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Students gather as teachers came to collect their belongings at Everest College in City of Industry, one of the Corinthian Colleges that closed in 2015. Photo by Al Seib/Los Angeles Times via Getty Images

Students defrauded by for-profit colleges may not get full financial relief

WASHINGTON — Students who were defrauded by the for-profit Corinthian Colleges may not get their loans forgiven entirely, the Education Department announced Wednesday, in a reversal of the Obama administration policy of wiping out the debt.

Under President Barack Obama, tens of thousands of students deceived by the now-defunct schools had more than $550 million in federal student loans canceled in full.

But Education Secretary Betsy DeVos announced Wednesday she is putting a new process in place that she says is more efficient and fair. The department will now look at average income for specific programs to determine if the loans should be forgiven fully or partially.

For instance, if a student who attended a nursing program at Corinthian is earning less than 50 percent of what the average income is for graduates of similar programs, he or she will get the entire loan wiped out. But a student earning more than 70 percent of average earnings would get only 30 percent of the loan canceled.

“No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly,” DeVos said in a statement. “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.”

Corinthian students who had their claims approved in full under the Obama administration, even if the money hasn’t been disbursed, will see the payments in full. The change will affect students whose claims had not been decided by Jan. 20, the date of President Donald Trump’s inauguration. The decision will affect more than 20,000 pending claims.

Student advocates criticized the decision.

“It’s unfair and it’s unlawful and arbitrary,” said Eileen Connor, a litigator at Harvard University’s Project on Predatory Student Lending, which has represented hundreds of defrauded Corinthian students. Connor said these students wasted not only money, but time.

“With respect to the clients that I’ve seen, the idea that any of them should get partial relief is really contrary to the facts and the law. It would be like somebody showing that their car has been stolen and the department giving them back a door.”

Connor said her organization will challenge the decision with lawsuits.

Critics say the Trump administration has deep ties to the for-profit sector and is looking out for industry interests at the expense of students. Earlier this year, Trump paid $25 million to settle charges that his Trump University misled students. DeVos has filled several senior positions at the Education Department with for-profit officials.

But DeVos insists that Obama-era procedures left room for borrowers to abuse the system at the expense of taxpayers.

DeVos also said the department has resumed approving loan forgiveness claims, after sitting on tens of thousands of applications for many months. The agency said it has approved 12,900 pending claims from Corinthian students, some in part and some in full, and that 8,600 claims were denied. The agency said those claims were unsubstantiated and that some of the denials were carried over from the previous administration.

A lot of questions remained.

It was unclear what earnings data the government would use to make the decisions. Advocates said the figures must be fairly recent in order for the process to be fair.

It was also unclear what would happen if the nursing student, unable to find work in his or her field, ended up taking a job in a different sector. A department official said only that the agency would look into this issue if complaints arise.

“Some harmed borrowers may now get partial relief solely because they hold a minimum wage job, even though it’s not in the field they prepared for and provides no long-term path to solid employment,” said Ben Miller, a higher education expert with the Center for American Progress, a liberal think tank. Miller added that anybody working a part-time minimum-wage job would be prevented from getting full relief.

“The massive drop in the percentage of relief granted punishes borrowers who succeeded in spite of their unacceptable training.”

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