Biden administration to cancel $6.1 billion in student debt for borrowers who were scammed by single school

By Jillian Berman

The 317,000 borrowers eligible for the debt relief attended the Art Institutes

The Department of Education is cancelling $6.1 billion worth of student debt for 317,000 borrowers who were scammed by a single school, officials announced Wednesday.

The relief impacts borrowers who attended any Art Institutes campus between Jan. 1, 2004 and Oct. 16, 2017. The Art Institutes, which shuttered its last campuses in 2023, was a for-profit college that had been dogged for years by allegations that it misled students about career prospects.

"This institution falsified data, knowingly misled students and cheated borrowers into taking on mountains of debt without leading to promising career prospects at the end of their studies," President Joe Biden said in a statement announcing the debt cancellation. "We will never stop fighting to deliver relief to borrowers, hold bad actors accountable and bring the promise of college to more Americans."

The announcement comes as the Biden administration is in a race to get student-debt relief out the door before the November election. Including Wednesday's announcement, Biden's Department of Education has wiped out nearly $160 billion in loans for about 4.6 million borrowers so far. The administration is in the midst of finalizing a plan that, if implemented, would provide debt relief to 25 million more borrowers.

In his statement, Biden aimed to distinguish his approach to student debt from that of former President Donald Trump. "While my predecessor looked the other way when colleges defrauded students and borrowers, I promised to take this on directly to provide borrowers with the relief they need and deserve," he said.

Borrowers eligible for the Art Institutes relief will receive notices starting Wednesday indicating they qualify, officials said. They won't need to take further action.

Years-long battle over students scammed by their schools

Wednesday's announcement is the latest in a years-long battle over how to make students whole when they've been scammed by their schools. Since the 1990s, borrowers have been able to have their federal student debt canceled in cases where their colleges defrauded them. But the applicable law, known as borrower defense to repayment, wasn't widely used until around 2015, when former students whose for-profit colleges collapsed began clamoring for relief en masse.

In response, the Obama administration created a claims process borrowers could use to apply to have their debt canceled. But under the Trump administration, progress on processing these borrower-defense claims stalled, leaving activists and borrowers frustrated.

That's part of the reason why activists have encouraged policymakers to cancel debt en masse in cases where there's widespread evidence of abuse. Borrowers who attended the Art Institutes between the end of 2017 and 2023 will need to fill out a borrower-defense application to access relief. The Debt Collective, an activist organization, is in the midst of a campaign urging the department to cancel the loans of all borrowers who attended the Art Institutes.

The Biden administration wiped out the debt for all borrowers who attended Corinthian Colleges and most of the borrowers who attended ITT Technical Institutes, two other collapsed for-profit college chains.

In the case of the Art Institutes, the Department of Education used evidence gathered on the school from attorneys general offices in Iowa, Pennsylvania and Massachusetts as part of the basis for their decision to cancel borrowers' debt.

The federal government found that the Art Institutes misled students about job placement rates. The school advertised that more than 80% of graduates got a job in their field, the agency said. To get that figure, the school included students who didn't work in their field or whose job title was too vague to determine whether they worked in their desired field, according to the Education Department. When the job placement rates were recalculated, 57% of graduates actually had a job in their field, the agency found.

In addition, the school skewed the average salaries it advertised to prospective students, according to the department. One former employee said that an Art Institutes campus included the salary of tennis star Serena Williams and allowed it to "skew the statistics and overinflate potential program salaries," according to the Department. Williams attended a Florida Art Institutes campus in the early 2000s.

The department also found that the Art Institutes misled students about its reputation among employers and exaggerated its career services offerings.

The debt relief is the culmination of a rocky several years for the Art Institutes. The Education Management Corporation, which owned the school chain for decades, agreed to pay $95 million to settle claims brought by the Justice Department that the company used "high-pressure, boiler-room" tactics to convince students to enroll.

The Art Institutes was later acquired by the Dream Center Education Holdings, a faith-based nonprofit that ultimately fell into receivership, a process similar to bankruptcy, after the organization faced accusations that it misled students about the Art Institutes' accreditation.

Advocates have been pressuring the Biden administration to hold executives and corporations accountable when actions by their schools lead to mass debt relief, instead of leaving taxpayers holding the bag. In the case of the Art Institutes, its parent company during the period covered by the debt cancellation has long been out of business. That means the government won't be able to recoup the value of the canceled loans from the school.

That makes the situation a "poster child" for why the Biden administration is focused on holding schools accountable up front, a senior department official told reporters. The administration is currently in a court battle over a rule that would require career training programs to prove that their students are gainfully employed in order to get access to federal financial-aid funding.

The relief announced Wednesday is part of broader efforts by the Biden administration to cancel debt of borrowers who have been eligible for relief for years, but who are struggling to access it due to paperwork and technicalities. As part of these initiatives, officials have wiped out the loans of public servants, people who have been in repayment on their debt for decades and more.

Last month, Biden also announced a plan that, if implemented, would impact a wider swath of borrowers. Officials have said they'd like to start cancelling debt under that plan by early fall, but they could face an uphill battle implementing the relief before the November election.

-Jillian Berman

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05-01-24 1245ET

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