By Lisa Lambert
WASHINGTON (Reuters) - The U.S. Education Department on Wednesday canceled the student-loan debts of 12,900 people defrauded by defunct Corinthian Colleges, after an internal review showed it stopped granting relief to former attendees of Corinthian and other failed for-profit schools once President Donald Trump took office.
The department said it also denied 8,600 requests for debt relief. It gave no reason for the denials and no value for the canceled loans.
The Education Department also announced changes in the process for discharging loans of former students of Corinthian, which collapsed in 2015 amid government investigations into how many of its graduates found gainful employment and other failed for-profit schools.
Borrowers earning less than 50 percent of their peers will receive full relief, and those earning more will receive partial relief, the department said. It will also give borrowers a credit for interest that accrues on loans if the time to decide whether they qualify for relief takes longer than a year.
By law, borrowers defrauded by for-profit schools can have their loans erased, but the department since Trump's Jan. 20 inauguration had not approved any of the 25,991 requests for relief it had received, its inspector general said in a report released this month.
Last week, four states sued the Education Department and Secretary Betsy DeVos, saying they were breaking the law and demanding speedy relief for borrowers.
In the final days of his administration, former President Barack Obama approved rules speeding up the debt cancellations. DeVos delayed implementing those rules, saying they would create significant costs for taxpayers.
California Attorney General Xavier Becerra said his state would press on with its lawsuit despite Wednesday's announcement, taking issue with the decision to provide different levels of relief.
"Under federal law, Secretary DeVos is required to provide full – not partial – relief to Corinthian students," he said in a statement.
Massachusetts, Illinois and New York have also sued.
Democrats in Congress and the four states' attorneys general say students cannot repay the often-large debts because the schools did not give them adequate work training or diplomas. They also say struggling borrowers need to know soon if they will not receive relief so that they do not face debt collection and other penalties.
The department did not address the lawsuits directly, but said in the announcement that a tiered system of relief would help victims more than "an 'all or nothing' approach."
(Reporting by Lisa Lambert; Editing by Susan Thomas and Peter Cooney)