$150 million in student debt canceled, $1.5 trillion to go

Share
More
$150 million in student debt canceled, $1.5 trillion to go

Thousands of borrowers no longer need to pay back their student loans. The Department of Education is canceling the debts of 15,000 students who attended schools that closed. The canceled debt amounts to $150 million, or about $10,000 each borrower.

Under "borrower defense" regulations finalized in 2016, federal student loans are automatically discharged if the borrower's school closes. But the government delayed carrying out the rule until student advocates sued.

"This automatic discharge rule was put into place because the impact of a school closure is so devastating on students' plans and careers, and because many students were not aware of the right to request a discharge," said Aaron Ament, president of the National Student Legal Defense Network, one of the organizations that sued the Department of Education. "If it weren't for Secretary [Betsy] DeVos’s unlawful delay of the rule in the first place, students would have gotten this relief in 2017."

The Department of Education did not immediately respond to a request seeking comment.

How the discharges work

The department has identified 15,000 borrowers who attended schools that closed between Nov. 1, 2013, and Dec. 4, 2015. About half of these borrowers attended Corinthian Colleges, a chain of for-profit schools. They closed after being sued for fraud.

On Dec. 14, the department started emailing borrowers to tell them some or all of their federal loans would be discharged. Most of the loans will be canceled in 30 to 90 days. Loan holders will let borrowers know when the discharges are complete.

The rules require the department to discharge loans automatically three years after a school closes, but borrowers can apply for a discharge as soon as the department confirms a school closes by contacting their loan servicer. Borrowers are eligible if they were enrolled in a school when it closed, if they withdrew less than 120 days before it closed and if they didn't transfer their credits to another school.

Americans owed $1.6 trillion in student loans as of November, according to the Federal Reserve. Canceling $150 million will barely make a dent. For those who aren't lucky enough to have their debt canceled, learn more about how to deal with student debt.

Image: jacoblund