Biden Cancels $72 Million in Loans for 2,300 Student Borrowers

President Joe Biden (L) announces student loan relief with Education Secretary Miguel Cardona at the White House on Aug. 24, 2022. (Olivier Douliery/AFP via Getty Images)

The Biden administration has approved a $72 million student loan forgiveness initiative to provide relief for students who were defrauded by a California-based online school.

The loan forgiveness will be applicable to more than 2,300 students who attended Ashford University, a former online for-profit school based in San Diego, the U.S. Department of Education (DOE) announced in an Aug. 30 statement.

The action has been approved under the “borrower defense” student aid program that has been in place for decades. Under the program, student loan borrowers who were misled by for-profit colleges could apply for forgiveness.

The loan forgiveness was approved after the DOE reviewed evidence presented by the California Department of Justice in its successful 2017 lawsuit against Ashford and parent firm Zovio.

The lawsuit accused Ashford of engaging in deceptive practices to mislead students. On March 3, 2022, a court ruled in favor of the California Department of Justice, judging that Ashford made more than 1.2 million misleading representations nationwide to prospective students.

Based on its review of the case, the DOE approved loan forgiveness for Ashford’s student borrowers who have filed for debt relief under the borrower defense program. The relief is applicable to borrowers who enrolled in Ashford between March 1, 2009, and April 30, 2020.

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“As the California Department of Justice proved in court, Ashford relied extensively on high-pressure and deceptive recruiting tactics to lure students,” U.S. Undersecretary of Education James Kvaal said.

“Today, we are protecting the students who were cheated by Ashford, and we will also hold the perpetrators accountable, protect taxpayers, and deter future wrongdoing.”

The $72 million forgiveness announcement comes days after dozens of Democrats wrote a letter (pdf) to President Joe Biden asking that he “continually find ways to use your authority to bring down student debt,” after the U.S. Supreme Court earlier blocked his administration from implementing a massive student debt forgiveness plan.

On June 30, the Supreme Court struck down the Biden administration’s plan to cancel as much as $20,000 in loan principal for 40 million student borrowers.

The Congressional Budget Office had estimated that the forgiveness plan would cost about $400 billion. However, an estimate from the University of Pennsylvania’s Wharton School of Business put the price tag higher at more than $1 trillion.

Borrower Defense Injunction

The “borrower defense” program that the DOE is using to discharge the debts of Ashford students recently faced a setback in court.

Student loan debtors hold a rally in front of the White House to celebrate President Joe Biden's intent to cancel student debt, which was later blocked by the U.S. Supreme Court on Aug. 24, 2022. (Paul Morigi/Getty Images for We the 45m)

While new rules regarding the borrower defense program took effect on July 1, the New Orleans-based U.S. Court of Appeals for the 5th Circuit issued an injunction against the new regulations on Aug. 7, in a case brought forward by the Career Colleges and Schools of Texas (CCST), which represents more than 70 for-profit educational institutions in the state.

The association argued that the new rules would no longer require borrowers to prove individualized harm in most circumstances and would place an unfair cost burden on educational institutions.

On the Student Aid website, the DOE states that it won’t judge “any borrower defense applications under the latest rule unless and until the effective date is reinstated.”

The new rules would apply only to “all claims pending on or received on or after July 1, 2023,” according to a DOE fact sheet.

In its Aug. 30 statement, the DOE said that it had approved the findings related to Ashford student debt forgiveness prior to July 1 and that “this action covers loans under the 1995 or 2016 regulation” and not under the July 1 regulation that has been delayed by the injunction.

The Ashford Case

In the Ashford case, the DOE found that the school had engaged in “extensive substantial misrepresentations.”

Recruiters told students that they would be able to work as teachers, nurses, social workers, and drug and alcohol counselors even though Ashford had never obtained the necessary state approval or accreditation to allow students to enter these professions.

Ashford’s recruiters “also lied about the cost to attend Ashford, the amount and type of financial aid students would receive, and the amount of debt students would accumulate,” according to the DOE statement.

Recruiters misled students about the time that it would take to obtain an Ashford degree. Compared to traditional four-year colleges, Ashford’s programs took five academic years to complete, the DOE stated. Meanwhile, just 25 percent of students were found to have graduated from Ashford within eight years of enrollment.

“Borrowers in their applications described the inability to obtain employment, unexpected financial burdens, and an inability to complete their programs,” the Aug. 30 statement reads.

“The evidence from the California case also demonstrated that three-quarters of all Ashford bachelor’s degree programs would have resulted in a negative value for students, making the education they obtained effectively worthless.”

With the DOE approval, Ashford student borrowers won’t have to make more payments on loans. Instead, the loans will be discharged by the Biden administration. In September, the department will send an email to Ashford students who have qualified for the borrower defense discharge.

“Borrowers will see any remaining loan balances for federal loans zeroed out and credit trade lines deleted. Any payments those borrowers made to the Department on their federal student loans will be refunded,” the DOE stated.

Ashford was acquired by the University of Arizona in 2020 and has been turned into the University of Arizona Global Campus (UAGC).