DeVos battles student borrowers despite court rebuff

Told by judge to spare defrauded students, secretary toughens loan policy

December 16, 2019
US Congress illustrating news article about college tuition in the US, Biden plan, tuition-free college
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After facing a contempt of court order for failing to provide debt relief to defrauded students of for-profit colleges, US education secretary Betsy DeVos has come back with a new version allowing the loan forgiveness – if the ex-students have little or even negative income.

Ms DeVos, acting in the case of thousands of customers of the now-collapsed Corinthian Colleges and the ITT Technical Institute chains, is insisting that such borrowers don’t deserve full loan forgiveness under a federal law that allows it, because she believes they still received some educational benefit.

A federal judge in October ruled Ms DeVos in contempt for continuing to subject former Corinthian students to years of loan collection efforts, despite a previous court order to stop.

Her department has now come up with a plan that would proceed with the debt relief, but through a formula that leaves out most defrauded students by comparing their median earnings with those in similar fields.

The estimated result of that methodology, according to Education Department documents obtained by US News & World Report, is that 95 per cent of the relief claims will be denied.

“Simply discharging all of these loans,” Ms DeVos told a congressional hearing on the matter, “is not fair to taxpayers nor to those who have paid or are paying their loans.”

Democrats on the House education committee rejected the idea, saying that the law authorising debt relief only requires the students to have been defrauded, not for them to be destitute. And the department’s own investigators, according to internal memos obtained by NPR, affirmed that the students were genuine victims of fraud.

The new formula created by the Education Department would require many of the defrauded students to show very little income, or even negative income, to be eligible for the debt relief promised under federal law.

The department’s methodology was “wholly inappropriate and confuses many statistical concepts that aren’t meant to be used together”, Douglas Webber, an associate professor of economics at Temple University, writes in an analysis. It “misunderstands and misapplies fairly basic statistical techniques in a way that makes it materially harder for defrauded students to find relief”, he says.

Democrats have long argued that such actions on behalf of for-profit colleges constitute a pattern with Ms DeVos, a billionaire with financial ties to such proprietary institutions and to student loan companies. She has advocated for the for-profit sector despite data showing that about half of its students default on their loans, well above average among other colleges. 

But Ms DeVos, with the support of congressional Republicans, has insisted she was acting out of a sense of fiduciary responsibility to taxpayers. The government can’t give “blanket forgiveness for anyone who raises their hand and files a claim”, Ms DeVos said. Some borrowers, she said, have requested loan forgiveness on the grounds that “their teacher was unfair or that they have not found a job they like”.

The law states that borrowers may be eligible for repayment forgiveness if the college “misled you, or engaged in other misconduct in violation of certain state laws”.

The department’s own analysts, according to the memos uncovered by NPR, found that thousands of former Corinthian and ITT students deserved full debt relief because of clear fraud such as the for-profit schools making false promises about their graduates’ career prospects and their ability to transfer credits.

The federal judge who issued the contempt ruling, Sallie Kim of the US District Court in San Francisco, first ordered Ms DeVos in May 2018 to stop collecting such debts. Judge Kim in October served Ms DeVos with the contempt finding and a $100,000 (£76,000) fine after finding that the department had not complied.

In its proposed new methodology, the Education Department said it will allow full debt relief in cases where former students of the colleges that defrauded them have earnings “lower than two standard deviations from the median”. Applicants with incomes higher than that, but lower than the median, will receive debt relief on a sliding scale.

One lawmaker, Lori Trahan, a Democrat of Massachusetts, calculated the effect on a hypothetical student with a diploma from Corinthian in business administration and management.

The median comparison earning for that degree was about $18,000 and two standard deviations was about $20,500, Ms Trahan told Ms DeVos. That, Ms Trahan said, means the defrauded student would be eligible for the loan forgiveness promised in law if she earned “negative $2,500”.

“It’s criminal,” Ms Trahan said of the department’s position.

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