Defrauded Student Loan Borrowers Are Demanding Their Debt Gets Cleared

Defrauded student loan borrowers are demanding that the Education Department clear their debt, years after for-profit colleges scammed them out of money.
Last week, nearly 800 student loan borrowers sent a letter to the Department of Education demanding immediate relief. In addition to the borrowers, 26 organizations representing them, including the American Federation of Teachers, the Center for American Progress and EdTrust, joined in on the letter
“We write as 26 organizations representing students, consumers, veterans, faculty and staff, civil rights advocates, and researchers to encourage the Department of Education (the Department) to use its authority under the Higher Education Act to relieve the outstanding loan balances of defrauded borrowers who have waited years for the relief due them,” the letter dated August 29 said.
The borrowers said that they appreciate the actions the Education Department took to cancel debt for millions of defrauded people, but there are still many who haven’t been able to clear their loans.
“Many students were duped into enrolling in programs that charged exorbitant tuition prices and provided little value to students,” attorney Michael Lux, founder of the Student Loan Sherpa, told Newsweek. “Many of these for-profit institutions used deceptive and often coercive tactics to enroll students. These same students were sent out into the workforce without a marketable skill set and without any help in finding a job from their schools.”
Under President Joe Biden’s administration, more than 300,000 Art Institutes student borrowers saw $6.1 billion discharged, while roughly a thousand University of Phoenix borrowers saw $37 million in borrower defense claim approvals.
The Education Department also approved student loan forgiveness for borrowers at Ashford University, CollegeAmerica, Westwood, ITT Technical Institute, Corinthian Colleges, DeVry and others who paid student loans toward a non-creditable program.
“These announced discharges, along with other actions such as the settlement agreement in Sweet v. Cardona, demonstrate the Biden-Harris administration’s commitment to addressing loan debts of student borrowers who were the victims of predatory, abusive, and wasteful institutions,” the letter said.
“However, recent reports have come to the attention of several of our organizations indicating that many borrowers have not seen the balances cleared from their accounts. These balances run the risk of negatively affecting borrowers’ financial standing. As repayment resumes, individuals can also be pushed back into repayment for debts they should not otherwise owe.”
In addition to those who are waiting for their debts to clear after the Education Department pledged to make the loans disappear, the group of borrowers said that “many more defrauded borrowers await recognition.”
“Forgiving these debts would be an acknowledgment that the Department of Education was asleep at the wheel when they certified these institutions and allowed students to borrow money to attend these schools,” Lux said.
“For the borrowers directly impacted, forgiveness would be life-changing. In addition to no longer having a lifetime of student debt hanging over their heads, it would empower them to move forward with their lives, which could include having families or starting a business.”
The borrowers said many colleges that used deceptive advertising still haven’t had students cleared of their debt.
“While we applaud the group discharge for Art Institutes borrowers, we are mindful that Education Management Corporation (EDMC)—the Art Institutes’ parent company—operated other large brands under the same corporate leadership, governed by company-wide policies that resulted in the same types of deceptive and unfair practices identified at the Art Institutes,” the letter states. “Yet these other brands were not part of the May 2024 announced group discharge.”
The borrowers asked the department to “immediately use its authority to relieve the balances of student borrowers who were victims of EDMC-operated brands beyond Art Institutes.”
They asked the same for borrowers at Ashford University, schools operated by Perdoceo, Florida Career College and UEI College, Kaplan, Vatterott College and other institutions known to have committed “systemic fraud against their students and Title IV programs.”
“We recognize the myriad challenges confronting the Department, including the end of the on ramp period and the looming risk of default facing millions of borrowers, and we continue to advocate for Congress to allocate more resources for the Department to fulfill its critical work,” the letter said. “However, we—along with many other advocates—strongly urge the Department to leverage its group discharge authority to bring long-overdue justice to defrauded borrowers who deserve relief from undeserved and harmful bad debts.”
Newsweek reached out to the Education Department for comment.
“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Secretary of Education Miguel Cardona said earlier this year when the Education Department announced 72,000 defrauded borrowers could be eligible for full forgiveness.
“A close review of these claims and the associated evidence showed these borrowers have been harmed, and we will grant them a fresh start from their debt.”
While about 43 million Americans have federal student loan debt, Biden’s Education Department has forgiven roughly $25 billion in student loans for 1.3 million borrowers.
One of the largest debt forgiveness programs is the Public Service Loan Forgiveness, which erases loan debt if a government or nonprofit employee made 10 years of qualifying payments.
The SAVE income-driven repayment plan also provided lower payments or zero dollar payments for over 5 million borrowers before being challenged and paused by federal courts.
“The Biden-Harris Administration is dedicated to saddling working Americans with Ivy League debt, even if they have to break the law to do it,” Missouri Attorney General Andrew Bailey previously told Newsweek. “Our latest lawsuit challenges their third and weakest attempt to mass-cancel student loans in the dark of night without letting Congress—or the public—know about it. That’s illegal.”
While Missouri was joined by Arkansas, Florida, Georgia, North Dakota, Ohio and Oklahoma in pushing a lawsuit against the Education Department, Biden’s administration has said the SAVE plan is fully authorized by the law.
“The SAVE plan is a clearly authorized and urgently needed effort to fix what’s broken in our student loan system and make financing a higher education more affordable in this country,” Cardona said in a statement last month.
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, said most of the student loan forgiveness available has centered on borrowers with long-term loans based on the amount paid.
“As a result, while some students who have had a loan for 10 or 20 years and made every necessary payment but still find themselves in debt saw forgiveness under certain conditions, some of these students who were victims of these fraudulent loans didn’t find themselves covered by initial rounds of forgiveness,” Beene told Newsweek.
“This is a small, targeted group of investors who were involved in allegedly fraudulent loans to just a handful of schools nationwide. It’s hard to imagine not seeing some type of relief for those affected.”
Students who were defrauded by for-profit colleges are often disproportionately minorities as well as first-generation students, said Kyle Southern, associate vice president at Higher Education Quality at The Institute for College Access.
“This is an important equity issue,” Southern, who was one of the leaders behind the letter, told Newsweek.
“Predatory institutions disproportionately target students who are Black, women, first-generation and student veterans. They run up debts or fleece people of their veterans’ educational benefits, all to boost enrollments and bottom lines. Bringing justice to these students should be part of a broader racial and economic justice agenda.”