DOE complies with order to forgive $150 million in loans for students of for profit colleges

The U.S. Department of Education (Education) today announced that it has complied with an order requiring it to rescind certain debt relief provisions applicable to student loan borrowers who attended schools owned or controlled by Corinthian Colleges Inc., ITT Educational Services Inc. and subsidiaries, and Career Education Corp., now known as Transworld Systems Inc.

In addition, the department announced that it has determined that these companies’ actions do not violate federal law or regulations. As a result, the Department of Education has granted forgiveness of approximately $150 million in principal balances owed by former students at these companies’ schools.

Education began providing debt relief for individuals enrolled in programs offered by schools associated with Corinthian Colleges Inc. and its subsidiary brands, including Everest College, WyoTech College, Heald College, HealthCareersCollege.com, Darton College, National Cosmetology School, and Diversified Technical Institute. In addition, those seeking debt relief under this program were allowed to make payments toward their loans while still being eligible for cancellation if they had an initial payment due date before September 30, 2014. The department estimated that the total amount of debt forgiven was about $80 million.

On March 22, 2014, Education issued a similar letter to current and former students of ITT Educational Services Inc., ITT Tech, and ITT Technical Institutes, announcing that it would provide debt relief for approximately $140 million in outstanding balances. On June 17, 2014, Education extended this debt relief for additional borrowers. On August 19, 2014, the department expanded debt relief to borrowers attending schools operated by Career Education Corporation/Transworld Systems Inc., which includes ACE Schools, Art Institutes International, American Public University, Avant Education Group, Bridgepoint Education, Central Career College, Clayton College, Cornerstone University, and Dunbar Graduate School of Business.

These letters explain that the departments’ policies allow a borrower to request a full discharge of his or her Federal Direct Student Loan (FDSL) after making five consecutive monthly payments, provided that the borrower makes at least six consecutive monthly payments and completes a repayment plan approved by the department. Borrowers may not receive a discharge until three years have passed since they first became delinquent on their loans. These rules apply regardless of whether the school is affiliated with an accreditor recognized by the Department of Education.

As set forth in the letter, education does not consider the institution to be “in default” merely because a borrower has failed to pay a portion of a FDSL. However, Education may take action if it determines that a school is operating in violation of any laws or regulations administered by Education. If the department concludes that a school is ineligible for participation in the Title IV programs, it may refer that matter to a state attorney general, local district attorney, or other appropriate authority.

According to a report released by the Department of Education on Tuesday, the DOE forgave $50 million in federal student loan debt owed by former Corinthian Colleges Inc., ITT Educational Services Inc., and WyoTech University. In September 2018, the department announced that it would pay off $71 million in loan debt owed by the defunct chain after it agreed to sell its campuses to Everest College Holdings Inc. At the time, officials said they were investigating whether borrowers at some of the schools may have been unfairly harmed. Last month, the department’s inspector general concluded that Corinthian defrauded consumers, including students. In August, the department announced plans to forgive $30 million in student loan debt owed by ITT.

Another $100 million in loan forgiveness was granted to students who attended ITT’s Art Institute campuses. The school closed those locations last year. While the DOE initially announced that it would not forgive any federal student loan debt associated with ITT’s Everest College campuses, it later agreed to do so after the company reached a settlement with the department. The agreement provided two forms of relief. One of them involved forgiving $20 million in federal student loan debts. The second involved forgiving $80 million in private loan debt. On Sept. 21, Corinthian filed for bankruptcy protection. As of Tuesday afternoon, only $35.8 million in federal government loan debt remained outstanding. The bank holding the remaining $75.2 million in private loan debt refused to renegotiate the terms of the loans, so the department had no choice but to forgive the entire amount.

An additional $30 million in federal loan debt was forgiven for students who attended WyoTech University, according to the report. Officials said the school failed to meet certain accreditation standards, resulting in the loss of its federal recognition. Officials did say that the university continued to operate until July 2016. Since then, it has never reopened.

According to the report, students who attend for-profit institutions should be wary about how their financial aid money is handled. Federal law prohibits these schools from making false statements to lenders about the job prospects of graduates. Lenders can also not hold students responsible if the institution fails to follow through with promises to help graduates find jobs. The department is currently evaluating the practices of other for-profit higher education providers.

