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Financial Services Law Insights and Observations

Ed. Dept. discharges additional $5 billion

Federal Issues Department of Education CFPB Student Lending State Attorney General Biden Discharge Consumer Finance

Federal Issues

On June 1, the Department of Education announced the “largest single loan discharge the Department has made in history,” which includes discharging all remaining federal student loans borrowed to attend any campus owned or operated by a specific large for-profit post-secondary education company from its founding in 1995 through April 2015. The action will result in 560,000 borrowers receiving $5.8 billion in full loan discharges. According to the Department, the post-secondary education company engaged in “widespread and pervasive misrepresentations,” including guarantees that students would find a job. Additionally, the company “made pervasive misstatements to prospective students about the ability to transfer credits and falsified their public job placement rates.” The Department noted that the California AG’s investigation alleged that the company engaged in deceptive and false advertising and recruitment practices, as well as lied to its students about job placement. The Department noted it has approved $25 billion in loan relief to individuals since President Biden took office.

On June 2, CFPB Director Rohit Chopra released a statement regarding the discharge, referring to the company as a “ notorious repeat offender that defrauded its students and the public over many years.” Chopra also noted that the CFPB and state attorneys general actively pursued the company for its misconduct. Chopra pointed to when the Bureau “filed a lawsuit in 2014, obtained a default judgment and secured $480 million in private student loan cancellation in 2015, and won another $183 million in loan cancellation in 2017.” Chopra further noted that “[i]n 2016, then-California Attorney General Kamala Harris won a $1.1 billion judgment against [the company].”