Trump administration will cancel $150M federal student loans, After DeVos losing court battle.

The student loan battle has some great news, Trump administration will be canceling thousands of borrowers’ federal student loans, carrying out an Obama-era policy that Education Secretary Betsy DeVos had fought to kill.

The news comes after DeVos losing court battle and being forced to incorporate new set of regulations that will create more protections for student loan borrowers who were affected by school closure or defrauded by their college.

In september 2018 a federal judge ruled that DeVos' efforts to stop the 2016 “borrower defense” regulations from taking effect was illegal. Later after that, the same judge rejected a bid by for-profit colleges to immediately stop the regulations, clearing the way for them to take effect.

The federal student department of education declare on Thursday that they will cancel the loans of about 15,000 borrowers who qualified for “closed school” loan discharges but who haven’t yet applied for that benefit. Those student loans total approximately $150 million.

The good news is that half about of the borrowers who will now receive loan discharges attended campuses owned by Corinthian Colleges, the chain of for-profit colleges that went bankrupt in 2015. The remaining students attended other schools that closed sometime between Nov. 1, 2013, and Dec. 4, 2018.

Closed School Discharge Changes

The 2016 borrower defense regulations at 81 FR 75926 amended the William D. Ford Federal Direct Loan (Direct Loan), Federal Family Education Loan (FFEL), and Federal Perkins Loan (Perkins Loan) program regulations to provide for the automatic discharge of loans if, among other things, a borrower could not complete his or her program of study because the borrower’s school closed. The 2016 borrower defense regulations also added new closed school discharge requirements for loan holders, guaranty agencies, and schools.

The department said some of the loans that will be canceled are PLUS loans owed by parents whose students attended schools that closed.

The loan cancellations also come after a California consumer advocacy group sued DeVos in November for failing to automatically cancel the federal loans of students under the 2016 “borrower defense” rules.

Sen. Patty Murray, the top Democrat on the Senate Education Committee, said she was “pleased” the department moved to discharge the loans but called on the Trump administration to go further.

“This is a good first step, but it’s not good enough,” Murray (D-Wash.) said in a statement, adding that DeVos should “abandon her attempts to rewrite the borrower defense rule to let for-profit colleges off the hook and instead fully implement the current rule and provide relief to more than 100,000 borrowers who were cheated out of their education and savings.”

DeVos has said the Obama-era rules are unfair to colleges and taxpayers because they make it too easy for students to have their debt wiped out. She has proposed, but not finalized, a more restrictive policy that would rein in the amount of loan forgiveness that borrowers receive.

Federal law allows borrowers who attended — or recently withdrew from — a school that closes to cancel their debt, as long as they don’t transfer their credits elsewhere. Prior to the 2016 regulations, borrowers had to submit an application to obtain the loan discharge. In changing the policy, the Obama administration said it wanted to make the process automatic because of the low rate at which borrowers eligible for the loan discharges applied for the benefit.


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