Education Department: Trump-era formula for defrauded students had 'significant flaws'

The Biden Education Department (ED) is continuing to reverse course on Trump-era policies that led to blanket denials of borrower defense claims from students who were allegedly defrauded by various colleges.

On Tuesday, the ED released reasoning for why the agency previously provided full debt relief for borrowers who had under the previous administration received only partial forgiveness despite being found to have been defrauded by a predatory institution.

"The Department reviewed this methodology and rescinded it in the March 2021 announcement after finding several significant flaws, which are described below," the Federal Student Aid (FSA) office stated. "The overall effect of these flaws is that the methodology unfairly determined relief for students based upon data that may not have included them, and then incorrectly used statistical concepts that were not suited for the task at hand."

While about 72,000 borrowers who were given partial debt relief under the old DeVos-era formula were made whole, a borrower defense backlog remains: According to the latest government data as of April 30, 107,825 borrower defense claims are still awaiting adjudication while 137,413 have previously been deemed ineligible.

Furthermore, it's unclear if those 137,413 ineligible claims involve borrower defense claims that were systematically denied during the Trump administration — including nearly 130,000 in 2020 alone. (The ED did not respond to requests for comment on this specific question.)

"If there is fraud, the entire loan needs to be cancelled," Eileen Connor, legal director of Harvard's Project on Predatory Student Lending, which represents many defrauded student loan borrowers, told Yahoo Finance. "This is true in the vast, vast majority of cases and needs to be the starting presumption."

Going forward, when the department reviews borrower defense claims for loan forgiveness, ED will "assess all approved claims applying a rebuttable presumption of full relief as a starting point."

House Education and Labor Committee Chairman Bobby Scott applauded the move.

"The Biden administration’s new policy for Borrower Defense claims aligns with that recommendation and provides student loan borrowers the relief that they need and deserve," Scott said. “Once again, the Biden administration is using its full authority to deliver life-changing loan forgiveness to students and families.”

DeVos ED rushed reviews, spent 12 minutes per case

The borrower defense process, in which students who believe they were defrauded can apply for loan forgiveness, was created in 1995 and barely used until the Corinthian Colleges closed in 2015.

A flood of claims followed.

“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.

The Trump administration rolled back Obama-era regulations, limiting how applicants could access the program, and eventually set up a rubber stamp system for denials.

A letter from an ED official named Colleen Nevin wrote in August 2019 — made public via a complaint filed in a related court case — detailed how the plan for 2020 would require reviewers of borrower defense claims to "on average" look through "a minimum of 5 cases per hour" while maintaining "an error rate under 5%."

Additionally, Nevin then stated that the "bar for new approvals is high" and that the "majority of applications will be denied — based on either the insufficiency of the borrower's allegations or the lack of sufficient evidence to support the borrower's application."

Harvard's Connor described the DeVos policy as involving "thinly-veiled, mathematically illiterate pretenses to prop up predatory institutions and hurt our clients." And despite the blanket denials, the Trump-era ED left a huge backlog of borrower defense claims for the Biden administration.

"The previous administration’s formula for determining debt relief was deeply flawed," Rep. Scott stated. "Under the old formula, some defrauded borrowers would be granted relief only if they made ‘negative earnings’ — which is obviously impossible."

When the Trump-era formula was unveiled in December 2019, experts swiftly called out the "bad math," foreshadowing the ED explanation that the policy had "incorrectly used statistical concepts."

Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected] Follow her on Twitter @aarthiswami.

Read more:

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

  • ‘I’m working until I’m 75’: Factory worker describes family’s student debt nightmare

  • Student loan reform group sues Education Secretary Betsy DeVos and CFPB Director Kathy Kraninger

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