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Documents obtained by NPR shed new light on a bitter fight between defrauded student borrowers and U.S. Education Secretary Betsy DeVos. These borrowers — more than 200,000 of them — say some for-profit colleges lied to them about their job prospects and the transferability of credits. They argue that they were defrauded and that the Education Department should erase their federal student loan debt under a rule called "borrower defense." DeVos disagrees: She says most student borrowers still got value from these schools and deserve only partial relief from their federal loans. Now, internal Education Department memos obtained by NPR show that career staff in the department's Borrower Defense Unit came down firmly on the side of defrauded borrowers. The memos show this unit reviewed thousands of borrower complaints against now-defunct, for-profit colleges, including Corinthian Colleges and ITT Technical Institute. Just weeks before DeVos was sworn in as secretary, the unit recommended to the department's political leadership that these borrowers deserve no less than full relief from their student debts. Read more. 

DeVos will be testifying before the House Education and Labor Committee at a hearing today at 9 a.m. EDT titled "Examining the Education Department’s Implementation of Borrower Defense." For more information, please click here. 

The University of Phoenix, one of the nation’s largest for-profit college chains, agreed to a $191 million settlement yesterday with the Federal Trade Commission, which said that the school had lured in students with fraudulent claims about partnerships with major companies that one of the chain’s own executives had described as “smoke and mirrors,” the New York Times reported. The school’s deceptions centered on a marketing campaign that invoked A-list companies like Microsoft and Twitter, which affected students who enrolled between October 2012 and December 2016. The University of Phoenix did not admit wrongdoing under the settlement. It will pay a $50 million penalty to the FTC and cancel $141 million in debts, largely for unpaid tuition and fees, owed by former students who first registered during that four-year period. Tens of thousands of students will be covered, most likely for relatively modest sums. The FTC filed a complaint in federal court in Arizona yesterday that described the advertising campaign. Starting in 2012, a series of television ads and online postings from the university heralded its “corporate partnerships” with more than 2,000 employers, including the American Red Cross, AT&T and Yahoo. The ads said that the school worked with those employers to “shape our curriculum” and “create options” for its graduates.

Thousands of students who took out federal loans to attend schools that lured them with fraudulent claims will still have to repay a portion of their debts, the Education Department said yesterday — a new attempt to water down a loan-forgiveness program that the department’s leader has long deplored, the New York Times reported. The change creates a complicated sliding scale on which defrauded students’ relief is calculated using group earnings data. Debts will be fully forgiven only if students in a particular program earned far less than those from similar programs at other schools. The policy change will almost certainly be challenged in court by borrowers, who have already beaten back one attempt by DeVos to enact partial forgiveness. DeVos sought in 2017 to reduce the relief offered through the rule known as “borrower defense to repayment,” which allows the former students of schools that broke laws to seek forgiveness of their federal student loans. A federal court blocked that effort, saying the department’s method for determining how much relief to grant applicants illegally misused individual income data obtained from another federal agency. The agency’s new method turns the individual earnings approach on its head. If the department affirms that a school broke state laws or otherwise misled students, it will use government data to calculate the median earnings of students in each program that qualifies for relief. It will measure those figures against the median earnings of students from other programs the Education Department considers comparable. Read more. 

DeVos will be testifying before the House Education and Labor Committee at a hearing at 9 a.m. EDT on Thursday titled "Examining the Education Department’s Implementation of Borrower Defense." For more information, please click here. 

Debt collectors working for the Internal Revenue Service recouped nearly $213 million in owed taxes this year, the largest recovery since the program’s restart several years ago, according to recently released numbers, MarketWatch.com reported. The fiscal year 2019 results are more than double the $82 million in revenue raked in a year before and well beyond the $6.5 million collected in fiscal year 2017. After commissions and costs, the IRS program has a balance of over $170 million. Two previous versions of the debt collection program — where the IRS contracts with private debt collectors — ended because the programs ultimately lost money when costs outstripped collection rates. A 1996 program ended with a $17 million net loss and a 2006 program ended with an almost $21 million net loss. Lawmakers revived the collection program by including provisions for it inside a 2015 highway funding bill. The $213 million in revenue may by the largest sum yet for the private debt collection program, but it’s still a sliver of the tax money that goes unpaid every year. The gross average tax gap every year is $441 billion, according to IRS figures. That’s before the agency’s enforcement efforts, which narrows the gap to $381 billion. The IRS could bring in $535 billion over a decade if it focused on high net worth taxpayers, a recent study from former Treasury Secretary Lawrence Summers suggested.

