Department officials now plan to move ahead adjudicating those claims — most of which allege fraud at for-profit schools like Corinthian Colleges and ITT Tech — by using a new formula. It calculates loan forgiveness based on how much a defrauded student’s “estimated earnings” differed from those of students who attended similar programs across the country.
The policy is a departure from the practice of the Obama administration, which provided full relief to all borrowers that the Education Department determined were defrauded. And it comes as DeVos has been at the center of a legal and political firestorm over her handling of the claims, which are made under a provision of federal law known as “borrower defense to repayment.”
Democrats have cried foul over the department’s efforts to curtail the amount of loan forgiveness defrauded borrowers may receive as well as the Trump administration’s failure to approve or deny a single claim in more than a year and a half. DeVos has agreed to testify about the issue before the House education committee on Thursday after the panel’s chairman, Rep. Bobby Scott (D-Va.), threatened to subpoena her amid a monthslong dispute over access to documents about the program.
The new policy follows a federal judge’s decision last year to block DeVos’ first attempt at providing partial loan forgiveness to a group of borrowers who were misled by Corinthian about their chances of getting a job if they enrolled at the now-defunct for-profit college. U.S. Magistrate Judge Sallie Kim of the Northern District of California ruled that the department violated federal privacy law in how it used borrowers’ earnings data.
More recently, Kim held DeVos and the department in contempt of court and imposed a $100,000 fine for violating her order to stop collecting on the loans of those Corinthian borrowers. The department this week was forced to disclose that it erroneously targeted more than 45,000 Corinthian borrowers for collection, nearly three times the amount it previously said.
The Washington Post reported Thursday that DeVos’ setback in the case had drawn the ire of some White House officials, who are reportedly scrambling to come up with a more populist student loan forgiveness plan to compete with those offered by Trump’s 2020 Democratic rivals.
The new partial loan forgiveness policy — which the department calls a “tiered-relief methodology” — will apply to all existing claims except those from Corinthian students that are part of that class-action lawsuit. The new policy relies on “publicly available earnings data” in order to avoid the privacy law problems that halted the administration’s first strategy.
Liz Hill, an Education Department spokesperson, said that the agency planned to make an official announcement about the new methodology “as soon as it is able,” but declined to address specifically the memo DeVos signed last month.
“Secretary DeVos wants to provide student loan relief to those who qualify as quickly as possible,” Hill said in a statement. “Unfortunately, the relief methodology was stopped by the courts based on a technical issue. Since then, we have been working diligently to identify alternative ways to decide claims. The Department will make an announcement as soon as it is able. Any methodology must ensure that eligible applicants receive the relief to which they are entitled. Students should not rely on partial and potentially false information obtained nefariously by the media.”
The 10-page memo was prepared by Diane Auer Jones, a top adviser on higher education issues, and Mark Brown, who leads the department’s Office of Federal Student Aid. The new policy, they wrote, will allow the Education Department to resolve claims in an “efficient, fair and predictable manner” that doles out federal loan forgiveness in line with the financial harm that borrowers are estimated to have suffered.
The memo says that the department believes that it should determine that a defrauded borrower was harmed financially by a college’s misconduct “only when the earnings imputed to the borrower are significantly different from the median wages” of other borrowers who attended similar programs across the country.
Under the policy, the department will provide full loan forgiveness only when a borrower attended a program where graduates ended up earning the very lowest — the bottom 2.5 percent — compared to those at similar programs across the country. Those programs have such low median earnings that the memo refers to them as “outliers.”
Borrowers who attended slightly higher-earning programs could receive varying levels — 25 percent, 50 percent or 75 percent — of debt relief. But borrowers who attended programs where the median graduate earned more than those at similar programs would receive no loan forgiveness (with the exception of Corinthian borrows who would still receive a minimum of 10 percent relief), according to the memo.
In addition to creating a new partial loan relief system, DeVos has also authorized the Education Department to issue thousands of denials that the agency has been sitting on.
Department officials in recent months have decided internally that they will deny about 18,000 of the pending claims based on insufficient evidence of wrongdoing by the school or other reasons, according to internal agency data obtained by POLITICO. But officials have waited to tell borrowers about those decisions until they can be announced alongside the approval of other claims.
Of the 18,000 denials that the department has decided but not issued, about 7,000 are claims based on alleged misconduct by Corinthian Colleges, about 500 from ITT Tech, and about 10,500 from various other schools, according to the internal data.
Jones, the top adviser to DeVos, explained in a sworn declaration filed in court last month that the Trump administration wanted to wait to notify borrowers about the denials out of concern about the public perception of the process.
“The Department believes that if it issued denials in advance of issuing approvals, borrowers could be confused and believe that the Department would not be approving any claims— which is not the case,” Jones wrote. “Therefore, in order to prevent confusion or distress to borrowers who are eligible for relief, the Department decided that it should not issue denials until it has a methodology in place that will also allow it to issue approvals and relief.”
As the department resumes the full-fledged processing of “borrower defense” claims, it’s planning to first tackle the approximately 30,000 claims that are pending by former Corinthian students who are not part of the class-action lawsuit challenging the first policy, according to the decision memo.
Then, according to the memo, the department plans to turn its attention to the approximately 28,000 claims filed by ITT Tech students and those filed by the students who attended dozens of other colleges.
The department signaled that the ITT claims may face an even tougher path than the Corinthian claims. “Unlike in the case of Corinthian Colleges, where the Department asserted that it had evidence of misrepresentation for several programs offered by [Corinthian] campuses, the Department made no such determination for ITT schools or programs,” the memo said, noting that “it will be up to borrowers to provide evidence.”
The department has only made decisions on 71 of the ITT Tech claims. “Adjudicating these claims will be a manual process that will take months to complete,” the memo said.