U.S. Department of Education forgives over $55 million for defrauded borrowers, and other current student loan news for the week of July 12, 2021

Photo by Adobe Stock, Illustration by Bankrate
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

In the past week, the U.S. Department of Education wiped away student loan debt for roughly 1,800 students who attended three higher education institutions that misled borrowers. In the last few months, the department has canceled more than $1.5 billion for borrowers who are in similar circumstances. Additionally, the Pennsylvania Higher Education Assistance Agency announced that it would no longer service federal student loans. Here’s what to know about this week’s student loans news.

2 current trends within student loans for the week of July 12, 2021

1. Department of Education forgives student loan debt for students at three institutions

The Department of Education recently approved borrower defense to repayment claims for over 1,800 students who attended Westwood College, Marinello Schools of Beauty and the Court Reporting Institute. The Department of Education found that all three (now closed) institutions illegally misled students about the ability to transfer credits, the promise of future job prospects, the length of the programs and more.

Under borrower defense to repayment, students who attended these colleges will have their student loan debt forgiven on the basis that these schools misled or defrauded them. This move will cancel $55.6 million of student loan debt in total.

How this affects student loans

The Biden administration has been working on approving claims for borrower defense to repayment over the last several months, clearing a backlog of applications. The administration has now forgiven over $1.5 billion in borrower defense claims for 92,000 borrowers. Students who attended ITT Tech, Corinthian Colleges and the American Career Institute have also seen approved claims recently.

The Department of Education is still working through the backlog of claims, so more institutions could follow. The ongoing process could also protect more borrowers in the future, with Education Secretary Miguel Cardona expressing hope that these approvals “serve as a warning to any institution engaging in similar conduct that this type of misrepresentation is unacceptable.”

2. Pennsylvania Higher Education Assistance Agency will no longer service federal student loans

The Pennsylvania Higher Education Assistance Agency (PHEAA), an agency that manages federal student loans and grants, will not be renewing its contract with the U.S. Department of Education at the end of the year. The contract is set to expire on Dec. 14, 2021.

PHEAA, also known as FedLoan Servicing, currently manages the federal student loans of 8.5 million borrowers and is the only servicer currently servicing loans for Public Service Loan Forgiveness (PSLF). Borrowers who currently hold loans serviced by the company will see their loans transitioned to a different servicer once PHEAA’s contract expires. In the meantime, PHEAA says that it will remain committed to its borrowers through the transition.

How this affects student loans

PHEAA has come under scrutiny for how it has handled the approval process for PSLF, a program that allows public servants the opportunity to have their student loans forgiven after making 10 years of qualifying payments. In the most recent annual White House budget, Biden suggested revising the PSLF approval process to make it more accessible, but PHEAA’s departure could also change the way that those loans are managed.

PHEAA isn’t the only servicer that will be affected at the end of the year; with the Department of Education overhauling its student loan servicing, several other servicers did not receive renewal contracts. Borrowers with loans currently managed by PHEAA or other servicers with expiring contracts should be on the lookout for any communication from the Department of Education or their current servicer. These loans will be transferred to a new servicer, although the details about the loans themselves won’t change.

Next steps

Whether you’re new to student loans or well into repayment, it’s wise to stay informed about how your student loan rates could change. As 2021 continues, more opportunities for cheaper loans or loan forgiveness could open up; keep an eye on the Bankrate student loans news hub for the latest trends.

Learn more:

Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
Edited by
Student loans editor