Education Secretary Betsy DeVos is pushing ahead on her plans to cancel only a portion of loans taken out by defrauded college students, even amid legal setbacks and as House Democrats prepare to grill her during a hearing on Thursday, POLITICO reported. DeVos in recent weeks directed the Education Department to carry out a new policy that will provide partial loan forgiveness to many borrowers whom the agency determines were duped or cheated by their colleges, according to an internal Education Department memo. The memo, which was signed by DeVos in mid-November and hasn’t been reported previously, instructs department officials to resume issuing decisions on some of the roughly 227,000 pending applications filed by borrowers seeking debt relief based on their colleges' alleged misconduct. That process has been stalled for the past 18 months. Department officials now plan to move ahead adjudicating those claims — most of which allege fraud at for-profit schools like Corinthian Colleges and ITT Tech — by using a new formula. It calculates loan forgiveness based on how much a defrauded student’s “estimated earnings” differed from those of students who attended similar programs across the country. Read more. 

For more information on the House Education and Labor Committee's hearing at 9 a.m. EDT on Thursday titled "Examining the Education Department’s Implementation of Borrower Defense," please click here. 

Fannie Mae and Freddie Mac are pulling back on some mortgages meant to make homeownership more affordable, their latest effort to rein in risk at the behest of their regulator, the Wall Street Journal reported. The two companies are cutting back on the proportion of loans they back to borrowers with small down payments, for example, and mortgages to deeply indebted borrowers. The regulator, the Federal Housing Finance Agency, says it wants Fannie and Freddie to be prepared for a possible economic downturn. Tamping down risk could limit their defaults and produce bigger profits, which in turn could help them appeal to potential investors. The FHFA has made it a priority to get Fannie and Freddie out from under government control, but doing so will likely require the firms to raise billions of dollars from investors. Critics say the changes could run counter to Fannie’s and Freddie’s mission of making homeownership more accessible and affordable.

A reverse mortgage bill aiming to change the way industry professionals do business in the state of New York was signed into law on Friday by Governor Andrew Cuomo, Reverse Mortgage Daily reported. This has codified the bill into New York state law, and Governor Cuomo’s office confirmed to RMD that he had signed it. Assembly Bill 5626 was first passed by the New York State Assembly in May, and takes sweeping aim at what it calls “deceptive practices,” requiring reverse mortgage lenders to provide supplemental consumer protection materials while imposing additional restrictions on lenders related to their payment of insurance premiums and property taxes. The bill also requires that both lenders and borrowers be represented by an attorney at the time of closing, and at least one attorney must be present to conduct the closing itself. Sponsored in the New York State Assembly by Helene E. Weinstein, who represents Assembly District 41 in Brooklyn, the intent of the new law was detailed in a memo circulated to New York state lawmakers as answering the necessity of regulating a complex product that is sold to a protected class with current regulations that are described by the memo as “inadequate.”

Thanks to increases in home prices in 2019, the Federal Housing Administration loan limit will increase for nearly all of the country in 2020, HousingWire.com reported. According to an announcement from the FHA, the 2020 FHA loan limit for most of the country will be $331,760, an increase of nearly $17,000 over 2019’s loan limit of $314,827. That loan limit applies to much of the country, with the figure determined as a percentage of the national conforming loan limit for Fannie Mae and Freddie Mac, which is increasing in 2020 to $510,400. FHA is required by the National Housing Act, as amended by the Housing and Economic Recovery Act of 2008, to set single-family forward loan limits at 115 percent of median house prices, subject to a floor and a ceiling on the limits. FHA calculates forward mortgage limits by Metropolitan Statistical Area and county. FHA’s 2020 minimum national loan limit, or “floor,” of $331,760 is 65 percent of the national conforming loan limit of $510,400. This floor applies to “low-cost areas,” which are counties where 115 percent of the median home price is less than the floor limit.