For-profit colleges have a ‘fraudulent’ history and won’t get access to increased federal grants in Biden’s economic agenda – but 13 Democrats worry that will hurt students the most

Rep. Bobby Scott
Rep. Bobby Scott.

  • Democrats’ Build Back Better framework increased the maximum Pell grant award by $550 to $7,045.
  • While this increase applied to public and private nonprofit schools, it leaves out for-profits.
  • Some Democrats say this will hurt students; others say it’s necessary to hold for-profits accountable for bad behavior.

President Joe Biden’s $1.75 trillion Build Back Better plan includes an increase to need-based federal aid for college students – unless you’re attending a for-profit school.

Virginia Rep. Bobby Scott, chair of the House education committee, drafted the provision in Democrats’ social-spending plan that would increase the maximum Pell grant award from $6,495 to $7,045 – a $550 jump. While the grants have historically been entitled to any student based on family income, Scott’s provision differs in that only who attend public and private nonprofit schools will get access to that increased aid, leaving those who attend for-profits out.

This change reflects Democratic efforts to hold the for-profit college industry accountable for bad behavior, including misleading students to take on more student debt than they can afford to pay off, with some of them even shutting down in recent years, leaving students with debt but no degree.

“Fraudulent and deceptive practices at certain for-profit institutions have already cost taxpayers more than $2.5 billion in this year alone,” Scott told the New York Times.

A House Democratic aide told Politico this provision was a result of having to scale-down Democrats’ entire spending package, and leaving for-profits out of the $550 Pell increase would save about $1.3 billion over the next decade.

But some Democrats are worried this provision will hurt students who attend those institutions. Earlier this month, 13 House Democrats wrote a letter to House leadership and Scott requesting the provision be expanded to include for-profit students.

“Make no mistake, this proposal hurts students, not institutions,” the lawmakers wrote. “And worse yet, the proposal will have a disparate impact on minority and first-generation students, which runs contrary to the policy goals of the Build Back Better agenda.”

The lawmakers noted that 95% of the Pell awards go to students with family incomes below $60,000, with the majority going to minority communities, and they want to ensure all low-income students are eligible for the expanded award.

According to Education Department data, roughly 900,000 Pell grant recipients attended for-profit schools in the 2019-20 academic school year while 5.8 million recipients attended public and private nonprofit colleges.

This provision has gotten less attention than other measures that didn’t make the cut in Democrats’ social-spending bill, like free community college, due to opposition from centrist Democrats Sens. Kyrsten Sinema and Joe Manchin. But it does add on to actions Democrats have taken to protect students who attend for-profit colleges.

For example, Scott wrote a letter to Education Secretary Miguel Cardona in August requesting for-profit college executives of defunct schools be held financially liable for costs they owe to the federal government – something Massachusetts Sen. Elizabeth Warren requested last year to ensure those institutions cannot take advantage of students and taxpayers without consequence.

Cardona has also taken action on the issue. While a student-loan forgiveness program exists to forgive student debt for defrauded borrowers, under Education Secretary Betsy DeVos’s policy, the program ran up a 99.4% denial rate. Cardona reversed that policy to start giving borrowers defrauded by for-profit schools the relief they qualify for and has canceled about $2.6 billion for borrowers defrauded by for-profit schools.

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Biden’s administration is cracking down on for-profit schools that made ‘false promises’ about students’ futures and drove them into debt

FTC Commissioner Lina Khan
FTC Chair Lina Khan.

  • The Federal Trade Commission alerted 70 for-profit schools of the penalties for defrauding students.
  • If those schools are found of wrongdoing, they could face fines up to $43,792 per violation.
  • Many for-profits have come under fire for pushing students to take on too much debt.
  • See more stories on Insider’s business page.

Over the past decade, a number of for-profit colleges have come under fire for defrauding students and misleading them into taking on more student debt than they could ever pay off. On Wednesday, a government agency put 70 of those schools on notice.

The Federal Trade Commission (FTC) – a federal agency that works to protect consumers – announced in a press release that it is alerting 70 for-profit colleges of consequences for “false promises” they make about students’ jobs and earnings. Those the agency finds are engaging in unlawful practices will be hit with a financial penalty, up to $43,792 per violation.

