Education department cancels student loan debt en masse for former beauty school students, an unusual step

Amid constant pressure from progressive lawmakers for widespread student loan debt forgiveness, the Biden administration on Thursday announced a new round of targeted relief – this time for past students of a beauty school that authorities say failed to train students in its cosmetology programs "how to cut hair" in some cases.

The Education Department stripped the Marinello Schools of Beauty, now a closed for-profit college, of federal funding in 2016 because of "pervasive and widespread misconduct."

The agency announced Thursday that it would cancel the debt via its borrower defense program of students who attended the school from 2009 through its 2016 closure. The forgiveness initiative erases the debt of students who can prove they were defrauded by their schools.

Normally in similar cases, borrowers apply individually for forgiveness, but the Education Department said it took the unusual step of erasing the debt in a group claim, the first time it has done so since 2017. That will mean $238 million in debt relief for 28,000 borrowers, including some who hadn't yet applied for loan cancellation.

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"Marinello preyed on students who dreamed of careers in the beauty industry, misled them about the quality of their programs and left them buried in unaffordable debt they could not repay,” said Education Secretary Miguel Cardona. “Today’s announcement will streamline access to debt relief for thousands of borrowers caught up in Marinello’s lies."

The latest round of forgiveness comes at a time when wider student loan debt cancelation is in the news.

Since March 2020, the federal government has frozen the requirement that the nation's 41 million borrowers pay back their federal student loans. Interest has been set at zero, and collection efforts have been paused. The moratorium had been set to expire in May, but Biden again extended it through Aug. 31.

The Marinello news comes days after media reports in which lawmakers suggested the president was considering more debt forgiveness. And on Thursday, Biden confirmed that but said he would not forgive as much as some Democratic lawmakers have pushed for.

"I'm in the process of taking a hard look at whether or not ... there will be additional debt forgiveness, and I'll have an answer on that in the next couple of weeks," he said.

Biden has been reluctant to speak about universal student loan cancellation and has instead directed responsibility to Congress. The president had campaigned on forgiving up to $10,000 in student debt per borrower.

At a news conference early Thursday announcing the new cancellation, Education Department Undersecretary James Kvaal said the agency was looking at the widespread loan forgiveness, but in the meantime he said the department was "doing everything we can where we have the authority to act."

"One thing we found when we got here was that even when borrowers were eligible for loan forgiveness, they often weren't getting it," Kvaal said.

The administration has canceled roughly $18.5 billion in student loan debt since Biden took office. And about $2.1 billion of that sum benefited roughly 132,000 people in the borrower defense program.

Under President Donald Trump, the government had rejected tens of thousands of people seeking financial relief who said their colleges misled them. The Education Department was then the subject of a class-action lawsuit that is ongoing.

Roughly 110,000 borrower defense applications are waiting for departmental review, according to the most recent federal data.

The announcement also comes after a coalition of consumer advocate groups sued the Department of Education in connection with its handling of borrower to defense cases.

The lawsuit, which was filed by the National Student Legal Defense Network, the Project on Predatory Student Lending at Harvard and the National Consumer Law Center, is focused on students who had attended the now closed Kaplan Career Institute in Massachusetts.

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In that case, the Massachusetts attorney general’s office had filed a group borrower defense claim in 2016 on behalf of 100 borrowers who say the institution pressured them to enroll using “unfair and harassing sales tactics” and lied about the students’ job prospects.

But the suit says the department failed to act on that application and deprived borrowers of relief for years. And it said the agency could take up other group claims filed by states attorney generals for students who attended institutions that include Anthem University, Corinthian Colleges and Westwood College.

Aaron Ament, president of the National Student Legal Defense Network, said the department's action on Marinello was welcome yet overdue, and it "should just be the tip of the iceberg."

"The backlog of students who are owed debt relief under borrower defense is long and growing – it’s bigger now than it was under the Trump administration – and this move shows there is no reason the department can’t rule on group claims right now," Ament said.

Student loan borrowers and the Too Much Talent Band thank President Joe Biden and Vice President Kamala Harris for extending the student loan pause and now demand that they cancel student debt at a gathering outside The White House on Jan. 13, 2022 in Washington, D.C.
Student loan borrowers and the Too Much Talent Band thank President Joe Biden and Vice President Kamala Harris for extending the student loan pause and now demand that they cancel student debt at a gathering outside The White House on Jan. 13, 2022 in Washington, D.C.

Kvaal said the Education Department would continue reviewing other group claims. He said the agency started with Marinello because the Education Department had investigated the institution.

The administration also recently announced changes to income-driven repayment plans, an initiative that allows borrowers to tie their monthly payments to how much they earn. And borrowers on these plans can become eligible for debt forgiveness after 20 years of payments.

Among the changes, the federal agency said that it would address how it had counted past payments and that it would review all prior payments. As a result of these changes and others, the Education Department said 40,000 borrowers in the Public Service Loan Forgiveness program would see their loan balances canceled. (Borrowers have to be enrolled in an income-driven repayment to participate in the program that provides debt relief to public service workers.)

The agency further estimated that 3.6 million borrowers in these income-driven plans would receive three years’ worth of credit thanks to the changes.

Contributing: Joey Garrison, Rebecca Morin

This article originally appeared on USA TODAY: Marinello Schools of Beauty loan forgiveness: Student debt canceled