Defeated In Court, Education Dept. To Cancel $150 Million Of Student Loan Debt

Dec 14, 2018
Originally published on December 15, 2018 11:39 am

The U.S. Department of Education is sending emails to about 15,000 people across the country telling them: You've got money.

These are former students — and some parents of students — who took out loans for colleges that shut down between Nov. 1, 2013, and Dec. 4, 2018. About half attended campuses run by Corinthian Colleges. They will get their money back or have their debt forgiven — an amount estimated at $150 million, all told — under a provision called Automatic Closed School Discharge.

As part of the Obama-era crackdown on for-profit colleges like ITT Tech and Corinthian Colleges, the Education Department wrote something called the "borrower defense rule." It specified how students could get their loan money repaid if their schools were found to be shady. Borrowers had to submit an application and show how they were being defrauded. But if the school was shut down altogether, the loan discharge was supposed to be automatic.

Under Education Secretary Betsy DeVos, the department took a series of steps to try to delay borrower defense from going into effect, as it was supposed to do in the summer of 2017. DeVos called it: "a muddled process that's unfair to students and schools, and puts taxpayers on the hook for significant costs."

But the department lost in court repeatedly and also missed a key technical deadline for replacing the rule. In October, a federal judge ordered that the department begin forgiving loans under the rule. Now, per a statement, the government seems to be complying with the closed-school portion of the rule, at least.

Since 2013, 3,600 schools have closed at least one campus, according to the National Student Legal Defense Network, an advocacy group that has filed many lawsuits against the department. Education Corporation of America, another for-profit college chain, officially closed on Dec. 5, stranding another 20,000 students.

So the department's liability could ultimately mean many more millions of dollars beyond the initial $150 million being returned or canceled now, NSLDN says.

"There are thousands of students entitled to automatic relief who in all likelihood don't know it," says NSLDN's chief counsel, Dan Zibel. He pointed out that the department is still working to weaken the borrower defense rule and, NSLDN argues in another suit, to slow-walk the claims of students who say they are being defrauded.

The Education Department has not responded to NPR's requests for comment.

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Today the U.S. Department of Education is emailing about 15,000 people telling them their student loans are forgiven. And all the loans amount to $150 million. The reason for the forgiveness is in part due to a judge's order. NPR's Anya Kamenetz is following this story. Hi, Anya.


SHAPIRO: I'm imagining people all over the country hearing me say that and rushing to check their email to see if their student loans have disappeared. Who are these lucky individuals?

KAMENETZ: Right. So we should take that down a note. So as during the Obama administration, as you may recall, there was a crackdown on for profit colleges. And two giant for-profit chains - Corinthian and ITT Tech - ultimately shut down, and tens of thousands of students were stranded. So the education department back then wrote a rule called borrower defense. And that rules specified how students were supposed to get their money back if they were defrauded or if their schools shut down. And within that was a provision called automatic closed school discharge, which is just what it says on the label.

SHAPIRO: So basically students whose schools have closed are going to get their loans forgiven automatically?

KAMENETZ: Correct. So if your school closes down, and if you don't transfer your credits by enrolling anywhere else for at least three years, your loans are canceled. And any payments you've made will be refunded. If your credit history took a whack, that'll be wiped out. And this is supposed to happen, again, automatically - no application process and no delays.

SHAPIRO: That all sounds very easy, straightforward and simple. But I know that it was not quite as easy as that.

KAMENETZ: Well, you remember I said this was an Obama-era rule. And from the time that the education secretary Betsy DeVos took office in 2017, she sought to delay the implementation of this rule from ever coming into effect. She said it was onerous. It would cost taxpayers too much money. But she lost in court. And she also missed a key deadline for replacing that rule. So now the department has announced that for these thousands of people - about half of them went to Corinthian Colleges - they're going to start returning their payments to them and canceling the remaining balances within about 90 days.

SHAPIRO: So the judge's order now requires the department to enforce this borrower defense rule. Does that mark the end of the story?

KAMENETZ: Well, I put that question to Aaron Ament of the National Student Legal Defense Network, one of the advocacy groups that's been suing the department to get them to enforce these rules. And Ament says not so fast. Here he is.

AARON AMENT: It seems prudent to hold off on celebrating until we know for sure every single borrower is getting the relief they're entitled to.

KAMENETZ: Every single borrower - so what Ament's referring to is back when the Obama administration wrote the rule automatic close school discharge, they estimated then about $300 million worth of loans were eligible to be canceled. That's twice as much as there will be today. And even more colleges closed since that. In fact, less than two weeks ago, we had another huge for-profit chain that collapsed - the Education Corporation of America.

SHAPIRO: So it sounds like there may be a lot more money involved - like 150 million more dollars.

KAMENETZ: At least - and that's just for closed school discharge alone. And that was - you know, we're talking about 15,000 students, maybe more than that. Overall, there are about a hundred thousand students who have claims that are pending under the general borrower defense. So maybe their colleges didn't shut down. Maybe they're still operating. But these are students who say they were grievously misled - predatory practices. And these claims of fraud are supposed to at least be heard and processed under this rule. And this is something that groups like National Student Legal Defense Network say that the administration is slow-walking those claims.

SHAPIRO: And is all of this about for-profit colleges?

KAMENETZ: About 98 percent of those claims, yes, are against for-profit colleges.

SHAPIRO: OK, so given that the defense - given that the Department of Education has been fighting against this so far, what do they plan to do next?

KAMENETZ: So there's these legal challenges. And they're still looking to rewrite this borrower defense rule for the future in ways that would make it much harder for students to get their loans forgiven in the future. But still, there are students who are getting their money back today. So I guess that's good news for today.

SHAPIRO: NPR's Anya Kamenetz, thank you.

KAMENETZ: Thanks, Ari. Transcript provided by NPR, Copyright NPR.