The FTC is cracking down on these schools by reviving its Penalty Offense Authority, which ensures “bad actors pay a price when they break the law,” and the press release noted that schools that are receiving the notices “is NOT an indication that it has done anything wrong.”

“For too long, unscrupulous for-profit schools have preyed on students with impunity, facing no penalties when they defraud their students and drive them into debt,” FTC Chair Lina M. Khan said in a statement. “The FTC is resurrecting a dormant authority to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers. Working closely with our state and federal partners, we’ll be monitoring this market carefully.”

The University of Phoenix is included on the list of schools receiving notices, which, as Insider reported, is one of the biggest for-profits that has been accused of defrauding students and agreed to a $191 million settlement with the FTC in 2019 over claims of fraud and deceptive marketing. The university never acknowledged any wrongdoing.

The Wednesday announcement is the latest action President Joe Biden’s administration has taken to help defrauded students. He has canceled $2.6 billion in student debt for thousands of those students to date, and Education Secretary Miguel Cardona reversed a Trump-era policy in March that gave only partial relief to defrauded students

Lawmakers have also expressed the need for for-profits to be held financially viable for abuses. House Appropriations Chair Rosa DeLauro told Cardona the schools should face “substantial financial consequences” for fraudulent behavior, and House Education and Labor Committee Chair Bobby Scott urged Cardona in August to to hold owners, board members, and executives of now-defunct for-profit schools “individually responsible” for money the schools owe to the federal government.

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‘Predatory’ for-profit colleges must face ‘substantial financial consequences’ for borrowers’ massive student debt, top Democrat says

Rosa Delauro
Rep. Rosa DeLauro in Congress.

  • The Education Dept. is beginning negotiations on reforming the student-loan industry.
  • Rep. Rosa DeLauro requested predatory for-profit schools be held financially accountable for wrongdoing.
  • Biden has already canceled $2.6 billion in student debt for some defrauded students.
  • See more stories on Insider’s business page.

As the Education Department is beginning negotiations over reforms to the student-loan industry, House Appropriations Chair Rosa DeLauro wanted to make sure holding for-profit colleges financially accountable for wrongdoing didn’t get lost in the mix.

“Predatory for-profit colleges should be on notice that there will be straightforward, substantial financial consequences for any unscrupulous behavior that leads to a successful borrower defense claim,” she wrote in a letter to Education Secretary Miguel Cardona.

On Monday, the department started the negotiated rulemaking process, which is when affected interest groups and government representatives negotiate terms for a specific rule change. The department’s regulatory agenda includes reforms to loan forgiveness programs, including forgiveness for borrowers defrauded by for-profit schools. DeLauro’s letter requested not only debt relief for those borrowers, but increased accountability measures for the “predatory” colleges.

“The Department correctly recognizes that student borrowers who were harmed should receive swift relief without having to wait for potentially lengthy proceedings where institutions can contest determinations,” DeLauro wrote.

So far, Cardona has canceled about $2.6 billion for borrowers defrauded by for-profit schools, and he reversed a Trump-era policy that gave only partial student-debt relief to defrauded students, during with 99.4% of borrowers who applied for relief were denied.

But, as DeLauro noted, the institutions that forced borrowers to take on more debt than they could pay off are not facing adequate consequences. She wrote that as part of the rulemaking process, Cardona should ensure that after borrowers receive the relief they deserve, the process for holding the colleges financially accountable should be automatic and “include fines commensurate with the scope of the misrepresentations and wrongdoing committed by the institution.”

She also urged for financial penalties to apply for wrongdoing committed prior to the implementation of the new regulations to ensure the for-profits remain on the hook for misconduct, regardless of when it happened.

A series of for-profit college have shut down in recent years amid accusations of fraud, mismanagement, and misleading students into taking on student debt they can’t pay off, and as Insider previously reported, DeLauro is not alone in requesting the colleges be held financially liable. House Education and Labor Committee Chair Bobby Scott urged Cardona in August to to hold owners, board members, and executives of now-defunct for-profit schools “individually responsible” for money the schools owe to the federal government.

