After Wiping Out Student Loans for 3,500 Borrowers, Top Dems Want Relief for Taxpayers

• Some Democrats want the Education Department to recoup funds from Ashford and University of Phoenix.
• The department previously accused those schools of fraud, granting thousands of borrowers debt relief.
• The lawmakers want the schools to pay up so taxpayers don’t foot the bill for the relief. 

After thousands of student-loan borrowers received debt cancellation following accusations of fraud from their schools, a group of top Democrats want President Joe Biden to take the relief a step further.

Last week, Sen. Dick Durbin led a group of Democrats — including Rep. Rosa DeLauro and Sen. Elizabeth Warren — in sending a letter to Education Secretary Miguel Cardona requesting continued enforcement over for-profit schools that were accused of fraud.

The Democrats referenced two recent actions to provide relief for borrowers who went to for-profit schools accused of predatory behavior: $72 million in relief for 2,300 borrowers “cheated” by Ashford University, and $37 million in relief for 1,200 borrowers “deceived” by the University of Phoenix, according to the Education Department.

While the lawmakers said in their letter that they support the relief for those borrowers, they want the Education Department to recoup funds from Ashford and Phoenix so that “taxpayers are not left holding the bag and other predatory for-profit colleges are on notice that they will be held accountable for unscrupulous behavior.” They did not specify an exact amount they would be looking to recoup.

“This would send a strong warning signal to other predatory for-profit colleges that there are substantial financial consequences for defrauding students,” the Democrats wrote.

The lawmakers also asked the department to provide more “accessible and streamlined avenues” for other borrowers who went to Ashford and Phoenix to receive relief through borrower defense to repayment, which are claims borrowers can file if they believe they were defrauded by the school they attended. If approved, their loans would be wiped out.

And as the department continues its oversight over alleged predatory schools, the Democrats asked it to review whether Phoenix and Ashford should remain eligible for federal student aid. Ashford and Phoenix’s revenue from federal aid for the 2021-22 school year was $183 million and $616 million, respectively — accounting for 64% and 79% of the schools’ total revenues, the lawmakers said.

The conversation over recouping funds from schools accused of fraud is an ongoing one, and the department has previously said holding schools accountable to protect taxpayers remains on its list of priorities.

In March, the department released new guidance on the education secretary’s authority to hold executives of for-profit schools liable for the cost of unpaid debts defrauded students took on, rather than sticking it with taxpayers. The guidance said it would require executives to be financially liable if they oversee a risky institution, which can be determined through any existing lawsuits against the school, and compensation structures for executives would impact the “financial health” of the school.

“Congress gave the Department the authority to make college owners and operators personally responsible for these losses in certain circumstances and we are going to use that authority to hold them accountable, defend vulnerable students, protect taxpayer dollars, and deter future risky behavior,” Under Secretary of Education James Kvaal said at the time.

However, as Inside Higher Ed reported, a recent court order could stymie the department’s efforts to recoup funds. After the department announced last year it would be seeking to recoup $24 million from DeVry University over fraud accusations, DeVry sued the department to block those efforts, and a court temporarily placed a hold on the recoupment.