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The Department of Education (DOE), complying with a federal judge’s ruling, announced a massive victory for students victimized by now-closed for-profit colleges: their loans will be canceled.
Around 15,000 students will have an estimated $150 million in debt erased. The students granted forgiveness are those who were attended for-profit schools that abruptly closed, leaving them with no degree, education debt and worthless credits.
Loans forgiven include federal and Parent PLUS loans. The discharge doesn’t cover private student loans or money paid out of pocket by students.
“Students who attended these programs can’t get their time back, but at least they will no longer be forced to repay student loans they borrowed for an education they can’t finish,” says Mark Kantrowitz, publisher and VP of research of Savingforcollege.com.
Details on the loan discharge
The loans will be forgiven in tandem with the 2016 borrower defense regulations, an Obama-era policy that protects students from schools that have closed or engaged in misconduct. Under the regulation, student loan discharge is promised to defrauded borrowers of closed schools.
Education Secretary Betsy DeVos, however, sought to delay enforcement of the regulation, stating that it was unfair to colleges and taxpayers because it was too easy for students to have their debt erased. At a conference, DeVos claimed that under the regulation, “all one had to do was raise his or hands to be entitled so-called free money.”
In September, a federal judge ruled that delays by DeVos were unlawful.
The announcement from the DOE comes a little over two weeks since a federal court approved a $600 million settlement that will erase nearly 750,000 students’ debt owed directly to the former ITT Technical Institute.
See Bankrate’s student loan hub, with information, tools and calculators to help you pay for college.
Students who attended a school that closed between November 1, 2013 and December 4, 2018 will be eligible for loan discharge. The DOE estimates that about half of those borrowers are from now-closed Corinthian Colleges.
Department officials will begin notifying borrowers Friday, by email, if they will receive loan discharge. No action is required from the borrower.
For students still interested in getting a college degree or certificate, Kantrowitz recommends they consider enrolling in a local community college, a much lower-cost option.
Additionally, Kantrowitz reminds prospective students that the closed school discharge “not only cancels the debt, but restores eligibility for federal student aid, such as the Federal Pell Grant, that was received during enrollment at the closed school.”