“Given the substantial burden that is currently being borne by students and taxpayers when for-profit and converted for-profit institutions collapse, it is clear the Department has a responsibility to pursue any and all legal avenues available to recoup money that was allocated through financial aid programs,” Scott wrote.

The department is continuing its negotiating process this week, and it is also expected to unveil an overhaul of the Public Service Loan Forgiveness program, which currently rejects 98% of public servants who apply for loan forgiveness.

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Biden’s Education Dept. just wiped out $1.1 billion in student debt for 115,000 defrauded borrowers

college graduates student loans
  • The Education Dept. announced 115,000 former ITT Tech students will get $1.1 billion in student-debt relief.
  • ITT Tech shut down in 2016 over investigations that revealed predatory and misleading practices.
  • This came after the department simplified the process for defrauded borrowers to get relief.
  • See more stories on Insider’s business page.

Some former students of ITT Technical Institute, a for-profit college that shut down in 2016 over investigations that revealed predatory practices and fraud, will now get student-debt relief.

On Thursday, the Education Department announced in a press release that 115,000 additional borrowers who attended ITT will receive over $1.1 billion in relief. Eligible borrowers did not complete their degree and left ITT on or after March 31, 2008, a period during which the school “engaged in widespread misrepresentations about the true state of its financial health and misled students into taking out unaffordable private loans that were allegedly portrayed as grant aid,” according to the release.

“Today’s action continues the Department’s efforts to improve and use its targeted loan relief authorities to deliver meaningful help to student borrowers,” Education Secretary Miguel Cardona said 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.”

Under the Higher Education Act, the Education Secretary can provide loan relief within months of a school’s closure, but the secretary also has the authority to extend that window. According to the press release, Cardona chose to extend that window over investigations that displayed ITT’s predatory nature.

The Education Department will begin processing discharges in September, and eligible borrowers will get automatic relief unless they enrolled in another school within three years of ITT’s closure.

Typically, if defrauded borrowers want student-debt relief, they need to submit a borrower defense claim proving the school they attended committed fraud. Under President Donald Trump’s administration, though, getting relief was nearly impossible due to a flawed methodology Education Secretary Betsy DeVos implemented, in which 99.4% of defrauded borrowers who applied for relief were denied.

A series of for-profit schools have closed down over the past decade over accusations of misleading students and pushing them to take out loans they cannot pay off, and Biden’s administration is working to reform the claims process and give those borrowers the relief they deserve.

In March, Cardona waived DeVos’ methodology, and on Tuesday, the Education Department confirmed it would not be creating a new process to determine debt relief, and instead, will presume all defrauded borrowers with approved claims are entitled to full student debt relief unless evidence suggests otherwise.

And on June 16, Cardona cancelled student debt for 18,000 borrowers defrauded by ITT, totaling to about $500 million in debt relief.

Today’s action brings the total amount of student-debt relief under Biden to $9.5 billion for over 563,000 borrowers.

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For-profit schools target minority communities that typically owe more student debt, report says

Student Loans
  • The Student Borrower Protection Center found for-profit schools are targeting minority communities.
  • In majority-Black zip codes, for example, for-profits are 75% more likely.
  • Those communities also bear a disproportionate student debt burden, partly due to predatory for-profits.
  • See more stories on Insider’s business page.

Over the past decade, a number of for-profit schools have shut down over accusations of misleading students and leading them to take on more debt than they can pay off. A recent report found those schools target minority communities that were already disproportionately burdened by student debt.

The Student Borrower Protection Center, which advocates for borrowers’ rights, released a report last month that found for-profit schools disproportionately plant themselves in minority communities and engage in predatory practices, leaving those students worse off than when they started. One year into the pandemic, half of Black households and 60% of Latino households reported a loss of income, and over a third of Black and Latino renters were concerned about their ability to pay rent.

“These are the conditions under which predatory colleges can thrive, by aggressively pursuing workers and potential students looking to regain some semblance of financial stability,” the report said.

