The Department of Education took new steps last week to provide certain federal student loan borrowers complete debt relief.
The announcement came as Democrats explore how to cancel student debt. More than 40 million Americans have federal student loan debt totaling more than $1.7 trillion. Debt payments are currently suspended due to financial hardship caused by the coronavirus pandemic.
What is the DoE's plan?
Perhaps preparing to take even larger steps in the near future, the Education Department said student loan borrowers can apply for full debt cancellation if their college engaged in fraud or other financial misconduct.
The government estimates that $1 billion in student loans will receive "cancellation" as a result, which will benefit 72,000 borrowers.
"Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution's misconduct," Education Secretary Miguel Cardona said. "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."
More from the Department of Education:
Current provisions in federal law called "borrower defense to repayment" or "borrower defense" allow federal borrowers to seek cancellation of their William D. Ford Direct Loan (Direct Loan) Program loans if their institution engaged in certain misconduct. Beginning today, the Department will ensure that borrowers with approved borrower defense claims to date will have a streamlined path to receiving full loan discharges. This includes borrowers with previously approved claims that received less than a full loan discharge.
The new guidance defines "full relief" as cancellation of 100% of the borrower's debt, "reimbursement of any amounts paid on the loans, where appropriate under the regulations," "requests to credit bureaus to remove any related negative credit reporting," and "reinstatement of federal student aid eligibility."
What is the background?
According to the Washington Post, the new policy reverses one implemented under former Education Secretary Betsy DeVos, and revives another implemented during the Obama administration.
Students are entitled to a discharge of their debt when their college uses illegal and deceptive tactics to persuade them to borrow, but the Trump administration tried to limit that relief. DeVos created a methodology for processing claims that compared median earnings of graduates who have made debt relief claims with those of graduates from comparable programs. The bigger the difference, the more relief an applicant will receive.
Critics of the policy said graduate earnings were a faulty measure as many applicants never completed their degree and the formula created impossible standards for many to get full relief. The policy was a stark contrast from the Obama administration's practice of granting full cancellation when it determined a college committed fraud.
About 200,000 student loan borrowers have filed for relief under the "borrower defense to repayment" statue, the Post reported. The Department of Education is working to find a solution for those borrowers whose debt will not be cancelled under the new guidelines.