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U.S. Education Dept. Cancels Loans for 1,500 Defrauded Students

Posted by Beverly Silva on November 08, 2019
U.S. Education Dept. Cancels Loans for 1,500 Defrauded Students

About 1,500 students who attended two art institutes that were part of the sudden collapse of a career-school chain this year will have their federal loans canceled, Education Secretary Betsy DeVos said on Friday.

It was a rare victory for borrowers seeking debt relief from a department that, under Ms. DeVos, has frozen or curtailed relief programs for students who claim that schools defrauded them. Borrowers who attended the two schools, the Art Institute of Colorado and the Illinois Institute of Art, sued the department last month, seeking to have their loans eliminated.

“Students were failed and deserve to be made whole,” Ms. DeVos said. Students who attended the schools from late January 2018 through the end of last year, when they shut down, will have their loans for that period canceled, the department said.

Borrowers will still generally owe on federal loans they took out before Jan. 20, the department said in an email sent to borrowers on Friday. Some people, however, may qualify to have all of their loans eliminated through the department’s closed school discharge program.

The department on Friday blamed the Higher Learning Commission for the mess, saying that the accreditor had harmed students by placing their schools in a “newly developed and improperly defined” accreditation status.

Heather Berg, a spokeswoman for the Higher Learning Commission, said the status had existed for more than a decade. She added that the organization “applauds the Department of Education for helping students who are harmed by higher education institutions that do not accurately disclose their accreditation status.”

Eric Rothschild, the litigation director of the National Student Legal Defense Network, which represented students in the lawsuit against the department, said he was pleased by the agency’s decision to cancel students’ loans.

“We’re thrilled for our clients and all the students at these schools who were misled,” he said.

The Education Department also said it would give students at 24 other Dream Center schools that closed at the end of 2018 an extra month to have their loans eliminated through a program known as closed-school discharge. The change will help around 300 borrowers, the department said.

A group of House Democrats had previously asked the department to extend eligibility for the program back further, to late 2017.

“For the vast majority of defrauded students, this announcement cancels only a small portion of the loans they took out to attend a failing school,” Representative Robert C. Scott, a Virginia Democrat who is the chairman of the House Education Committee, said on Friday.

The department has been under increasing pressure from lawmakers and courts that say it has been stonewalling on student debt relief programs, which Ms. Devos has previously derided as “free money” giveaways.

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