Defeated In Court, Education Dept. To Cancel $150 Million Of Student Loan Debt The money goes back to borrowers whose colleges shut down, in many cases because of fraud and mismanagement.

Defeated In Court, Education Dept. To Cancel $150 Million Of Student Loan Debt

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ARI SHAPIRO, HOST:

Today the U.S. Department of Education is emailing about 15,000 people telling them their student loans are forgiven. And all the loans amount to $150 million. The reason for the forgiveness is in part due to a judge's order. NPR's Anya Kamenetz is following this story. Hi, Anya.

ANYA KAMENETZ, BYLINE: Hi, Ari.

SHAPIRO: I'm imagining people all over the country hearing me say that and rushing to check their email to see if their student loans have disappeared. Who are these lucky individuals?

KAMENETZ: Right. So we should take that down a note. So as during the Obama administration, as you may recall, there was a crackdown on for profit colleges. And two giant for-profit chains - Corinthian and ITT Tech - ultimately shut down, and tens of thousands of students were stranded. So the education department back then wrote a rule called borrower defense. And that rules specified how students were supposed to get their money back if they were defrauded or if their schools shut down. And within that was a provision called automatic closed school discharge, which is just what it says on the label.

SHAPIRO: So basically students whose schools have closed are going to get their loans forgiven automatically?

KAMENETZ: Correct. So if your school closes down, and if you don't transfer your credits by enrolling anywhere else for at least three years, your loans are canceled. And any payments you've made will be refunded. If your credit history took a whack, that'll be wiped out. And this is supposed to happen, again, automatically - no application process and no delays.

SHAPIRO: That all sounds very easy, straightforward and simple. But I know that it was not quite as easy as that.

KAMENETZ: Well, you remember I said this was an Obama-era rule. And from the time that the education secretary Betsy DeVos took office in 2017, she sought to delay the implementation of this rule from ever coming into effect. She said it was onerous. It would cost taxpayers too much money. But she lost in court. And she also missed a key deadline for replacing that rule. So now the department has announced that for these thousands of people - about half of them went to Corinthian Colleges - they're going to start returning their payments to them and canceling the remaining balances within about 90 days.

SHAPIRO: So the judge's order now requires the department to enforce this borrower defense rule. Does that mark the end of the story?

KAMENETZ: Well, I put that question to Aaron Ament of the National Student Legal Defense Network, one of the advocacy groups that's been suing the department to get them to enforce these rules. And Ament says not so fast. Here he is.

AARON AMENT: It seems prudent to hold off on celebrating until we know for sure every single borrower is getting the relief they're entitled to.

KAMENETZ: Every single borrower - so what Ament's referring to is back when the Obama administration wrote the rule automatic close school discharge, they estimated then about $300 million worth of loans were eligible to be canceled. That's twice as much as there will be today. And even more colleges closed since that. In fact, less than two weeks ago, we had another huge for-profit chain that collapsed - the Education Corporation of America.

SHAPIRO: So it sounds like there may be a lot more money involved - like 150 million more dollars.

KAMENETZ: At least - and that's just for closed school discharge alone. And that was - you know, we're talking about 15,000 students, maybe more than that. Overall, there are about a hundred thousand students who have claims that are pending under the general borrower defense. So maybe their colleges didn't shut down. Maybe they're still operating. But these are students who say they were grievously misled - predatory practices. And these claims of fraud are supposed to at least be heard and processed under this rule. And this is something that groups like National Student Legal Defense Network say that the administration is slow-walking those claims.

SHAPIRO: And is all of this about for-profit colleges?

KAMENETZ: About 98 percent of those claims, yes, are against for-profit colleges.

SHAPIRO: OK, so given that the defense - given that the Department of Education has been fighting against this so far, what do they plan to do next?

KAMENETZ: So there's these legal challenges. And they're still looking to rewrite this borrower defense rule for the future in ways that would make it much harder for students to get their loans forgiven in the future. But still, there are students who are getting their money back today. So I guess that's good news for today.

SHAPIRO: NPR's Anya Kamenetz, thank you.

KAMENETZ: Thanks, Ari.

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