Betsy DeVos limits debt relief for defrauded students

Some students won' be granted full relief

NEW YORK (CNNMoney) - Some students who were defrauded by their colleges will no longer be granted full debt relief.

Instead they will receive partial debt relief based on their income, the Department of Education said Wednesday.

The change will affect thousands of former Corinthian College students seeking relief after the school shut down in 2015. The Department of Education has said that Corinthian misled some students by overstating job placement numbers.

That made them eligible for debt relief under what's known as the borrower defense rule. About 32,000 of these claims were granted under the Obama Administration. But the Department of Education had held off on approving any claims while it reviewed the rule -- until now.

On Wednesday, the department said it was approving 12,900 and denying 8,600 borrower defense claims. Those borrowers will be notified on a "rolling basis."

"This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly," Education Secretary Betsy DeVos said in a statement.

And it "protects taxpayers from being forced to shoulder massive costs that may be unjustified," she said.

About $449 million in debt was forgiven for the 32,000 borrower defense claims granted between 2015 and the end of 2017, according to a recent report from the Department of Education Office of Inspector General.

A department spokeswoman said it did not yet know how much the additional 12,900 claims granted this week would cost the government.

No changes have been made to how the department determines who is eligible. Claims that would have been approved before will still be approved today, it said. But the new partial relief calculation will apply.

To do so, the department will compare average earnings of students in similar programs. For example, Corinthian students who were pursuing a paralegal degree will be compared to students from paralegal programs at other schools.

Relief will be tiered. Defrauded students whose current earnings are less than 50% of peers from a similar program will receive full relief, according to a press release. Those who earn between 50% and 59% of their peers, will see half of their debt forgiven. In the least generous bracket, those who earn 90% or more compared to their peers will see 10% of their debt wiped away.

The release said this will fairly compensate borrowers based on "damages incurred."

But some critics say this measure will be inaccurate because it will look at the earnings of students who completed their degrees, when many Corinthian students did not finish their programs.

"This will vastly overstate how these students are doing," said Jennifer Wang, the D.C. office director for the Institute for College Access & Success

Backlash from Democrats and other consumer advocacy groups came fast after Wednesday's announcement.

"I have serious concerns that the department may not have followed federal law in repurposing earnings data to deny the full relief borrowers deserve," said Democrat Senator Patty Murray.

California Attorney General Xavier Becerra, who sued DeVos earlier this month for withholding debt relief for Corinthian students, called the new partial relief rule "illegal."

But the Education Department said the new tiered relief criteria is consistent with legal authorization for the borrower defense rule.

Still, some critics said it looked like the department was jumping the gun while there's a formal review process of the rule underway.

"I think there's a pretty strong legal argument that they can't do this," said Abby Shafroth, an attorney for the National Consumer Law Center.

"It seems like they just couldn't wait to stop providing relief to students," she said.


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