The majority of that debt is held by permanently disabled borrowers who have long been eligible for loan forgiveness but who have not applied. The Department of Education is making the cancellation automatic by using federal data to identify borrowers who qualify. The change will impact 320,000 borrowers, eliminating $5.8 billion in debt starting in September.
Much of the other debt relief will benefit victims of for-profit college fraud, many of whom have been waiting years for the Department of Education to process their forgiveness claims. The most recent action will automatically cancel the debt borrowed by 115,000 students who left ITT Tech without completing their program after March 2008.
About 43% of those borrowers are currently in default on their loans, the Department of Education said. The move was made after a new review of the problems at ITT Tech found that these borrowers attended the school during a period of time when the school misled students into taking out private loans that were allegedly portrayed as grant aid and engaged in widespread misrepresentations about the state of the institution’s financial health.
A backlog of defrauded students await relief
“Today’s action continues the Department’s efforts to improve and use its targeted loan relief authorities to deliver meaningful help to student borrowers,” said Education Secretary Miguel Cardona in a statement.
“At the same time, the continued cost of addressing the wrongdoing of ITT and other predatory institutions yet again highlights the need for stronger and faster accountability throughout the federal financial aid system,” he added.
The Biden administration already approved about $1.5 billion in student debt cancellation earlier this year for other former for-profit college students. Under law, borrowers who were defrauded by their college can apply for debt relief. The forgiveness process was simplified during the Obama administration when big for-profit colleges like Corinthian and ITT Tech shuttered.
But the Trump administration allowed for a backlog of more than 100,000 forgiveness claims. Former Education Secretary Betsy DeVos made it clear that she thought the rule was “bad policy” that puts taxpayers on the hook for the cost of the debt relief without the right safeguards in place and made changes to limit its reach.
There are many borrowers who are eligible for debt relief that could still be waiting, according to Student Defense, a nonprofit group that advocates for students’ rights and has been calling on the Department of Education to speed up the process.
“Thanks to Secretary Cardona and President Biden, thousands of former ITT students will finally get the relief they’ve been owed for far too long. At the same time, there are countless others who attended other predatory institutions who are still waiting,” said Student Defense Vice President Alex Elson in a statement.
Democrats push for broader debt cancellation
Key Democratic lawmakers, including Senate Majority Leader Chuck Schumer of New York and Sen. Elizabeth Warren of Massachusetts, are pressuring Biden to go further and broadly cancel up to $50,000 of student loan debt per borrower.
It would be an unprecedented move, but a memo from lawyers at Harvard’s Legal Services Center and its Project on Predatory Student Lending says the Department of Education has the power to do so.
Biden, who said during the presidential campaign that he would support canceling $10,000 per borrower, has repeatedly resisted the pressure since taking office, arguing that the government shouldn’t forgive debt for people who went to “Harvard and Yale and Penn.” As of now, he has directed Cardona to write a memo on the executive branch’s legal authorities to cancel debt.
Biden recently extended the pandemic-related pause on federal student loan payments another four months until January 31.
Borrower balances have effectively been frozen for more than a year, with no payments required on federal loans since March 2020. During this time, interest has stopped adding up — saving the average borrower about $2,000 over the first year — and collections on defaulted debt have been on hold.
The relief is even more significant for those who work in the public sector and may be eligible for loan forgiveness after 10 years. They are still receiving credit toward those 10 years of required payments as if they had continued to make them during the pandemic, as long as they are still working full time for qualifying employers.