Main findings from the report included:

  • Majority-Black zip codes are 75% more likely to have for-profit schools;
  • Majority-Latino zip codes are 110% more likely to have for-profit schools;
  • And majority-white zip codes are 30% less likely to have for-profit schools.

The report also analyzed how for-profits cluster in minority communities by taking a look at cities in the Midwest, and in Indianapolis, for example, the area with densest Latino populations have 21 times more for-profit colleges than areas with the densest white populations.

“The geography of for-profit institutions is no coincidence, and is indicative of reverse redlining, the practice of offering unfair or predatory terms to entire communities and protected classes; in this case, for-profits target their suboptimal products and services to communities with the largest share of Black and Latino residents,” the report said.

The Student Borrower Protection Center outlined a series of recommendations to protect minority communities from predatory for-profits, including having the Consumer Financial Protection Bureau increase its oversight over the schools, along with having states and cities step in to hold the schools in their areas accountable.

Student debt disproportionately burdens borrowers of color

In April, 36 civil rights organizations released civil-rights principles detailing the benefits that student-debt cancellation would have on Black borrowers. The organizations, including the NAACP, wrote that Black borrowers typically owe 50% more student debt than white borrowers, and four years later, Black borrowers owe 100% more.

HUD Secretary Marcia Fudge even acknowledged this, telling Axios in June that poor people and people of color hold the most student debt, requiring reform.

“Who has student debt? Poor people, Black people, brown people,” Fudge said. “We’re the people who carry most debt. And so the system’s already skewed toward us not being creditworthy.”

For borrowers defrauded by for-profit schools and burdened by student debt, though, relief may soon be more accessible. The Education Department announced on Tuesday that going forward, all borrowers with approved claims will be entitled to full relief “as a starting point,” unless evidence suggests otherwise.

“The evidence is overwhelming,” the report says. “The toxic combination of the racial wealth divide and the presence of low-quality institutions that load students with debt and offer little in return has perpetuated a crisis across the country, felt most acutely by borrowers and families of color whose only fault was trying to get an education.”

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A top Democrat wants to make them pay. All the executives behind defunct for-profit schools, that is.

Rep. Bobby Scott
Rep. Bobby Scott.

  • For-profit schools have shut down in recent years amid allegations of fraud and misleading students.
  • House Education Chair Bobby Scott urged the Education Sec. to hold the executives of those schools accountable.
  • He wants the executives to pay for the closure costs that students and taxpayers were saddled with.
  • See more stories on Insider’s business page.

A series of for-profit colleges have shut down in recent years amid accusations of fraud, mismanagement, and misleading students into taking on student debt they can’t pay off. A top Democrat wants to make these schools’ executives pay.

On Monday, House Education and Labor Committee Chair Bobby Scott wrote a letter to Education Secretary Miguel Cardona, urging him to hold owners, board members, and executives of now-defunct for-profit schools “individually responsible” for money the schools owe to the federal government.

“Given the substantial burden that is currently being borne by students and taxpayers when for-profit and converted for-profit institutions collapse, it is clear the Department has a responsibility to pursue any and all legal avenues available to recoup money that was allocated through financial aid programs,” Scott wrote.

After major for-profit chains, notably including Corinthian Colleges and ITT Technical Institutes, shut down, students and taxpayers had to pay the closure costs – not the people who ran the school.

Scott highlighted actions the Securities and Exchange Commission (SEC) has taken, like bringing ITT to court in 2015 for deceiving investors about high rates of late payment and defaults on student loan, but he noted that SEC penalties have been narrow, and the Education Department can do more given its authority under the Higher Education Act – including making them pay for the debt students had to take on.

Last year, Student Defense, which advocates for students’ rights, released a report detailing how executives can be held accountable under the Higher Education Act, and Dan Zibel, author of the report and Vice President of Student Defense, wrote on Twitter on Thursday that “too many predatory colleges have profited from fleecing students & bilking taxpayers.”

Since 2015, more than 200,000 defrauded students filed claims for a complete discharge of their loans in a process known as the “borrower defense to repayment.” This methodology, approved by Education Secretary Betsy DeVos, compared the median earnings of graduates with debt-relief claims to the median earnings of graduates in comparable programs. The bigger the difference, the more relief the applicant would receive.

