While the debate continues about whether to implement broad student loan forgiveness, the Department of Education (ED) has embraced using its existing powers to forgive student loans for borrowers defrauded by their colleges.
The latest round of forgiveness is for borrowers who attended the now-defunct Marinello beauty schools. Marinello failed to provide the education promised to students, including leaving students to self-teach without instructors for weeks at a time. The schools also lied about the earnings graduates could expect after graduation and falsified high school graduation records for students who would not have been eligible for federal student loans without proof they had completed high school.
The loans of former Marinello students and those who attended other institutions that lied to students about the education they would receive were forgiven using a program known as Borrower Defense. This program exists to provide loan forgiveness to borrowers who fall victim to fraud committed by institutions and has been chiefly used to forgive the loans of students who attended predatory for-profit colleges and universities.
Borrowers who believe their college defrauded them can apply for forgiveness and usually have to prove that their college misled them. ED then assesses the claim to determine whether a student qualifies for forgiveness, typically considering whether there are other cases of the institution breaking the law. As of December 2021, the most recent month there is public data available, ED had over 100,000 borrower defense claims pending review.
Which schools have the most claims against them?
ED does not publicly release information on which institutions are represented in borrower defense claims, but in 2017 the Century Foundation analyzed information obtained through freedom of information requests. They found that 99% of claims were from students who had attended for-profit schools. Based on that data, it seems likely that most of the outstanding claims are related to for-profit institutions.
In a press release, Secretary of Education Miguel Cardon said, “Marinello preyed on students who dreamed of careers in the beauty industry, misled them about the quality of their programs, and left them buried in unaffordable debt they could not repay.” Today’s announcement will streamline access to debt relief for thousands of borrowers caught up in Marinello’s lies. At the Department of Education, we will continue to strengthen oversight and enforcement for colleges and career schools that engaged in misconduct and uphold the Biden-Harris Administration’s commitment to helping students who have been harmed.”
Biden administration is taking accountability seriously
In the same press release, ED also noted several new senior staff hired in Federal Student Aid’s Office of Enforcement, all of whom have significant experience in consumer protection. ED touted the hires to indicate how seriously the Biden administration is about holding schools accountable.
During the previous administration under Betsy DeVos, ED had tried to severely limit how much relief defrauded borrowers could receive, creating a formula to pro-rate forgiveness and a laborious process that required ED staff to review claims one by one.
Compared to the last, the Biden administration has embraced a more expansive use of borrower defense, having forgiven the debts of over 100,000 students who attended schools like Westwood College and ITT Technical Institute, who engaged in widespread fraud.
ED previously forgave the debts of approximately 300 former Marinello students who had applied for forgiveness individually but shied away from deciding on the claims of Marinello students as a single group.
How much debt has the Biden administration forgiven?
ED has now approved more than $18.5 billion in loan discharges for more than 750,000 borrowers. 132,000 borrowers have had $2.1 Billion forgiven through borrower defense. In addition, ED has used other mechanisms to forgive significant amounts of debt. These actions are spread across various types of forgiveness and include:
- $6.8 billion for more than 113,000 borrowers through Public Service Loan Forgiveness (PSLF).
- More than $8.5 billion in total and permanent disability discharges for more than 400,000 borrowers.
- ED has also announced fixes to long-standing problems in income-driven repayment that will help thousands of borrowers receive forgiveness through that program, and 40,000 borrowers receive PSLF.
Is there more forgiveness coming?
This round of forgiveness moved away from processing claims individually in recognition that almost no Marinello students had received the education promised to them. ED chose to use what is known as a group discharge, deciding that the fraud and abuses were so widespread at Marinello that every student who attended is entitled to have their loans forgiven. Notably, students who have not applied for forgiveness will see their loans forgiven. Students may also see refunds for payments they have made on those loans.
Marinello is, unfortunately, far from the only or the last institution to have defrauded its students. Given ED’s more aggressive embrace of loan forgiveness for groups of defrauded borrowers, it is almost certain that additional forgiveness is under consideration, and we will see more announcements rolled out over the coming year. Advocates would like ED to move faster to clear the backlog in borer defense claims. Hopefully, this latest use of group discharge is a sign that ED will rely less on processing claims one at a time, moving towards the speedier group process to make whole those who have been harmed.
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