges. Borrowers will not have to take any action, but the process could take as long as 90 days to complete.

About half of the borrowers who will now receive loan discharges attended campuses owned by Corinthian Colleges, the chain of for-profit colleges that went bankrupt in 2015. The remaining students attended other schools that closed sometime between Nov. 1, 2013, and Dec. 4, 2018.

The department said some of the loans that will be canceled are PLUS loans owed by parents whose students attended schools that closed.

The loan cancellations also come after a California consumer advocacy group sued DeVos in November for failing to automatically cancel the federal loans of students under the 2016 “borrower defense” rules.

Sen. Patty Murray, the top Democrat on the Senate Education Committee, said she was “pleased” the department moved to discharge the loans but called on the Trump administration to go further.

“This is a good first step, but it’s not good enough,” Murray (D-Wash.) said in a statement, adding that DeVos should “abandon her attempts to rewrite the borrower defense rule to let for-profit colleges off the hook and instead fully implement the current rule and provide relief to more than 100,000 borrowers who were cheated out of their education and savings.”

DeVos has said the Obama-era rules are unfair to colleges and taxpayers because they make it too easy for students to have their debt wiped out. She has proposed, but not finalized, a more restrictive policy that would rein in the amount of loan forgiveness that borrowers receive.

Federal law allows borrowers who attended — or recently withdrew from — a school that closes to cancel their debt, as long as they don’t transfer their credits elsewhere.

Prior to the 2016 regulations, borrowers had to submit an application to obtain the loan discharge. In changing the policy, the Obama administration said it wanted to make the process automatic because of the low rate at which borrowers eligible for the loan discharges applied for the benefit.