Revised loan forgiveness program to exclude students of now-defunct for-profit schools

The Education Department says it’s put the finishing touches on revisions to an Obama-era loan forgiveness program that will make thousands of former students ineligible, ones who say they were misled by now-defunct for-profit colleges.

The department will soon issue letters to some of the students who borrowed money to attend Corinthian Colleges and ITT Technical Institute. But for many of the more than 200,000 former students, the answer may not be what they have hoped for over the past three years.

Acting Undersecretary of Education Diane Auer Jones this week announced a new, strict methodology that officials estimate will preclude tens of thousands of former Corinthian and ITT students from receiving loan forgiveness checks.

Education Secretary Betsy DeVos will appear Thursday before the Democrat-controlled House Committee on Labor and Education to defend this “scientifically robust” plan that she says will ensure taxpayers “do not shoulder” the cost for unqualified loan forgiveness applicants.

“We cannot tolerate fraud in higher education,” Mrs. DeVos said in a statement. “Nor can we tolerate furiously giving away taxpayer money to those who have submitted a false claim or aren’t eligible for relief.”

This is the second time Mrs. DeVos has tried to put forward a methodology to accept or reject applications for claims from as many as 227,000 attendees of one of the dozens of Everest, Heald or WyoTech campuses between July 2010 and September 2014. A federal judge in October held Mrs. DeVos in contempt and ordered her department to pay a $100,000 fine for failing to stop collecting loans from some of the former students of the defunct colleges.

On Tuesday, Ms. Auer Jones told reporters that the new methodology strikes the proper balance between fairness for students and the government’s fiduciary responsibility to taxpayers.

“If you start giving 100% to everybody, this is the back-door way to free college and loan forgiveness,” said Ms. Auer Jones, who served as assistant secretary for postsecondary education under President George W. Bush. “That’s not the policy of the Congress. That’s not the law of the land right now.”

The plan does not offer full relief, as former Corinthian and ITT students were promised by the Obama administration when claims first stated pouring into the Education Department in 2015 and 2016, according to House Democrats.

“The Department of Education has the clear authority to provide full debt relief to students defrauded by their college,” Rep. Bobby Scott, Virginia Democrat and chairman of the House Education Committee, said Tuesday in a written statement. “Rather than simply exercising that authority and providing life-changing relief to defrauded borrowers, the Department is inventing another scheme to provide students less relief than the law allows.”

The methodology offers varying amounts of loan forgiveness to students who can prove the colleges willfully misled or caused harm to them by making unattainable claims about post-graduation job prospects or inflating the value of their degrees to entice the students to attend. Former students who earn less money than the median income of a pool of students who pursued the same degree program at comparable colleges will be eligible for a 25% to 100% loan refund.

The Education Department said in August it would save more than $1 billion with processing rules stricter than those used by the Obama administration.

It’s unclear how much taxpayer money will be saved under the new rules, which may still face a court challenge.

The new methodology does not affect thousands of loan forgiveness applicants who are part of a class-action lawsuit in California against the Department of Education.

Asked why the department waited three years to respond to students, Ms. Auer Jones said officials had been waiting on the court decision in California. In addition, the task of discharging rejected applications could have begun under the Obama administration, which already had started processing loan forgiveness applications but left about 9,000 denied claims to Mrs. DeVos’ team, she said.

“The prior administration had deemed a number of claims ineligible and they had processed those claims but they had not notified borrowers,” Ms. Auer Jones said. “So, nice to leave us the dirty work of the noes while when others just get to say the yeses.”