But compared to a 99.2% approval rate for defrauded claims filed under President Barack Obama, DeVos had a 99.4% denial rate for borrowers and ran up a huge backlog of claims from eligible defrauded borrowers seeking student debt forgiveness, which is why Cardona reversed that policy to start giving borrowers defrauded by for-profit schools the relief they qualify for.

Scott’s letter is the second asking the Education Department to hold for-profit education executives accountable. In October 2020, Massachusetts Sen. Elizabeth Warren led five of her Democratic colleagues in pushing for the department to use all the legal tools at its disposal to hold executives of the for-profits that “defrauded students personally, financially accountable.”

The lawmakers wrote the department’s failure to enforce accountability “has also encouraged future lawbreaking by executives who feel confident they can enrich themselves at the expense of students and taxpayers without consequence.”

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Biden’s Education Dept. just made 2,100 students eligible for debt relief

Richard Cordray
FSA Director Rich Cordray.

  • The Federal Student Aid office just found violations that cost taxpayers $6 million from 2015 to 2018.
  • The defunct RWM Fiber Optics incurred 16 violations, while 2,100 former students of Harrison College are eligible for debt relief.
  • The Education Dept. is in the process of reforming the student-loan system amidst calls to cancel all debt.
  • See more stories on Insider’s business page.

In the Education Department’s latest move to protect student-loan borrowers, it found on Tuesday that violations of student-aid requirements and school closures from 2015 to 2018 cost taxpayers over $6 million in liabilities.

The Federal Student Aid (FSA) office announced in a press release that RWM Fiber Optics – a for-profit, now defunct school – improperly handled student loans and related aid, leaving borrowers with unfair debt loads. It also noted that the 2,100 students who attended Harrison College’s 11 campuses are eligible for loan forgiveness after its 2018 closure. This follows the Education Department’s announcement last week that it will form a negotiated rulemaking committee to address a range of issues affecting student loan borrowers, like debt forgiveness from fraudulent schools.

“All institutions are expected to serve the best interests of their students, not serve themselves,” FSA Chief Operating Officer Richard Cordray said in a statement. “Schools that engage in bad behavior or that suddenly close their doors, leaving students out in the cold, will be held accountable, and we expect other schools to pay attention to the actions we are taking today.”

Specifically, FSA found that before RWM’s closure in 2018, the school falsified information to make students eligible for aid they did not qualify for, fictionalized diplomas that students did not earn, and submitted student aid information without the student’s knowledge without checking if the information was accurate.

RWM also used the Federal Work Study program to pay students to clean bathrooms and collect garbage, which didn’t help further students’ careers as the program required. FSA concluded that the school conducted 16 “egregious” violations worth over $2.4 million.

FSA also found that students who attended Harrison College, which closed in 2018, are eligible to get their students loans discharged given that they were unable to complete their programs due to the school’s closure. Harrison owes almost $4 million to taxpayers who paid to forgive loans for those borrowers.

Insider previously reported that Cordray’s role in student aid could signify a possible remedy to the student debt crisis given his alliance with Massachusetts Sen. Elizabeth Warren, a prominent advocate for student debt cancellation.

Last month, he rescinded a Trump-era policy that restricted states’ abilities to oversee student-loan servicers, and separately, the Education Department has begun to forgive debt for students who were defrauded by for-profit schools.

But while the department is in the process of implementing changes to the student-loan system as a whole, through reforming loan forgiveness programs and working to give eligible borrowers student debt relief, the process could take years, and advocates want President Joe Biden to act quickly on widescale student debt forgiveness for every borrower.

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Biden’s administration just canceled $55.6 million in student debt for people who went to 3 for-profit colleges

college graduation
  • Biden canceled $55.6 million in student debt for borrowers who went to 3 for-profit schools.
  • 1,800 borrowers who went to Westwood College, Marinello Schools of Beauty, and the Court Reporting Institute will receive relief.
  • This brings Biden’s total debt cancellation for defrauded borrowers to $1.5 billion for 92,000 people.
  • See more stories on Insider’s business page.