DOE Complies with Loan Forgiveness Order

The Department of Education (ED) announced in April 2018 that it would forgive over $150 million in federal student loan debt owed by former Corinthian Colleges, Inc. campuses. The forgiveness was ordered by the Federal Trade Commission after ED’s investigation showed “a pattern of conduct designed to deceive current and prospective students about the value of their education and the likelihood that they will earn enough money to repay their loans.” ED estimates that around 5,000 students at Corinthian schools have been affected by the action.

The Department of Education Proposes Changes to the College Grant Program

In October 2019, ED proposed changes to Title IV and Pell Grant programs. The proposals aim to increase accountability and transparency in grant programs while maintaining access to financial aid for low-income students. ED plans to make three changes to its award formula: 1) lower the eligibility limit for any one program; 2) eliminate the maximum number of awards per student group; and 3) increase funding for the American Opportunity Tax Credit (AOTC).These changes would reduce the amount of grants awarded to students based on factors including high school GPA and SAT scores.

A New Study Shows Low Pay and Long Hours Make It Harder to Escape Poverty.

According to a study from the National Academies Press, the odds of escaping poverty for people with only a high school degree are about half that of those who hold bachelor’s degrees. Additionally, median hourly wages were $15.50 for high school graduates compared to $21.20 for those with college degrees. When looking at both full-time and part-time workers, high school grads earned $16.70 per hour compared to $22.80 for college grads. The study also revealed that young adults without a higher education had less than one chance in five of earning middle class incomes—that is, between $44,872 and $74,038 a year for households with children. A four-year degree, on the other hand, increased one’s chances of reaching the middle class by more than half.

In specific instances,

1. The U.S. Department of Education (ED) issued a final rule today requiring the DOE to cancel certain student-loan debt owed by borrowers attending institutions that ceased operations due to bankruptcy.

The rule requires ED to cancel the portion of outstanding federal loan balances held by former Corinthian Colleges Inc., ITT Educational Services Inc., Career Education Corp., WyoTech University, American Intercontinental University System, and Heald College Inc. that resulted from their participation in the Department’s 2008 Loan Guarantee Program.

2. ED will issue a notice of intent to cancel debt upon receipt of a written request from a borrower who attended an institution that ceased operations prior to July 1, 2015. 3.

Borrowers will have six months to submit a request to ED for cancellation of their debt.

3. In addition, the agency will not renew any loan contracts between borrowers and schools participating in the Loan Guarantee Program after July 1, 2015, unless they first file a request for debt forgiveness under the rule.

4. The rule also removes restrictions on cancelling debt at the request of borrowers enrolled in programs that close before July 1, 2016. These restrictions prevent borrowers enrolled in programs at eligible schools that closed before July 1, 2014 from requesting cancellation even if they have already paid off their loans.

5. “Today’s action follows the President’s Executive Order directing the Secretary to take the steps necessary to mitigate the harmful effects of the collapse of the for-profit college sector,” said Acting Assistant Secretary for Postsecondary Education Steven Wagner. “We recognize our responsibility to remove barriers to opportunity faced by those who attend these schools, and we are taking steps to help them obtain relief.”

6. Borrowers who were enrolled in programs that closed before July 1 may still apply for a cancellation of their debt, but they will need to follow certain procedures.

For example, a borrower cannot request cancellation until after he or she has filed a complaint with ED regarding his or her school closing.

7. In addition, borrowers must provide evidence that demonstrates significant financial hardship caused by their school closure. The documentation requirement includes, among other things, a sworn statement from the borrower describing how the school’s closure affected his or her employment status, income, housing situation, and credit history.

8. As in previous years, borrowers will remain responsible for paying interest and penalties accrued while they attended a school participating in the program.

9. Finally, the Department will continue to develop a mechanism for providing debt relief to borrowers who attended qualifying schools that collapsed following the expiration of the Loan Guarantee Program. To date, the department has received over 40,000 applications for debt relief.

10. The 2008 Loan Guarantee Program was established under the William D. Ford Federal Direct Student Loan Act of 1994 to assist institutions of higher education to consolidate their student loans into a single payment plan.

11. The program allowed for the consolidation of federally guaranteed Stafford student loans and provided direct loans for private non-profit and proprietary schools with low default rates. Schools could receive funding for the full period of the consolidated loans, regardless of whether they had a positive net worth. After June 30, 2010, ED began to phase out the program.

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