Betsy Devos

Student Loan Discharge Process Receives Massive Overhaul

Melissa Maichle ., Federal Student Aid Programs, Financial Aid Industry News, General Issues in Financial Aid

On December 20th, the Department of Education announced sweeping changes to the student loan discharge process known officially as “Borrower Defense to Repayment”. Here is a summary for college financial aid offices.

Department of Education Reforms Student Loan Forgiveness Policies 

All borrower defense cases had been put on hold since the Trump administration took office.  ED was reviewing the rules that were put in place by the Obama administration and has finally created the new process surrounding how cases will be handled. More than 20,000 pending claims will be affected by the new policy. Those who stand to see less than full forgiveness of college loans are students who applied for refunds after President Donald Trump took office on January 20, according to the Associated Press, while those who had claims approved in full under the Obama administration will receive their money.

Student Loan Forgiveness Linked to Income

Student loan forgiveness will now strictly be linked to student incomes and will impact a percentage which can be forgiven.  Secretary of Education, Betsy Devos, explained in the announcement that “this improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly,” adding that it “also protects taxpayers from being forced to shoulder massive costs that may be unjustified.”

Betsy Devos

Secretary of Education, Betsy Devos

There is a sliding scale, based on the gainful employment data of their peers in the same program, as to how it could impact the percentage of forgiven loans.  For example, students whose current earnings are less than 50 percent of their peers from a comparable postsecondary program will receive full relief. Students whose earnings are at 50 percent or more of their peers from a comparable postsecondary program will receive “proportionally tiered relief to compensate for the difference.” The underlying goal is to ensure that the loan discharge takes into consideration any benefit students did reap from their program.

Critics of the Department of Education’s Student Loan Discharge Reforms

The Devos led ED team had been pushing for reforms ever since entering office and the new sliding scale system is not without its critics.  “This is a bad idea for a host of reasons,” Ben Miller, the senior director for postsecondary education at the Center for American Progress, said on Twitter. “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.”