President Joe Biden’s Education Department on Friday made progress in its promise to reform the student-debt system by canceling student debt for three more groups of defrauded borrowers.

The Education Department announced on Friday that it had approved borrower defense claims from 1,800 borrowers who attended the for-profits Westwood College, Marinello Schools of Beauty, and the Court Reporting Institute, resulting in approximately $55.6 million in relief.

“Today’s announcement continues the U.S. Department of Education’s commitment to standing up for students whose colleges took advantage of them,” Education Secretary Miguel Cardona said in a statement. “The Department will continue doing its part to review and approve borrower defense claims quickly and fairly so that borrowers receive the relief that they need and deserve.”

According to the press release, this is the first time the department has announced approved borrower defense claims for students who attended for-profit institutions other than ITT Technical Institutes, Corinthian Colleges, and American Career Institute since 2017.

The debt-cancellation methodology created under Education Secretary Betsy DeVos, known as the “borrower defense to repayment, compares the median earnings of graduates with debt-relief claims to the median earnings of graduates in comparable programs. The bigger the difference, the more relief the applicant would receive.

While President Barack Obama’s Administration approved 99.2% of claims by defrauded borrowers, President Trump’s Education Secretary Betsy DeVos denied 99.4% of those filed during her tenure. DeVos’ method ran up a huge backlog of claims from eligible defrauded borrowers seeking student debt forgiveness; Cardona said that process did not result in appropriate relief determination and needed to be reversed.

With regards to Westwood College, the department found that from 2002 to the college’s closure in 2015, the school misrepresented students’ abilities to transfer credits and misled students in finding appropriate career choices, leaving students “worse off” after attending the school. 1,600 of those students are receiving $53 million in debt relief.

The department also found that Marinello Schools of Beauty “made widespread, substantial misrepresentations” on the type of education they offered, and 200 of those students will receive $2.2 million debt relief, and it found that the Court Reporting Institute misrepresented how long it would take students to complete the program, resulting in 18 of those students receiving $340,000 in debt relief.

This brings total loan cancellation based on borrower defense under Biden to over $1.5 billion for nearly 92,000 borrowers.

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The Education Dept. insists you repay all your student loans but isn’t collecting about $1 billion owed by colleges, report finds

college graduates
  • The National Student Legal Defense Network found 1,300 colleges owe $1.2 billion to the Education Dept.
  • Most of it is held for-profit colleges that shut down in past years over allegations of fraud.
  • Meanwhile, the department is preparing to resume student loan collections in October.
  • See more stories on Insider’s business page.

Once the payment pause on student loans lifts in October, the Education Department will resume efforts to collect student debt from 43 million borrowers across the country. But according to a new report, collection of debt held by higher education institutions – and owed to taxpayers – doesn’t appear to get similar treatment.

The nonprofit National Student Legal Defense Network released a report last week that found as of February 2021, nearly 1,300 higher education institutions owed approximately $1.2 billion to the Education Department. Most of the debt is held by for-profit schools, with the largest outstanding debt of over $244 billion owed by the defunct Vatterott College.

“While the Department aggressively attempts to collect from borrowers, institutions and their owners and executives walked away from more than a billion dollars owed to taxpayers,” the report said.

The report noted that even thought the department has a “wide array” of methods to require institutions to repay their debt, it has failed to make use of those tools, allowing debt to go uncollected.

Department of Education Press Secretary Kelly Leon told Insider in a statement that the department “is committed to improving our policies and practices to better hold institutions accountable for their actions and to provide borrowers with fair and streamlined access to the benefits to which they are entitled.”

Here are the other main findings from the report, obtained by the group through Freedom of Information Act requests:

  • About 200 of the 1,300 institutions with debt still received Title IV funding from the government;
  • The department has recertified institutions owing debt for participation in student aid programs;
  • And the department’s failure to collect has cost at least $218 million because the statue of limitations on collections had expired.

The report added that the department has not collected relatively small debt amounts. For example, the for-profit University of the Rockies owed $883,613 in 2019 that the department had not collected as of the data collected in the report.

