The Education Department and the Colorado attorney general on Tuesday announced $130 million in automatic debt discharge for 7,400 Colorado student loan borrowers who attended CollegeAmerica.
Based on evidence gathered by the Colorado attorney general’s office, the Education Department found that CollegeAmerica’s parent company — the Center for Excellence in Higher Education (CEHE) — made misrepresentations about graduates’ salaries and employment rates, its programs, and the terms of private loans it offered borrowers.
The move is the latest effort from the Biden administration to provide relief to borrowers caught up in the wrongdoing by predatory schools and is a reversal of the steps taken by the previous administration.
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“This announcement means a clean slate for thousands of students hurt by CollegeAmerica’s widespread misconduct,” Richard Cordray, chief of the Education Department’s Federal Student Aid, said in a press release. “We will continue to work to deliver targeted student loan relief to borrowers whose schools take advantage of them.”
Eligible borrowers were enrolled at Colorado-based locations of CollegeAmerica from Jan. 1, 2006, to July 1, 2020. It doesn’t apply to borrowers who attended CollegeAmerica campuses outside of Colorado, senior department officials said in a press call.
Discharge also only applies to federal student loans, not private loans or commercial FFEL loans.
Eligible borrowers will receive notification in August and will receive relief even if they have not filed a borrower defense application, a legal ground for discharging federal Direct Loans because a school “engaged in certain misconduct related to the making of a federal loan or the educational services it provided,” which caused harm, according to Federal Student Aid.
Remaining loan balances will be zeroed out, credit bureau trade lines deleted, and borrowers who made any payments will be refunded, according to the Department.
The Colorado CollegeAmerica campuses stopped enrolling new students in 2019 and closed in September 2020 with all remaining CEHE campuses closing in August 2021.
The Colorado AG’s investigation found that CEHE’s advertisem*nt materials included misleadingly high salaries when the average graduate earned $25,000 five years out of school, or “less than the salaries of high school graduates publicized by the school,” the press release stated. It also found that CEHE inflated and falsified job placement rates.
Additionally, CEHE told borrowers that its private loan product was affordable when it knew that 70% of Colorado CollegeAmerica borrowers had defaulted on their loans. It also claimed students would get certifications to become X-ray technicians, even though the school did not own any X-ray machines.
“CollegeAmerica knowingly took advantage of students by luring them into high-priced, low-quality programs with promises of high-earning potential and job placement that it knew were not attainable,” Colorado Attorney General Phil Weiser said in a press release. “Protecting borrowers from predatory lending and helping Coloradans navigate through student loan burdens will continue to be a priority for our office.”
The Biden-Harris Administration has approved $14.7 billion in relief for 1.1 million borrowers whose colleges took advantage of them or closed abruptly. This includes giving hundreds of thousands of borrowers a fresh start from loans taken out at Corinthian Colleges and ITT Technical Institute.
Borrowers who were misled or whose school "engaged in other misconduct in violation of certain state laws” can apply for loan discharge under the Borrower Defense Loan Discharge program.
Those applications surged after the Obama administration cracked down on predatory for-profit colleges in 2015 and created new regulations. But the mechanism for defrauded borrowers seeking debt relief broke down during the Trump administration under former Education Secretary Betsy DeVos.
That has changed under the Biden administration.
For instance, the Education Department discharged $1.5 billion in student loans for 79,000 former defrauded students who attended for-profit Westwood College. The department has previously announced loan discharges for former students at DeVry University, Corinthian College, and ITT Tech.
Overall, the Biden administration has approved $14.7 billion in relief for 1.1 million borrowers whose colleges took advantage of them or closed abruptly.
Borrowers who think they may qualify for this discharge or other borrower defense relief can call the Education Department’s hotline at (855) 279-6207 if they have questions.
Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda.
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