Biden Admin Approves Another $3.9 Billion Federal Student Loan Debt Discharge

Secretary of Education Miguel Cardona answers questions during the daily briefing at the White House on Aug. 5, 2021. (Win McNamee/Getty Images)

The U.S. Department of Education on Tuesday approved a group discharge of $3.9 billion in federal student loan debt for over 200,000 borrowers who claimed to be defrauded by a for-profit college chain.

Any student who had taken a federal loan to attend the now-defunct ITT Technical Institutes will automatically have their debt wiped out, regardless of whether they are applying for a borrower defense discharge, the department said. Typically, borrowers need to file a borrower defense claim against the college they believe has misled them in order to get some or all of the loan debt discharged.

Tuesday's action will result in 208,000 former ITT students receiving $3.9 billion in full loan discharges, according to the department. This will also bring the total amount of loan discharges approved by the Biden administration to nearly $32 billion.

U.S. Secretary of Education Miguel Cardona said this decision is based on "extensive internal records, testimony from ITT managers and recruiters, and first-hand accounts from borrowers."

"The evidence shows that for years, ITT's leaders intentionally misled students about the quality of their programs in order to profit off federal student loan programs, with no regard for the hardship this would cause," Cardona said.

Cardona's predecessor, Betsy DeVos, took a different approach in handling borrower defense claims. Instead of offering full discharges to alleged victims of for-profit college fraud, the Education Department under DeVos in 2019 created a formula that compares the income of graduates from the for-profit colleges to that of graduates from similar not-for-profit school programs. For-profit graduates will get a partial relief if their earnings are at a deficit.

This method "treats students fairly and ensures that taxpayers who did not go to college or who faithfully paid off their student loans do not shoulder student loan costs for those who didn't suffer harm," Devos said at the time.

By contrast, Cardona argued last year that borrowers "deserve a simplified and fair path to relief when they have been harmed by their institution's misconduct."

"A close review of these claims and the associated evidence showed these borrowers have been harmed and we will grant them a fresh start from their debt," he said when announcing that his department will no longer apply the DeVos-era formula.

Prior to Tuesday's action, the Education Department approved more than $27 billion in federal student loan discharges, including $9 billion for students who claimed to be defrauded by other for-profit institutions, $9.6 billion for some 175,000 borrowers through the Public Service Loan Forgiveness Program, and $9 billion for more than 425,000 borrowers who have severe disabilities.