Written By Adam S. Minsky, JD
Updated on May 4, 2024
This week, the Biden administration approved a new wave of student loan forgiveness for borrowers who attended the Art Institutes, a controversial now-shuttered national chain of for-profit schools. The school was accused of widespread misconduct, including misleading prospective students and making false promises about jobs, income and services.
“The Art Institutes preyed on the hopes of students attempting to better their lives through education,” said Federal Student Aid Chief Operating Officer Richard Cordray in a statement on Wednesday. “We cannot replace the time stolen from these students, but we can lift the burden of their debt. We remain committed to working with our federal and state partners to protect borrowers.”
Student loan borrower advocates praised the action. “This is a big victory for students who attended Art Institute schools… and we thank the Department for taking this important action,” said Aaron Ament, President of the National Student Legal Defense Network, in a statement.
Here are all the details on this latest round of debt relief, including who qualifies and how the relief will be implemented.
Group discharge eliminates $6.1 billion in student loan forgiveness for borrowers who attended the Art Institutes
This week’s announcement is what’s called a “group discharge.” The Education Department, using its existing authority, wiped out student debt for a large group of borrowers who attended the same school chain and, thus, likely suffered similar kinds of institutional misconduct.
The discharge was approved under a program called Borrower Defense to Repayment. “Borrower defense to repayment is a legal ground for discharging federal Direct Loans,” says the Education Department.
“Under the law, you may have a borrower defense to repayment if your school engaged in certain misconduct related to the making of a federal loan or the educational services it provided which caused you harm warranting a full discharge of your applicable federal Direct Loans.”
Covered misconduct typically involves significant misrepresentations about key aspects of a degree or certificate program, such as admissions selectivity, credit transferability or career and earnings prospects.
While borrowers typically must submit a lengthy, detailed application to be considered for Borrower Defense relief, the Education Department also has the authority to implement group discharges for borrowers who were likely victimized by the same, widespread misconduct associated with attendance at a specific institution.
This week’s latest group Borrower Defense discharge approval covered at least 317,000 borrowers, leading to approximately $6.1 billion in loan forgiveness.
To qualify, borrowers must have enrolled at an Art Institute campus between January 1, 2004, and October 16, 2017. Only federal student loans associated with attendance at an Art Institute campus qualify for this relief (private student loans are not eligible).
Related: 4 Alternatives to Private Student Loan Forgiveness (For Sallie Mae, Discover and Other Lenders)
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Education Department concluded Art Institute misconduct entitles student loan borrowers to relief
Relying on findings made by several state attorneys general offices, the Biden administration concluded that the Art Institutes engaged in “widespread and pervasive substantial misrepresentations that deceived students” and, thus, entitled them to Borrower Defense relief.
“The Art Institutes advertised that more than 80 percent of graduates obtained employment related their fields of study within six months of graduation, but the school's own records demonstrate that it inflated advertised employment rates,” said the Education Department in its statement.
“The advertisements promoting The Art Institutes' falsified employment rates also displayed inaccurate average salaries that graduates earned from their in-field positions based on the same flawed data as the employment rates.”
“The Art Institutes also represented to prospective students that it had partnerships with employers and offered ongoing postgraduation career services,” continued the department. “However, the evidence showed that The Art Institutes exaggerated its relationships with employers.”
Borrowers don’t need to apply: Student loan forgiveness will be automatic
Typically, borrowers must submit a long, detailed Borrower Defense application to be considered for relief. The application requires specific information on the alleged misrepresentations, and borrowers are encouraged to submit supporting documentation.
But the relief will be automatic for the group Borrower Defense discharge for former Art Institute students. Borrowers can receive student loan forgiveness even if they did not submit a Borrower Defense application.
“Borrowers do not need to take any action” to qualify, said the department in its announcement.
Expect additional relief measures but extended processing times for student loan forgiveness
In addition to the $6.1 billion in student loan forgiveness, borrowers will receive other relief, as well, including refunds of past payments made and corrections to credit reporting.
“When their discharges are processed, borrowers will see any remaining loan balances adjusted and credit trade lines deleted,” said the department. “Payments borrowers made to the Department on their related federal student loans will also be refunded.”
The Education Department will likely take quite some time to process the discharges — likely months or longer. Some borrowers who were approved for similar group discharges associated with other institutions in 2022 are still waiting for relief two years later. So, borrowers should buckle up for an extended waiting period.
However, the department indicates that people covered by the Art Institute group discharge will not have to make payments on their loans while they wait for student loan forgiveness.
“The Department will take immediate steps to pause loans identified for discharge so borrowers do not make further payments,” said the announcement.
Borrowers will be notified if they qualify for student loan forgiveness
“The Department will begin notifying eligible borrowers… that they are approved for discharges,” said the department. Indeed, covered borrowers began receiving emails that they qualify for student loan forgiveness shortly after the administration’s announcement on Wednesday.
“You have been approved for debt relief under the Biden-Harris Administration!” reads the email notification. “This is part of the Biden-Harris Administration’s commitment to delivering relief to borrowers whose schools engaged in unlawful conduct. The U.S. Department of Education (ED) has determined that the federal student loan(s) you received to attend The Art Institute on or after Jan. 1, 2004, and on or before Oct. 16, 2017, are eligible for a full discharge. This means the remaining balance on the eligible loan(s) will be forgiven.”
Borrowers should make sure that their contact information is up to date with their loan servicer and their StudentAid.gov account.
Latest group discharge is separate from Sweet v. Cardona settlement
Some former students of the Art Institutes who had already submitted Borrower Defense to Repayment applications may be covered by the Sweet v. Cardona settlement. That settlement agreement, approved in 2022, provides $6 billion in loan forgiveness for more than 200,000 borrowers who had previously submitted Borrower Defense applications and attended one of several dozen institutions on an approved list. The Art Institutes were on that list.
Last month, a federal court extended the implementation deadline for Sweet v. Cardona settlement relief to August 31, 2024. Under the agreement, the Education Department was supposed to have completed implementation (including all discharges) by the end of January.
However, tens of thousands of borrowers have still not received the loan forgiveness that they are entitled to under the settlement. The department blames this on administrative issues, including difficulty unwinding complex loan consolidations.
Art Institute borrowers covered by the Sweet v. Cardona settlement should still expect to receive discharges under that settlement rather than the latest group discharge announcement.
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