Betsy DeVos Forgives Loans For Students Who Attended The Art Institute Of Colorado After Facing A Lawsuit And Criticism

Stephanie Wolf/CPR News
The Art Institute of Colorado hosted its final student portfolio show on Dec. 14, 2018 at its Denver campus.

Facing a federal lawsuit and mounting criticism, Education Secretary Betsy DeVos on Friday said she will forgive certain student loans for more than 1,500 borrowers who attended a pair of for-profit colleges that shut down last year.

Students who attended the Art Institute of Colorado and the Illinois Institute of Art will not have to repay federal student loans borrowed between Jan. 20, 2018, through the end of last year, DeVos said, although they will still be responsible for any previous loans. In all, about $11 million will be automatically canceled.

Students who attended another 24 schools owned by the same company will be able to get their loans erased if they enrolled after June 29, 2018. Federal rules typically allow students to get loans erased if their schools close within 120 days after they enroll, but DeVos said she is expanding the window in this case.

It's meant to provide relief to students who took on debt to attend colleges owned by Dream Center Education Holdings, which collapsed last year and shuttered campuses across the nation. But some critics say it doesn't go far enough, and still leaves many students carrying debt from a defunct chain.

"For the vast majority of defrauded students, this announcement cancels only a small portion of the loans they took out to attend a failing school," said Rep. Bobby Scott, D-Va., chairman of the House education committee. The relief goes "well short" of what Congress requested and what students deserve, he added.

DeVos has faced mounting criticism over her handling of federal loan forgiveness programs, which were expanded by the Obama administration following the collapse of Corinthian Colleges and other for-profit college chains accused of aggressive and deceptive marketing tactics.

Under DeVos, the Education Department has stopped processing claims from students who say they were defrauded by their schools, leaving tens of thousands of borrowers in limbo as they seek loan cancellations. DeVos has instead moved to tighten eligibility rules, prompting backlash from Democrats and a flurry of lawsuits from students and advocacy groups.

In the latest case, a federal lawsuit says the Education Department failed to cut funding from the Colorado and Illinois schools even after they lost the seal of approval of their accreditor. Losing approval should have made the schools ineligible for funding, the suit says, but instead they were allowed to keep operating without telling students of their troubles.

DeVos, however, shifted blame to the schools' accrediting group on Friday. The department said the Higher Learning Commission assigned the schools a "newly developed and improperly defined accreditation status." The agency argues the schools should not have lost their accreditation and that, by revoking it, the accreditor left students with tarnished credits and transcripts.

The Higher Learning Commission applauded DeVos for providing relief but insisted it followed proper policies. Schools are required to notify students of any changes to their accreditation, the group said, and "in this instance, the institutions did not appropriately inform their students."

The Education Department's debt relief was celebrated as a victory by a legal group representing the former Dream Center students who sued DeVos.

"At long last, the department is taking action to cancel the illegal debt that it issued for students who were ripped off by the Dream Center," said Eric Rothschild, litigation director for Student Defense, a Washington advocacy group. The group will continue its suit to make sure students get full relief, he said.

In a separate case last month, a federal judge held DeVos in contempt of court and issued a $100,000 fine after the department violated a court order barring it from collecting loans on former Corinthian Colleges students. The department has filed an appeal, asking the judge to reconsider.

At the same time, House Democrats are threatening to compel DeVos to appear at a hearing and explain why her agency has failed to provide loan forgiveness that was promised to thousands of former Corinthian students. DeVos has declined requests to face the House's education committee, and on Thursday suggested a private meeting with Scott instead.

The Dream Center collapse has also attracted attention from Democrats. In an Oct. 22 letter, Scott threatened to subpoena the agency for records detailing its role in the chain's closure. Documents released by Democrats suggest federal officials knew the Colorado and Illinois campuses had lost accreditation but continued to disburse student aid for five months, totaling nearly $11 million.

Department officials later granted the two campuses temporary status as nonprofit institutions, which exempted them from certain rules and restored their funding eligibility, and officials dated the decision retroactively several months. Scott's letter said the agency was focused not on helping students but on "papering over" the lapse.

"This 'special treatment' allowed more students to become entangled in Dream Center, magnifying the abrupt closure of the schools and the displacement of thousands of students," Scott wrote.

The department has denied any wrongdoing in the case.