President Joe Biden’s Education Department has begun to act on fraudulent behavior of for-profit schools through cancelling student debt for some defrauded borrowers. Most recently, Education Secretary Miguel Cardona cancelled student debt for 18,000 borrowers defrauded by now-defunct ITT Technical Institutes, totaling to about $500 million in debt relief.

But even as institutions still owe taxpayers billions in debt, the Education Department is preparing to transition borrowers back into repayment in October – something lawmakers have advocates are strongly urging against.

“When we organize together, fight together, and persist together, we win together,” Massachusetts Sen. Elizabeth Warren wrote on Twitter on Sunday. “We’ve all got to raise our voices and call on the Biden administration to extend the pause on student loan payments and #CancelStudentDebt.”

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Biden’s Education Department just cancelled $500 million of student debt for 18,000 defrauded borrowers

1024px ITT_Technical_Institute_campus_Canton_Michigan.JPG
The ITT Technical Institute campus in Canton, Michigan.

  • The Education Dept. cancelled student debt for 18,000 borrowers defrauded by ITT Technical Institutes.
  • ITT Tech shut down in 2016 amid accusations it persuaded students to take out loans they couldn’t repay.
  • 90,000 defrauded borrowers have now received debt relief under Biden totaling $1.5 million.
  • See more stories on Insider’s business page.

As one of his first actions as Education Secretary, Miguel Cardona cancelled student debt for about 72,000 borrowers defrauded by for-profit schools. On Wednesday, 18,000 more got student-debt relief.

The Education Department announced in a press release that it had approved 18,000 borrower defense to repayment claims for borrowers who attended ITT Technical Institutes – a for-profit school that shut down in 2016 amid accusations of false advertising that persuaded borrowers to take out student loans. Those borrowers will get 100% of their student debt forgiven, totaling approximately $500 million in relief.

“Our action today will give thousands of borrowers a fresh start and the relief they deserve after ITT repeatedly lied to them,” Cardona said in a statement.

He continued: “Today’s action is part of the Biden-Harris Administration’s continued commitment to stand up for borrowers when their institutions take advantage of them. Many of these borrowers have waited a long time for relief, and we need to work swiftly to render decisions for those whose claims are still pending. This work also emphasizes the need for ongoing accountability so that institutions will never be able to commit this kind of widespread deception again.”

The department will begin notifying borrowers of their approvals for loan forgiveness in the coming weeks and will work quickly to discharge those borrowers’ loan balances.

Issues with borrower defense claims

Former Education Secretary Betsy DeVos approved a debt-cancellation methodology during the Trump administration known as the “borrower defense to repayment” to give defrauded borrowers student debt relief. It compared the median earnings of graduates with debt-relief claims to the median earnings of graduates in comparable programs, and the bigger the difference, the more relief the applicant would receive.

But compared to a 99.2% approval rate for defrauded claims filed under former President Barack Obama, DeVos oversaw a 99.4% denial rate for borrowers and ran up a huge backlog of claims from eligible defrauded borrowers seeking student-debt forgiveness. A judge recently ruled that DeVos must testify over why so few borrowers were approved for loan forgiveness.

The press release said that Wednesday’s actions bring total student loan cancellation under borrower defense by the Biden administration t0 $1.5 million for around 90,000 borrowers.

ITT Tech’s shutdown

In March, Insider reported on five of the biggest for-profit schools that were accused of defrauding their students, with ITT Tech being one of them.

The Securities and Exchange Commission had taken ITT to court in 2015 for deceiving investors about high rates of late payment and defaults on student loans, and in 2016, the government cut off ITT’s access to millions of dollars in federal loans and grants. The institution shut down shortly afterward, ending its 50-year history.

The Education Department’s recently released regulatory agenda includes amending the borrower defense to repayment, but a department spokesperson told Insider it does not yet have a timeline for when those amendments will be implemented.

The spokesperson said: “The Administration is committed to ensuring borrowers are able to access the loan relief to which they are entitled, and we look forward to working with the field to design and implement much-needed improvements.”

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