New tiered relief process for deceived student borrowers
Funds will be disbursed based on a comparison of earnings with peers from equivalent GE programs.
American students owe $1.4 trillion in debt. However, some of these borrowers were defrauded by profiteering colleges and seek financial aid from the government. Previously, these students were guaranteed to have their entire debt expunged but a new tiered relief approach takes into account borrowers’ current earnings.
The US Department of Education has established a new discharge process for borrower defense to repayment claims as part of regulatory changes. While the approval process for relief remains the same, the funds will be disbursed based on a comparison of earnings with peers from equivalent gainful employment (GE) programs.
Students who earn 50% of comparable GE graduates will be entitled to full relief. Those who earn between 50-59% will have 50% of their debt wiped. Those paid 60-69% of their peers’ salaries receive a 40% deduction.
The table below shows the full breakdown of tiered government debt assistance for affected borrowers.
|CCI Earnings as a Percentage of GE Earnings||Amount of Relief|
|1% to 49%||100%|
|50% to 59%||50%|
|60% to 69%||40%|
|70% to 79%||30%|
|80% to 89%||20%|
|90% and above||10%|
Given the lengthy process for claims, the Education Department will apply a credit to interest that accrues on loans, which will kick in one year after the borrowers’ defense application is submitted.
12,900 claims have been approved, 8,600 claims have been denied and there are over 100,000 claims pending. Claims are from students who attended now-bankrupt Corinthian Colleges, which ceased operations in 2015.
The better of mean or median earnings as compared to GE program peers is what’s used to calculate relief.
US Secretary of Education Betsy DeVos said she has been working to improve the process since June.
“No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly. This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified,” DeVos said.
Center for American Progress senior director Postsecondary Education Ben Miller took to Twitter to condemn the updated system, emphasizing that it is an unacceptable idea for a variety of different reasons.
“It ignores the question of whether you actually got a job in that field, what your long-term career prospects are, the massive cliff effects, and it’s comparing graduates to some potential dropouts,” he said.
“Look at medical assisting. Mean earnings of passing programs is $18,262. If you make more than $8,948, you only get 50% relief. That’s about 22 hours a week at the minimum wage. Apart from a restaurant server, that means any part-time job would disqualify you from full relief.”
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Late last year, a report released by the CFPB raised concerns about costly fees and risky features that can be attached to some college-sponsored accounts, resulting in hundreds of dollars worth of charges per year.
Many American colleges offer sponsored bank accounts for students, but being able to compare campus-approved accounts against regular banks and other educational institutions had been difficult, until recently.
Many colleges, including Brown University, are going loan-free to combat the growing student debt epidemic.
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