The Education Department will wipe out loans for students defrauded by DeVry University.
The Education Department will cancel federal student loans for at least 1,800 students who attended DeVry University, once one of the nation’s largest for-profit college chains, because it fraudulently lured in applicants for years with vastly inflated claims about their career prospects.
While the department has stepped up its discharges of debts for students who were victimized by their schools, the decision announced on Wednesday is its first approval of fraud claims involving a school that is still operating.
The claims approved on Wednesday are just the start, officials said. They want other students who attended DeVry during the time it was making its false promises to apply for relief.
Between 2008 and 2015, department officials said, DeVry advertised that 90 percent of its graduates found work in their field of study within six months. In reality, only 58 percent did. School officials knew of the discrepancy and ignored complaints about it from alumni, department officials said.
Until Wednesday, the department had taken action only against schools that had closed down, including large chains like Corinthian Colleges and smaller ones like the Marinello Schools of Beauty.
“We do think that it is really important to show that we are willing to take these actions against open schools, and that there will be liabilities for the current owners of open schools,” James Kvaal, the under secretary of education, said at a news conference.
While noting that the claims occurred when DeVry was under different leadership, a school spokeswoman, Donna Shaults, said DeVry believed that the Education Department had mischaracterized the school’s statements about its graduates’ outcomes.
“We do not agree with the conclusions they have reached,” she said.
Officials cast Wednesday’s action as one of several moves to revitalize an Education Department enforcement arm that was eviscerated during the Trump administration. Betsy DeVos, President Donald J. Trump’s education secretary, repeatedly stymied investigations into for-profit schools and appointed Julian Schmoke — a former dean at DeVry — to lead the agency’s enforcement division.
For four years, Ms. DeVos’s agency approved no new grounds for claims from defrauded students, and rejected 130,000 in what amounted to rubber-stamp denials. Those rejections, and other stalled claims that sat undecided for years, are now the subject of a class-action lawsuit involving some 200,000 borrowers.
The Education Department said in a court filing last month that it was close to settling that case and hoped to announce a deal by April.
The 1,800 former DeVry students approved for relief through the student fraud claim discharge system, known as “borrower defense to repayment,” will have nearly $72 million in loans forgiven.
That means they will not have to repay loans made with taxpayer money. The department said it would pursue DeVry’s current owner, Cogswell Capital, for compensation.
Cogswell Capital is an investment firm run by Bradley Palmer, a venture capitalist and financier. Mr. Palmer, who had no experience working in higher education, bought DeVry in 2018 from Adtalem Global Education, which operated several for-profit schools. Adtalem had called itself DeVry but changed its name in 2017 after a series of scandals involving the school.
In 2016, DeVry agreed to pay $100 million to settle a Federal Trade Commission lawsuit over its misleading claims about its graduates’ careers and earnings. A year later, DeVry settled similar claims brought by New York and Massachusetts.
A message left at Palm Ventures, which Mr. Palmer has described as a family office that manages his family’s assets, was not immediately returned. A representative for Adtalem did not immediately return a message seeking comment.
The Education Department said it had also approved borrower defense claims from former students at ITT Technical Institute’s nursing program, the Minnesota School of Business (also known as Globe University) and Westwood College. Including DeVry, the approvals announced on Wednesday will wipe out $415 million in debt for 16,000 borrowers.