The Education Department has announced it will be eliminating $150 million in federal student loans after an order by a federal judge. About 15,000 students who attended schools that closed will have their federal loan debt automatically eliminated. The department has already begun the process of informing the borrowers affected.
The loan discharges will be automatic, but may take up to 90 days to complete. Some of the borrowers have already been informed that their loans will be discharged within the next few months. According to a statement from the department, any payments that the borrowers made toward their loan will be refunded. The federal government, the primary lender to students who borrow for college, currently has a $1.4 trillion student loan portfolio.
Under the Education Department’s closed school forgiveness program, federal student loan borrowers can have their loans discharged if they attended a school that closed while they were enrolled, or soon after, and they do not transfer their credits elsewhere. Prior to 2016, borrowers had to submit an application for relief to take advantage of the program. A rule change authorized in 2016 added the automatic forgiveness provision.
The program is based on the principle that borrowers shouldn’t be responsible for loans taken out for an education that turned out to be worthless. More than 1,000 schools shut down between November 2013, the start date for the automatic-discharge rules, and November 2015. About half the borrowers attended Corinthian Colleges, which went bankrupt in 2015
Education Secretary Betsy DeVos fought to delay the new rules for more than a year before giving up in October. In September, a federal judge ruled that the delay was illegal and he ordered the department to follow the new rules a month later. A spokesperson for the agency said then that the Education Department would comply with the ruling.