The U.S. Department of Education announced a new plan to help students defrauded by their college or university on Thursday, March 18, 2021.
Officials estimate the new process will result in $1B of student loan debt cancellation for roughly 72,000 borrowers.
Under the new process, borrowers with verified claims that their college or institution defrauded them or engaged in financial misconduct may apply for full relief.
The term “full relief” constitutes the following measures as cited by the Department of Education:
- 100% discharge of borrowers’ related federal student loans
- Reimbursement of any amounts paid on the loans
- Request credit bureaus to remove negative reporting associated with the loan
- Reinstate federal student aid eligibility
The Department of Education is replacing the previous formula that was used under the Trump administration to calculate relief. “Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” U.S. Secretary of Education Miguel Cardona said.
Previously, borrowers were entitled to partial student loan forgiveness if they attended an institution that engaged in deceptive practices or closed suddenly.
While this new streamlined process undoubtedly helps borrowers that have been harmed by institutional misconduct, it does not mean widespread student loan forgiveness. Though, the American Rescue Plan Act of 2021 has paved the way for tax-free student loan forgiveness. Furthermore, President Biden has signaled he is open to cancelling $10,000 of student loans. However, at the moment, none of the proposals to cancel student loan debt have made their way into a bill that Congress can pass.
The Department of Education will begin applying the new criteria effective March 18, 2021. Borrowers who have been affected will receive notices over the next few weeks. FutureFuel.io will continue to monitor this and future developments that affect student loan borrowers.