Secretary DeVos Approves New Methodology for Providing Student Loan Relief to Borrower Defense Applicants

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Secretary DeVos Approves New Methodology for Providing Student Loan Relief to Borrower Defense Applicants

While courts continue to deliberate, DeVos moves forward with ensuring harmed students receive relief
December 10, 2019

WASHINGTON –Today, U.S. Secretary of Education Betsy DeVos announced the Department has implemented a new methodology for assessing borrower defense to repayment (BDR) claims, many of which were left behind by the previous administration. The new methodology relies on publicly available earnings data and a scientifically robust statistical methodology to determine harm.

“Despite the mess we inherited from the previous administration, we committed from day one to getting this right for students and taxpayers,” said Secretary DeVos. “We cannot tolerate fraud in higher education, nor can we tolerate furiously giving away taxpayer money to those who have submitted a false claim or aren’t eligible for relief. This new methodology treats students fairly and ensures that taxpayers who did not go to college or who faithfully paid off their student loans do not shoulder student loan costs for those who didn’t suffer harm.”

As illustrated in the chart below, the new borrower defense relief methodology relies on publicly available data to compare median earnings of graduates who have made BDR claims to the median earnings of graduates from comparable programs. If the earnings from the school in question under the BDR application are lower than the median for that program at all comparable schools, then they will be determined to have suffered harm and will receive student loan relief, either in full or in part:

  • Earnings lower than two standard deviations from the median will result in full relief.
  • Successful BDR applicants whose program earnings are lower than the median but higher than two standard deviations from the median will receive tiered relief of either 25%, 50%, or 75%, based on their program's earnings deviation from the median.

Chart 2

To calculate harm and determine the relief amount, the Department is relying on publicly available 2017 Gainful Employment earnings data, Social Security Administration earnings, College Scorecard data and IRS information.

Because of promises made by the prior administration, and damages likely caused to those borrowers by the Department’s continuous efforts to use Corinthian Colleges, Inc. (CCI) institutions as an example, the Department will award no less than 10% relief to all eligible CCI Borrower Defense applicants, regardless of program earnings.

Hundreds of claims adjudicated utilizing the new methodology, mostly consisting of Corinthian and ITT borrowers, will be released this week. FSA will also resume notifying borrowers that their loans are ineligible for relief under the 2016 BDR regulation based on the following factors: 

  • Borrowers did not have Direct Loans related to the claim.
  • Borrowers were not part of the pre-identified class of Corinthian Colleges for whom approval was provided in advance.
  • Borrowers did not make an allegation or provide sufficient evidence that the institution violated an applicable state law.
    • For example, borrowers who submitted a claim stating that their teacher was unfair or that they have not found a job they like are not eligible for relief under the applicable BDR provision.

The decisions issued this week include thousands of claims that were effectively denied by the prior administration but were left behind for this administration to notify borrowers. For context, the prior administration’s final BDR report had indicated approximately 40% of pending claims at that point in time were deemed ineligible. Students deemed ineligible for relief, who have loans held by the Department, will have any interest accrued on their loan waived from the date their claim was submitted.

This is the second robust adjudication process put in place by this administration to address pending claims. As many will recall, the Department first began adjudicating BDR claims in 2017 but was stopped by a California court based on technical, legal questions arising from a data-sharing agreement within the federal government. The Department appealed the court’s decision, but when it became obvious that the court was not going to move quickly, the Department began to develop the new methodology released today for adjudicating claims.