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GAO report illustrates need for changes in a little-known student debt relief program

The government watchdog found that automating the closed school discharge program helped thousands of borrowers, but the Trump administration scrapped the policy.

Students outside the locked door to the ITT Technical Institute campus in Rancho Cordova, Calif., in 2016. ITT Tech is among the schools that account for a large number of borrowers affected by college closures in the last decade. (Rich Pedroncelli/AP)

When colleges close, students who are unable to complete their studies are entitled to have their federal education loans canceled. Yet many eligible borrowers continue to struggle with that debt, unaware of their right to relief or stymied by the application process, a government watchdog has concluded.

In a report requested by Congress and released Thursday, the Government Accountability Office found that an Obama-era policy of granting automatic closed school loan discharges helped thousands who had fallen behind on their debt. The Trump administration ended the policy, saying it discouraged students from completing their education and that borrowers were capable of deciding whether to pursue forgiveness on their own. Critics of the move argued that it aimed to limit relief.

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Nearly a quarter of a million student loan borrowers were enrolled at colleges that closed between 2010 and 2020, according to the GAO. More than 80,000 of those students received federal loan forgiveness, with 42 percent of discharges originating from the automated process, the report said.

Researchers found that people who received automatic loan discharges faced higher rates of default than other borrowers. Whereas 6 percent of people who applied for forgiveness were in default on their student loans, 52 percent of those who received automatic relief were in the same boat.

The findings suggest that the federal program had the greatest impact when the loans were automatically forgiven rather than students having to go through the process of applying.

“The Government Accountability Office’s preliminary findings demonstrate that students affected by abrupt college closures are not getting the timely support they need,” said Rep. Robert C. “Bobby” Scott (D-Va.), chairman of the House Education Committee. “As the Education Department begins considering changes to the closed school discharge process, I hope and expect that it will focus on streamlining relief for students.”

The report arrives as the Education Department is convening a rulemaking committee in October to consider regulatory changes to the closed school program. Congressional Democrats are urging the Biden administration to reinstate automatic forgiveness and further simplify the process.

In July, Sens. Chris Van Hollen and Ben Cardin of Maryland joined 21 other Senate Democrats in encouraging Education Secretary Miguel Cardona to expand relief by making students who transfer to other schools eligible for loan forgiveness. They also urged the department to automatically forgive loans within 90 days of a school closure, rather than three years after an institution ceases operation. That way, students could more easily afford to complete their educations.

A House subcommittee on higher education and workforce investment will hold a hearing on the forgiveness program and the GAO findings Thursday. In prepared remarks, committee Chair Frederica S. Wilson (D-Fla.) raised concerns that 96 percent of borrowers receiving loan forgiveness since 2010 attended for-profit institutions, which she said demonstrates that “low-quality for-profit schools are costing students and taxpayers billions of dollars.”

“Congress and the Education Department must work together to crackdown on predatory schools that continue to cheat students and taxpayers,” Wilson said. “I hope the rulemaking committee will closely review the lessons that can be learned from the GAO’s report.”

Education Dept. extends debt relief to 115,000 former ITT Tech students

A handful of for-profit chains, including Corinthian Colleges and ITT Technical Institutes, accounted for a majority of borrowers affected by college closures. Although ITT Tech closed in 2016, the Biden administration in August extended the eligibility window for loan forgiveness to cover students who attended the career school as far back as March 31, 2008.

Typically, borrowers are eligible to have their federal student loans discharged if they were enrolled, on approved leave or had withdrawn within four months of their college closing. By extending the time frame, the administration said it will deliver debt relief to the tune of $1.1 billion to 115,000 former ITT Tech students. The Education Department estimates that 43 percent of those people are in default on their loans.

The department previously extended the time frame for other for-profit schools, including Corinthian Colleges and the Art Institute.