Biden administration to forgive over $6 billion in student debt for The Art Institutes’ students

Biden administration to forgive over $6 billion in student debt for The Art Institutes’ students

On May 1, the Biden-Harris administration announced immediate federal loan forgiveness for over 300,000 former The Art Institutes students. The announcement follows a U.S. Department of Education investigation that found The Art Institutes and its parent company, Education Management Corporation (EDMC), made “persuasive and substantial misrepresentations” about students’ post-graduation prospects.

Last week’s announcement marks the largest forgiveness measure of 2024 for President Joe Biden, with nearly 4.6 million Americans receiving student debt cancellation since he took office.

Defrauded students to receive immediate loan cancellation

Students impacted by the announcement include those who were enrolled between Jan. 1, 2004 and Oct. 16, 2017. Forgiveness is automatic for these students, whether or not they have applied for borrower defense to repayment, and notifications began last week.

Loans in default will also be eligible for forgiveness, with the department stating that it will immediately pause these balances so that borrowers don’t “face any further financial demands from these loans during the time needed to process their discharges.”

Relief will total more than $6.1 billion for nearly 317,000 borrowers, the Department of Education’s release stated.

“Certainly the Biden administration has established that student loan forgiveness is a priority,” says Mark Hamrick, senior Bankrate economic analyst and Washington Bureau Chief.

“This particular case is unique and more pressing because it involves a now-defunct for-profit entity, which has been the target of legal actions,” Hamrick adds. “This is different from debt associated with traditional institutions proven to have provided value in education.”

Graduation rates, salaries of graduates incorrectly reported 

The Art Institutes was a private, for-profit art school system with more than 50 campuses at its peak. EDMC sold the remaining campuses to a separate company in 2017, and facing financial troubles and enrollment declines, the school officially closed its doors on every campus in September 2023.

According to the department’s press release, evidence obtained by the attorneys general offices of Iowa, Massachusetts and Pennsylvania kicked off a multi-year investigation. The department found the school system made misleading statements to potential students about career services, salary potential and post-graduation success rates.

“For more than a decade, hundreds of thousands of hopeful students borrowed billions to attend The Art Institutes and got little but lies in return,” says Education Secretary Miguel Cardona in the press release. “For more than a decade, hundreds of thousands of hopeful students borrowed billions to attend The Art Institutes and got little but lies in return. That ends today — thanks to the Biden-Harris Administration’s work with the attorneys general offices of Iowa, Massachusetts, and Pennsylvania.”

After reviewing internal employment data, graduate employment outcomes and advertising materials, the department concluded students were deceived about the value The Art Institutes offered. The school distributed the false information to prospective students through printed materials and its website. School staff and personnel were also found to have misled prospective students during and before the admissions process.

Incoming students were told that over 80 percent of graduates were employed in their area of study within six months of graduation. However, these numbers were inflated at best.

The school’s average employment rate was found to be no higher than 57 percent — 25 percent lower than reported. However, according to the department, the true rate was still lower. “The school also falsified some internal data to make graduates appear to be working in-field when they were not,” read the press release.

Graduates’ average salary figures were largely falsified. Internal investigations and testimony from former institute officials revealed that school personnel had inflated and made up salaries.

In fact, completing a program with The Art Institutes may have made it harder for some students to get a job after graduation. While the schools claimed to have partnerships with potential employers, their reputation was so bad many employers were reluctant to hire graduates, the department reported.

The department highlights how this misconduct saddled students with student loan debt without providing them with the means to repay it. This, in turn, caused many to default on their loans.

“Even if borrowers did complete their programs, they did not receive the promised career services, which hindered their ability to obtain employment,” the press release reads.

Borrower defense to thank for forgiveness 

The latest move mirrors similar borrower defense to repayment discharges awarded to students of other for-profit schools during the Biden administration. Previous announcements brought automatic forgiveness to certain former students of Corinthian Colleges, ITT Technical Institute, DeVry University and Kaplan.

The Department of Education’s borrower defense program cancels debt for students misled or defrauded by colleges. So far, the Biden administration has approved nearly $29 billion in relief for 1.6 million borrowers through this program.