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Betsy DeVos unveils new student loan forgiveness 'methodology.' Critics call it 'bad math' and 'mystifying.'

Aarthi Swaminathan
Finance Writer

The Education Department (ED) released a new “methodology” for how the department assesses potential debt relief claims from more than 200,000 defrauded student borrowers.

The new formula, published on Tuesday night, is Education Secretary Betsy DeVos’ response to the borrower defense claims made by thousands of students in the wake of for-profit giant Corinthian Colleges shutting down in 2015.

Under existing law, borrowers with federal loans are eligible for loan forgiveness if a college or a university has misled them or engaged in other misconduct in violation of certain state laws. The department under DeVos has faced an onslaught of these claims.

Experts and critics immediately asserted that DeVos is just stalling on debt relief for defrauded students. And even members of the Education Department disagree with DeVos.

“It’s bad math applied incorrectly that will screw borrowers out of needed relief for no reason besides spite,” Ben Miller, vice president for postsecondary education at the Center for American Progress, told Yahoo Finance. “Everyone involved in concocting this embarrassment should go enroll in a statistics course.”

U.S. Secretary of Education Betsy DeVos speaks with school children the White House in Washington in April 2018. (Photo: REUTERS/Joshua Roberts)

Your new regulations reverse all of those protections’

To decide if a borrower is entitled to have their loans forgiven, they plan to look at the median earnings of graduates who have made claims and compare it to median earnings of graduates from comparable programs. If the ones making the claims are found to have lower earnings than the median for that program at “all comparable schools,” then they’ll get student loan relief “either in part or full,” depending on how many “standard deviations” they are from the median.

DeVos contended that the new methodology “treats students fairly” and “ensures that taxpayers” who didn’t attend college or have already paid off their student debt “do not shoulder student loan costs for those who didn’t suffer harm.” 

Rep. Bobby Scott (D-VA), who chairs the House Committee on Education and Labor, also expressed consternation at the new formula.

“Under the Borrower Defense rule, the Department of Education has the clear authority to provide full debt relief to students defrauded by their college. Rather than simply exercising that authority and providing life-changing relief to defrauded borrowers, the Department is inventing another scheme to provide students less relief than the law allows,” he said in a statement. “It should not be controversial that victims of predatory schools deserve meaningful relief. The Department’s continued resistance to making defrauded students whole is mystifying.”

And a new NPR report found that DeVos’ position on denying full debt relief was also at odds with veteran colleagues in her own department. According to internal ED memos obtained by NPR, “career staff in the department's Borrower Defense Unit came down firmly on the side of defrauded borrowers.” ED officials had already reviewed thousands of borrower complaints against Corinthian Colleges, ITT Technical Institute, and other now-defunct for-profit colleges before DeVos became the department’s secretary and concluded that the defrauded borrowers deserved to be fully relieved of their student debts.

"Your new regulations reverse all of those protections," a group of students defrauded by for-profit colleges wrote to DeVos on Tuesday night, reacting to the methodology. "It is a slap in the face of students across the country."

DeVos is expected to appear in front of this committee on Thursday morning, testifying about the ED’s borrower defense policies. 

A security guard inside Everest College keeps away a member of the media and a former student. (Photo: Mindy Schauer/Digital First Media/Orange County Register via Getty Images)

Reversal of Obama-era policies

The borrower defense claims submitted by affected students — for loan forgiveness — was created in a 1995. It was barely used until the Corinthian Colleges closed in 2015, triggering a flood of claims.

“For years, Corinthian profited off the backs of poor people — now they have to pay,” then-California Attorney General Kamala D. Harris said in a 2016 statement. “This judgment sends a clear message: there is a cost to this kind of predatory conduct … My office will continue to do everything in our power to help these vulnerable students obtain all available relief, as they work to achieve their academic and professional goals.” 

The Obama administration created special rules to address the problem, making it easier for defrauded students to get their loans cleared — with some getting automatic loan forgiveness if they qualified. 

Former US President Barack Obama delivers a speech in Paris, France in 2017. (Photo: Chesnot/Getty Images)

But DeVos’ decision in 2017 to first delay, then scrap the rule entirely, proposing a new one, was not only heavily criticized by Democrats but also sparked a judge’s decision to hold her in contempt of court. (The new rule comes into effect on July 1, 2020.)

When DeVos decided to provide only partial relief based on borrowers’ earnings, the issue was taken up by the judge, U.S. Magistrate Judge Sallie Kim. She ruled that the formula DeVos was using was unlawful in 2018. The case meant that actions were frozen, but since ED didn’t stop collecting loans from former students, Kim held DeVos in contempt of that court order.

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Aarthi is a writer for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami

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