The Biden administration announced Wednesday it’s canceling $6.1 billion in student debt for 317,000 borrowers who attended the Art Institutes, a defunct, for-profit art school that shuttered its campuses last year.
Under the plan, borrowers enrolled at any Art Institute campus between Jan. 1, 2004, and Oct. 6, 2017, can have their debt forgiven.
The school, which was founded in 1969, offered degrees and certificates in graphic design and other programs. It grew to roughly 50 locations across the country with 80,000 enrolled students by 2012.
However, a series of legal challenges, including a $95 million settlement with the Obama-era Justice Department after fraud allegations in 2015 and a loss of accreditation by the Education Department, led to shuttering 20 locations in 2018. Low enrollment and other problems beset the school, forcing it to close the remaining locations in September 2023.
“This institution falsified data, knowingly misled students and cheated borrowers into taking on mountains of debt without leading to promising career prospects at the end of their studies,” President Biden said in a statement.
Borrowers enrolled in the school were supposed to have their federal loans canceled if a school turned out to be predatory under a rule established by President Obama in 2016. That would have included those enrolled in the Art Institutes, whose borrowers have been clamoring for loan forgiveness since the 2015 settlement.
The rule was set to take effect in July 2017, but an industry group for the for-profit college sector filed a lawsuit with the Education arguing the regulation was outside the government’s authority.
After the lawsuit, the Obama administration said it was postponing certain provisions of the regulation, which never went anywhere under the Trump administration.
Mr. Biden is canceling the loan for Art Institute students through a plan he announced last month as a workaround after a U.S. Supreme Court ruling declared his first attempt to wipe away college loans was unconstitutional.
Under his latest effort, which is also facing court challenges, borrowers are eligible for cancellation if they went to a for-profit college that the administration has deemed “low-value.” That would apply to the Art Institutes, which has been accused of misleading students.
It is his latest attempt to attract young voters who may abandon him in November over his advanced age, the war in Gaza and support for banning TikTok.
A CNN poll released Monday found that Mr. Biden is 11 percentage points behind former President Donald Trump, the presumptive GOP nominee, among young voters 18-34 in a head-to-head match-up. The same poll found that 68% of younger voters view Mr. Biden’s presidency as a “failure,” more than any other age group.
Almost half of voters, roughly 48%, said canceling student loan debt is an important issue to them in the presidential election, according to a poll last month by SocialSphere, a research and consulting firm.
About 70% of Gen Z and millennial respondents said student debt cancelation was an important election issue.
After the Supreme Court rejected his first student loan cancellation plan in June 2023, Mr. Biden vowed that he would try again using different legal authorities to implement debt forgiveness. That started a lengthy process by the Department of Education to redefine how the federal government can eliminate student debt.
Mr. Biden’s latest proposals are based on a 1965 law, known as the Higher Education Act, that authorizes the Education secretary to waive or release some borrowers’ education debt. Several groups, including Attorneys General from Republican states, have already launched legal challenges against it.
The Art Institutes were marketed as a cheaper option to more traditional art schools, with some campuses offering a full degree for $90,000 compared to the more prestigious schools like the Rhode Island School of Design, where tuition is about $58,700 a year.
By 2010, the school’s parent company was making about $2.5 billion annually with $1.8 billion coming from taxpayers through Education Department grants and student loans, according to a 2010 Senate report.
In 2015, Education Management Corp., the Art Institute’s parent company, settled claims with the Justice Department that it had illegally paid recruiters to approve unqualified students through predatory tactics, including misleading applications about the school’s cost, effectiveness and job placement rates. The lawsuit also alleged the school lied to the government about its practices in violation of the federal False Claims Act.
Education Management Corp. did not admit guilt in the settlement or in a consent decree it reached with 39 states over its marketing, enrollment and recruitment practices.
In 2018, the school was stripped of its accreditation.