Today, the Department of Education (Department) announced that it was approving more than 1,800 applications for loan forgiveness for student borrowers who attended three different schools. The borrowers will have 100 percent of their loans discharged, receiving approximately $55.6 million in student debt relief.
The Biden Administration is using the “borrower defense to repayment” rule, also known as “borrower defense,” to provide this forgiveness. Under the Higher Education Act, the Secretary of Education has the authority to discharge the debt of borrowers who were defrauded or lied to by their college or university.
The borrower defense regulation is a critical tool for the Department to protect borrowers from having to repay debt that should be forgiven because of actions from predatory colleges. The regulation directs the Secretary of Education to discharge federal student loan debt in instances of college misconduct. Though the regulation has existed since 1994 and the right to borrower defense has been written into every federal Direct Loan borrower’s promissory note since, its increased use was catalyzed by a single catastrophic event: the 2015 collapse of Corinthian Colleges, Inc., a large for-profit college chain with a history of fraud and misconduct toward its students.
The colleges cited in today’s announcement were Westwood College, Marinello Schools of Beauty, and the Court Reporting Institute. Each of these schools have a troubling history, and all are for-profit colleges.
According to the Department, Westwood College “engaged in widespread representations about the ability of students to transfer credits.” Additionally, the college made “widespread, substantial misrepresentations” about the quality and career prospects of its criminal justice programs, a common program in for-profit colleges as they transitioned from their historical foundation in technical training to more traditional higher education programs. (Read more about this in Lower Ed by Tressie McMillin Cottom, PhD.) Westwood accounts for the vast majority of the applications approved, resulting in approximately $53 million of the debt relief and 1,600 of the applications.
The Department had similarly troubling findings for Marinello Schools of Beauty from 2009 until it closed in 2016. The Department found that the cosmetology school left students without instructors for weeks or months at a time leaving students without the adequate training to pass licensing tests. More than 200 claims were approved with about $2.2 million in loan cancellation. At least three students from the for-profit college already received loan discharges for falsely certifying student’s eligibility student aid after a 2018 lawsuit against the Department under then-Secretary Betsy DeVos.
Marinello Schools of Beauty was sued in 2013 under the False Claims Act and eventually settled the lawsuit with the Department of Justice in 2016 for more than $8.6 million. The after the Department denied its recertification to participate in federal student aid programs, leaving it unable to survive given its dependency on students using federal student loans and grants to pay for their education. According to the press release from the settle, the United States Attorney for the Southern District of California said the school “manipulated the system in order to fraudulently secure student aid funds without which the school could not function.”
Lastly, is the Court Reporting Institute. The Department found that, from 1998 until its closure in 2006, the school misrepresented the time it would take to complete the court reporting program, resulting in very few students completing the program. Fewer than six percent of students actually graduated, and the few that did took much longer to do so that they were told. The Court Reporting Institute accounted for small portion of the forgiveness, with 18 claims and approximately $340,000 in student debt relief.
Today’s announcement comes after several actions by the Department under President Joe Biden and Secretary Miguel Cardona to help borrowers. According to the release, the Biden Administration has cancelled more than $1.5 billion or nearly 92,000 borrowers. In March, the Department streamlined the borrower defense process, which it estimated would help 72,000 borrowers receive $1 billion in debt cancellation. Secretary Cardona approved $500 million in debt cancellation to 18,000 borrowers who attended the now-defunct ITT Technical Institute.
Additionally, the Department announced it was easing the forgiveness process for student borrowers with a total and permanent disability. And it halted collections for defaulted borrowers under the old bank-based system who aren’t eligible for the federal student loan payment pause.
The Department has proposed re-regulating on borrower defense, in addition to other areas related to student loans and higher education generally. Many believe a new rule is necessary after it was changed under Secretary DeVos, making it much harder for defrauded borrowers to get relief. More is expected on that this fall.