Nearly 16,000 federal student loan borrowers who were misled by for-profit colleges will have $415 million in debts erased, according to the U.S. Department of Education. These borrowers — who attended DeVry University, ITT Technical Institute and other schools — will receive relief through a legal provision known as borrower defense, which promises loan relief for defrauded borrowers.
With this announcement, the Biden administration says it has approved roughly $2 billion in loan relief for more than 107,000 borrowers through borrower defense.
Wednesday's news stands out not only for the borrowers it will help, but because this is the first time the department has said it will grant borrower defense claims — acknowledging students had been defrauded — while a school accused of defrauding them, DeVry University, remains open for business and still enjoys access to millions of dollars in federal student loans.
According to the department, approximately 1,800 former DeVry students will receive more than $70 million in loan relief after the department "determined that the institution made widespread substantial misrepresentations about its job placement rates."
The department also said that it expects the number of approved claims from former DeVry students to rise and that it "will seek to recoup the cost of the discharges from DeVry."
"The Department remains committed to giving borrowers discharges when the evidence shows their college violated the law and standards," said Education Secretary Miguel Cardona in a statement. "Students count on their colleges to be truthful. Unfortunately, today's findings show too many instances in which students were misled into loans at institutions or programs that could not deliver what they'd promised."
DeVry has been in hot water before
The announcement is the latest standoff over years of tension between DeVry and the federal government. In August 2015, the Education Department demanded that DeVry either prove its common advertising claim — that since 1975, 90% of its graduates seeking employment found jobs in their field within six months of graduation — or stop making it. In October 2016, DeVry said it lacked the data to substantiate the claim and agreed to stop.
Then in December 2016, DeVry agreed to a $100 million settlement with the Federal Trade Commission over similar complaints that its advertising was deceptive.
It was that 90% claim that the department used to justify its latest move, to approve DeVry borrower defense claims. The department says that after investigating, it found that DeVry's job placement rate was instead roughly 58% and that "more than half of the jobs included in the claimed 90 percent placement rate were held by students who obtained them well before graduating from DeVry and often before they even enrolled."
"These jobs were not attributable to a DeVry education," the department said, "and their inclusion was contrary to the plain language of the 90 percent claim. Moreover, DeVry excluded from its calculation large numbers of graduates who were in fact actively looking for work simply because they did not conduct a search in the manner that the University's Career Services department preferred."
In spite of these findings, the department made clear that because DeVry stopped making this misleading claim after 2015, it will not lose access to the federal student aid program — a move that would be potentially devastating for a school like DeVry, where the vast majority of students receive federal loans.
In a statement to NPR, DeVry's senior director of university relations, Donna Shaults, wrote:
DeVry University is deeply committed to student success and has oriented our whole organization around helping people compete in a complex and changing labor market. As today's announcement calls out, any student claims date back to advertising that was used between 2008 and 2015, predating DeVry's establishment as an independent institution with a new Board and leadership.
Nonetheless, we do believe that the Department of Education mischaracterizes DeVry's calculation and disclosure of graduate outcomes in certain advertising, and we do not agree with the conclusions they have reached.
The pressure to help defrauded borrowers has been building
The Education Department has been under enormous legal and political pressure to help defrauded students. Much of that pressure began in June 2019, when the Project on Predatory Student Lending sued then-President Donald Trump's Education Department (Sweet v. DeVos), demanding that it process the claims of more than 200,000 borrowers who said they had been defrauded by their colleges.
Trump's education secretary, Betsy DeVos, was an outspoken champion of the for-profit college sector and openly opposed using borrower defense to provide students with full or even partial loan relief. Under her watch, consideration of applications slowed, then stopped altogether.
In early 2020, after Sweet v. DeVos was provisionally settled, the department sent thousands of denials to borrowers, though these rejections were vague and unexplained.
"We don't think their evidence was fairly considered, and we certainly don't think that they received an adequate explanation of why their claims were denied," says Eileen Connor, director of the Project on Predatory Student Lending and lead attorney for the plaintiffs.
A judge agreed with Connor, and in late 2020, the department agreed to stop the blanket denials until the case was resolved.
That case, now Sweet v. Cardona, as well as the borrower defense backlog, has been hanging over the Biden administration like the sword of Damocles. According to federal data, more than 85,000 applications were awaiting adjudication in January 2021, and another 137,000 had been denied based on DeVos' interpretation of the rule. Not only does Wednesday's announcement help the department make a dent in that backlog, but it also allows the Biden administration to take credit for loan relief efforts that a trial or settlement in the Sweet case likely would have compelled.
Over the past year, Biden's Education Department has made modest progress reducing that backlog, announcing in June that it would approve another 18,000 ITT Technical Institute borrowers and, in July, more than 1,800 claims from former students at a trio of smaller schools.
But the most recent federal data on borrower defense claims shows the backlog, as of the end of September, was actually higher (nearly 88,000) than it was when Trump left office.
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