Biden forgives $6.1B in student debt for 'defrauded' borrowers of for-profit school

The Biden administration has announced $6 billion in student loan cancellation for 317,000 borrowers who attended the for-profit Art Institutes. “This institution falsified data, knowingly misled students and cheated borrowers into taking on mountains of debt without leading to promising career prospects at the end of their studies,” President Joe Biden said in a statement.

At its height, the chain had dozens of campuses across the country, including New York, Chicago, Miami, Philadelphia and Los Angeles. Education Management Corp., which collapsed in 2018 after years of legal trouble, operated the schools for decades. The company reached a $95.5 million settlement with the U.S. Justice Department in 2015 over allegations of illegal recruiting tactics. It then began closing campuses and later sold the remainder to another company. The final eight campuses closed last year.

The U.S. Department of Education will automatically erase loans for students who attended any Art Institute campus between Jan. 1, 2004, and Oct. 16, 2017. The department said it is taking this action after reviewing evidence from the attorneys general of Massachusetts, Iowa and Pennsylvania, who previously investigated complaints of fraud and sued the chain.

The Art Institutes misled students about the success of graduates and employment partnerships that would help them find jobs, according to the department. The schools told prospective students that more than 80% of graduates found jobs in their fields of study, but the true employment rate was less than 57%. Campuses also advertised graduate salaries based on fabricated data and included extreme outliers to make averages look better, leading students to take on high amounts of debt for programs that didn’t pay off.

“The Art Institutes preyed on the hopes of students attempting to better their lives through education,” said Richard Cordray, CEO of the Education Department’s Federal Student Aid office. “We cannot replace the time stolen from these students, but we can lift the burden of their debt.”

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The Biden administration has continued to cancel student loans through several existing programs as it pursues a broader plan for one-time cancellation in follow up to one that the Supreme Court rejected last year. The administration said it has approved the cancellation of almost $160 billion in student loans, including programs for public workers and those defrauded by their schools.

“We will never stop fighting to deliver relief to borrowers, hold bad actors accountable and bring the promise of college to more Americans,” Biden said.