Education Dept. Will Cancel $150 Million in Student Debt After Judge’s Order

The Education Department is wiping $150 million in federal student loans off the books, and has begun the process of informing thousands of borrowers that they no longer owe the government money because the schools they attended shut their doors.

The loan forgiveness, announced this week, applies to about 15,000 borrowers as federal education officials begin to carry out new rules that they fought in court for more than a year before giving up in October.

The department said it began notifying some of the borrowers by email on Friday that their loans would be discharged within the next few months. Any payments that the borrowers made toward a loan will be refunded, it said.

About half the borrowers attended Corinthian Colleges, a large for-profit chain that went bankrupt in 2015 after a deluge of lawsuits accusing it of predatory recruiting practices and false marketing. The rest attended one of the more than 1,000 other schools that shut down between November 2013, the start date for the automatic-discharge rules, and November 2015.

The new rules require the department to automatically forgive the loans of eligible borrowers three years after their school closed, although they can apply before then. The universe of eligible borrowers is growing: Last week, Education Corporation of America, a for-profit chain of vocational schools with about 20,000 active students at more than 70 campuses, closed without notice.

Under the Education Department’s closed school forgiveness program, federal student loan borrowers can apply to have their loans wiped away if they attended a school that closed while they were enrolled, or soon after, and they do not transfer their credits elsewhere.

The program is based on the principle that lenders bear responsibility for ensuring that a loan is sound, and that borrowers shouldn’t be responsible for loans taken out for an education that turned out to be worthless.

For years, borrowers who thought they qualified had to submit an application for relief. The change authorized in 2016 added the automatic forgiveness provision. This week’s loan discharges were the first to be done automatically.

The change was supposed to take effect last year, but Education Secretary Betsy DeVos delayed the automatic discharge, which she criticized for “putting taxpayers on the hook for significant costs.”

In September, a federal judge ruled that Ms. DeVos’s delay was illegal, calling it “arbitrary and capricious.” A month later, he ordered the department to follow the new rules. Liz Hill, a department spokeswoman, said at the time that it would comply.

The Education Department monitors the financial health of schools that receive federal loan funds, and it is supposed to demand financial collateral from those that seem at risk of closing. But the rules of that process are complex, and when schools abruptly collapse, taxpayers are often left with the bill.

A parallel loan forgiveness program, borrower defense, allows students to have their loans eliminated if they can prove that their school defrauded them. The Education Department has eliminated nearly $535 million in debt, most of it held by former Corinthian students, through that program. Its pool of claims is much larger — more than 100,000 are pending — because it applies to borrowers who attended schools that remain open or closed more than 120 days after they left.

A tally of how much total debt has been eliminated through closed-school discharges is not available, an agency spokeswoman said.

Ms. DeVos has said she intends to rewrite the rules for some of the agency’s debt-forgiveness programs. The soonest those changes could take effect is July 2020.

At an industry conference last month, she reiterated her criticisms of how the federal government, the primary lender to students who borrow for college, handled its $1.4 trillion student loan portfolio.

“The federal government must become a more responsible lender,” Ms. DeVos said, and students “need to understand the implications of their decisions.”