After nationalizing student lending, the Obama Administration sought to reduce the government’s $1.3 trillion loan portfolio by allowing disgruntled borrowers to discharge their debt. Last week Education Secretary Betsy DeVos ended this fraud against taxpayers.
After driving Corinthian Colleges out of business in 2014, the Education Department implemented a haphazard process to forgive loans of students who claimed to have been ripped off by the defunct for-profit. Tens of thousands of claims poured in, overwhelming department staff.
The backlog of claims ballooned after predatory regulators forced the closure of ITT Technical Institute in 2016. Liberal groups urged the Obama Administration to forgive loans of borrowers who had attended other for-profits, spurring the department to initiate a “borrower defense” rule-making to allow students who purported misrepresentations by their colleges to discharge their loans. The midnight rule, finalized last November, authorized the Education Department to discharge debts on a class-wide basis—for instance, all borrowers who had attended a certain college within the last five years.
The Obama Administration approved roughly 15,000 claims between June 25, 2015 and January 1, 2017. During President Obama’s final three weeks in office, the department hurried out 16,000 approvals. No claims were denied. The total taxpayer tab for discharges: $450 million.
Obama officials left a backlog of 48,000 claims, many of which were flagged for rejection. But the Education Department had not developed a process for denying claims or a system to prevent fraud—to wit, borrowers who alleged misrepresentations by colleges despite suffering no apparent injury.