Betsy DeVos defends plan for offering only some debt relief to defrauded students

The Department of Education this week restarted processing the more than 200,000 claims for debt cancellation that have built up under DeVos' tenure -- but the amount of relief will be based on borrowers' current incomes, rather than the total amount of debt.

"If students have been deceived by institutions and suffered financial harm as a result, they should be made whole," DeVos said at a House Education and Labor Committee hearing.

"But if claims are false, or students did not suffer financial harm, then hardworking taxpayers -- including those that scraped and saved to pay their own student loans -- should not have to pay somebody else's student loans, too," she added.

Under new methodology, the government will offer partial relief, instead of canceling the full amount of debt for eligible borrowers. The calculation is based on how much those former students are earning compared with those who attended similar programs at different schools.

'I know fraud when I see it'

Democrats slammed the partial relief calculation, arguing that students who were misled by their colleges should not have to pay back their loans regardless of their current salaries. The calculation is based on the median earnings of those filing claims and compares them with the median earnings of those who attended similar programs at other schools.

"I know fraud when I see it, and these students were misled and cheated -- and the fact that some of them may be making money doesn't mean that they weren't defrauded," said Democratic Rep. Suzanne Bonamici of Oregon, a former consumer protection lawyer.

Bonamici asked DeVos how she can reassure borrowers who filed claims that she's doing everything in her power to get relief.

"I'm very hopeful that we'll be able to continue to move ahead with our new methodology, and assuming no challenge through the courts of that methodology, we'll be able to process these claims that have been pending for many years," DeVos said.

"And that's the methodology that if someone's making money, they weren't defrauded. That is not justice," Bonamici fired back.

DeVos has fought the implementation of the Obama-era debt forgiveness rule, which was a key part of the previous administration's efforts to regulate for-profit colleges. She first froze the rule and then attempted to rewrite it.

Efforts to crack down on fraudulent debt-relief claims

In her testimony, DeVos said again that she blamed the Obama administration for failing to put a process in place for reviewing the claims. A court blocked the department for using the first calculation it had drawn up under DeVos for granting relief last year, and it has not processed any claims since then.

Anyone who filed a claim under the previous system, the secretary said, could receive full debt relief -- without proper accountability for how taxpayer dollars were being used.

"There have been a number of quite unbelievable claims made," said DeVos, citing borrowers she said had asked for loan forgiveness because they didn't like their professors.

When asked by Democratic Rep. Joseph Morelle of New York how many false claims had been submitted, DeVos said she didn't have a number.

She appeared before the committee Thursday at the request of Chairman Bobby Scott, who asked why the department has let a backlog of more than 200,000 applications for student loan forgiveness build up.

In October, DeVos was found in contempt of court and the department fined $100,000 for mistakenly trying to collect on about 45,000 loans to people who were waiting to hear about the status of their claims.

Inflated job-placement numbers

The claims were mostly filed by borrowers who took out loans to attend for-profit colleges, like the now-defunct Corinthian and ITT Tech. Many claim that the schools misled them with inflated job-placement numbers, and some of the former students have been waiting for years to hear if they will be granted debt relief.

"Madame Secretary, your refusal to process claims is inflicting serious harm on the students you have the duty to serve," said Scott, a Democrat from Virginia.

"While the department has been searching for a legal method of shortchanging defrauded borrowers, those defrauded borrowers have been left with mountains of debt, worthless degrees and none of the job opportunities they were promised," he added.

Republican ranking member Rep. Virginia Foxx of North Carolina defended the secretary, arguing that any suggestions from across the aisle that DeVos is purposely delaying debt relief are false. Republicans, she said, support DeVos' new methodology.

She likened the process to receiving an insurance claim after a car accident.

"I guarantee you that the insurance companies don't write you a check for what you think is your damage. They assess that damage," Foxx said.