December 20, 2017 / 9:54 PM / a year ago

U.S. cancels student-loan debts for 12,900 college fraud victims

WASHINGTON, Dec 20 (Reuters) - The U.S. Education Department on Wednesday canceled student-loan debts of 12,900 people defrauded by defunct Corinthian Colleges, after an internal review showed it stopped granting relief to former attendees of Corinthian and other failed for-profit schools once President Donald Trump took office.

The department said it also denied 8,600 requests for debt relief. It gave no reason for the denials and gave no value for the 12,900 loans that were canceled.

The Education Department also announced changes in the process for discharging loans of former students of Corinthian, which collapsed in 2015 amid government investigations into how many of its graduates found gainful employment, and other failed for-profit schools.

By law borrowers defrauded by for-profit schools can have their loans erased but since Trump’s Jan. 20 inauguration the department had not approved one of the 25,991 requests for relief it had received, its inspector general said in a report released this month.

Last week, four states sued the Education Department and Secretary Betsy DeVos, saying the report showed they were breaking the law and demanding speedy relief for borrowers.

In the final days of his administration, former President Barack Obama approved rules speeding up the debt cancellations. DeVos delayed implementing those rules, saying they would create significant costs for taxpayers.

Democrats in Congress and the attorneys general of the four states suing - California, Massachusetts, Illinois and New York - say students cannot repay the often-large debts because the schools did not give them adequate work training or diplomas. They also say struggling borrowers need to know soon if they will not receive relief so that they do not face debt collection and other penalties.

Under the new discharging process, borrowers earning less than 50 percent of their peers will receive full relief, and those earning more will receive partial relief, the department said. It will also give borrowers a credit for interest that accrues on loans if the time to decide whether they qualify for relief takes longer than a year.

The department did not address the states’ lawsuits, filed last week, but said its new process addresses many of the weaknesses the inspector general, the department’s internal auditor, identified. (Reporting by Lisa Lambert; Editing by Susan Thomas)

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