U.S. to erase $1 billion in debt for students scammed by for-profit colleges

Tens of thousands of U.S. student loan borrowers defrauded by for-profit colleges are getting debt relief. The U.S. Department of Education is cancelling $1 billion in debt held by about 72,000 student borrowers misled by institutions including the now-defunct Corinthian Colleges and ITT Technical Institute. 

The stance, which takes effect Thursday, represents an about-face from a process touted by former Education Secretary Betsy DeVos that offered only partial student loan forgiveness to those defrauded by private, for-profit colleges. 

The Education Department is instead taking a "streamlined approach" for granting complete forgiveness to borrowers who had their claims approved, but received only partial forgiveness under DeVos' formula. Affected borrowers can expect to get notices in coming weeks, with discharges to follow, the department said. 

The issue involves a provision in federal law that lets borrowers who believe they were misled by a college or university to apply to have their debt cleared. 

"Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution's misconduct," Secretary of Education Miguel 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."

The Obama administration had cracked down on for-profit colleges that enticed students to take on hefty loans. It pressured chains including Corinthian Colleges and ITT Technical Institute to close, and it approved at least $655 million in loan cancellations from those chains.

But the Trump administration brought a halt to the prior administration's approach, which DeVos viewed as overly lenient and discarded at the end of 2019. 

Nearly two dozen state attorneys general had sued the Trump administration over its implementation of the borrower defense to repayment program, which allows borrowers to have their loans canceled if their colleges made false claims to get them to enroll. One of the plaintiffs in that suit was California Attorney General Xavier Becerra, who was confirmed Thursday as President Joe Biden's health secretary.

The lawsuit, which was filed last July, argued that DeVos had changed the policy without justification, failed to provide a meaningful process for students to get their loans forgiven and created "arbitrary impediments" for them, including forcing them to prove that their schools knowingly misled them.

The Education Department is now also vowing to help clear borrowers' credit reports of negative information related to the debt and to revive their eligibility for federal student aid. The DOE called Thursday's announcement a "first step" in addressing student debt claims and said it would be "pursuing additional actions, including re-regulation, in the future." 

The action drew praise from consumer advocacy group U.S. PIRG, which said the closures of schools including Corinthian and ITT Tech and the prior administration's policy had left former students with "a heavy debt burden and an incomplete degree, leaving them unable to find good-paying work to pay back their loans." 

Career Education Colleges and Universities, an industry lobbying group, said it had no comment on the Biden administration's actions.

The Associated Press contributed to this report.