Education Department looks to improve loan forgiveness for defrauded students

The Department of Education announced on Wednesday that it has started looking at ways to improve loan forgiveness programs for students defrauded by their schools.

Why it matters: The move is yet another step in the Biden administration's effort to improve the student loan forgiveness system, but the announcement does not mention the broad student loan cancellation that many progressives have called for.

• Biden is reportedly considering forgiving $10,000 of student loan debt for most borrowers, an amount that falls well short of the $50,000 many lawmakers are asking for.

The big picture: Proposed regulations would establish a "broader standard" for considering borrower defense claims, allowing students who were defrauded by their colleges to seek debt relief, James Kvaal, the undersecretary of education, said on a call with reporters Wednesday morning.

• This includes expanding the types of misconduct that can qualify for such a claim to include "aggressive and deceptive recruitment practices" by schools, per the press release.
• The proposed regulations include efforts to improve the ability of public servants — such as teachers and firefighters — to gain access to loan forgiveness, such as simplifying rules regarding what kinds of payments can count toward qualifying for the Public Service Loan Forgiveness Program.
• Also included is a proposal to end the practice of interest capitalization — in which unpaid interest is added to a borrower's principal balance — wherever possible.
• The regulations also aim to help borrowers who are totally and permanently disabled by making it easier for them to qualify for debt relief.

What they're saying: “We are committed to fixing a broken system. If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it,” Secretary of Education Miguel Cardona said in the press release.

• "Student loan benefits also should not be so hard to get that borrowers never actually benefit from them," he added.
• “This announcement is part of the Biden-Harris administration's continued commitment to making the student loan programs work," Kvaal said on the call. "They are the product of more than a year's effort to take input from the student aid community and develop robust proposals that will better serve students and hold institutions accountable."

What's next: Once the regulations are released in the coming days, the public comment period will last for 30 days, and the department aims to finalize the rules by November so that they can go into effect in July 2023.