Betsy Devos Considering New Limits on Loan Forgiveness for Defrauded Students

Betsy DeVos

If you’re waiting for student loan forgiveness because your for-profit college closed, you’re about to get a rude awakening.

Department of Education (DoED) Secretary Betsy DeVos is working on a new plan to forgive only part of your student loan debt. What’s more, your current earnings could determine whether or not you qualify for student loan forgiveness.

Although nothing has been set in stone yet, this plan could significantly impact affected borrowers. Here’s what you need to know.

Betsy DeVos’ plan could hurt students defrauded by for-profit colleges

During the Obama administration, the DoED forgave $550 million in student loan debt for students defrauded by for-profit schools under the “borrower defense to repayment” rule — “borrower defense” for short. Students who attended for-profit schools that ended up closing were able to use this rule to have their debt forgiven.

Now, according to the Washington Post, DeVos is proposing changes to the borrower defense rule. “[Betsy DeVos] is working on a plan that could grant such students just partial relief, according to department officials.”

Because of DeVos’ proposed changes, the DoED announced it intends to delay approval of student loan forgiveness for those who have already applied.

According to the DoED’s Federal Register notice, the delay, which is set to last until July 1, 2019, is meant to “ensure that there is adequate time to conduct negotiated rulemaking and, as necessary, develop revised regulations.”

Why is Betsy DeVos delaying student loan forgiveness?

Although students can still apply for the borrower defense rule, none of the existing 87,000 claims have been approved by DeVos since she took office. This includes 10,000 claims already recommended for approval.

So why the delay? Anonymous sources within the DoED spoke to the Washington Post and explained why department officials have yet to address the pending claims: “They say leadership in the Office of Federal Student Aid and the Office of the General Counsel would prefer to grant partial relief based on the debt-to-earnings data collected from vocational programs.”

In other words, according to the Associated Press, they want to “look at the average earnings of students in similar programs and schools to determine how much debt to wipe away.”

This gives borrowers little information as to what this could mean for the status of their applications. Do higher earnings mean less forgiveness for them? Is it fair to compare the average employment opportunities for students of closed for-profit colleges as compared to “similar programs and schools” that are still open?

For now, only time will tell.

What alumni of closed for-profit colleges should do now

Should DeVos make the above changes to the borrower defense rule, many applicants might be on the hook for a portion of their loans.

If you’re counting on complete student loan forgiveness, this could put you in a financial bind. It’s even worse if you’re struggling to find employment due to the school you attended.

However, these are all just potential changes — nothing is set in stone. You should still apply for borrower defense if you qualify. You could even talk to your servicer about closed school discharge.

But whatever you do, don’t stop paying your loans.

Student loan default can damage your credit score and isn’t worth the break you’d get on payments while you wait to see if you can qualify for student loan forgiveness. If you’re struggling to make your payments, you can get help instead through income-driven repayment plans.

These plans cap your payment amount to a percentage of your income. This can help you stay above water while waiting to see what happens next with DeVos’ plans. What’s more, these plans can eventually qualify you for student loan forgiveness. Although it’s not the same as getting a refund on your loans from a for-profit school that defrauded you, it at least keeps your credit and your finances in good standing.

Finally, if you were in the middle of a program when your school closed, consider finishing your program elsewhere. After all, doing so can improve your chances of employment opportunities — and going to college can also boost your lifetime earnings.

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