New Department of Education Rule Impacts Defrauded Students - Higher Education
Higher Education News and Jobs

New Department of Education Rule Impacts Defrauded Students

by

The U.S. Department of Education has released its new Borrower Defense to Repayment rule, designed to give students debt relief in cases where they took out loans to pay for fraudulent schools. The new version, which goes into effect on July 1, 2020, makes it harder for federal student loan borrowers to have their debts forgiven, enforcing stricter criteria.

Betsy DeVos

The updated regulations come more than a year after the Department of Education changed the 2016 Obama-era rule. In late 2017 and early 2018, the department entered into a negotiated rulemaking process – a meeting of federal agencies and constituents – to hash out a new draft.

Defrauding students “will not be tolerated by this Administration,” U.S. Secretary of Education Betsy DeVos said in a statement released late last week. “The new regulations are aimed at preventing this behavior because students deserve better, and all institutions must do better.”

She added that “the old rules just weren’t working,” and that the final rule would help students through “common sense and carefully crafted reforms that hold colleges and universities accountable and treat students and taxpayers fairly.”

But not everyone is feeling celebratory. Rep. Bobby Scott, chairman of the House education committee, criticized the new version, and Harvard Law School’s Project on Predatory Student Lending has already promised an upcoming lawsuit.

The regulations “set a very high bar” for students to access debt relief while allowing for-profit schools to “continue to set a low bar for themselves,” said Ashley Harrington, senior policy counsel at the Center for Responsible Lending.

Harrington was also a primary negotiator during the negotiated rule-making process, an experience she described as “uncomfortable.” There were more for-profit representatives present compared to the negotiated rule-making process in 2016, she said, and many of the proposals that cropped up in the final document were not discussed.

“Seeing now what the final rule was that came out of this entire process, I’m very concerned about the lack of balance the department struck between borrowers, taxpayers and institutions,” she said. “It seems like this rule definitely favors institutions and makes it so they can avoid accountability.”

Under the new rule, defrauded students can still apply for debt relief, regardless of their repayment status. It also gives students a 180-day school closure discharge window. And after school closures, schools can allow students to finish their degrees there or make arrangements for them to do so at another institution.

But the new rule also requires more information from students. Students need to prove they took out loans based on a college misrepresenting itself, and they need to more thoroughly prove the financial harm they suffered.

It also requires that students file their claims within three years of leaving school. But most students don’t know they’ve been defrauded until years later, Harrington added.

“Borrowers often are the last to know and have the least information about what these issues are,” she said. “All they know is they tried to go to school, something went wrong, and now they have a ton of debt and their life has not gotten any better.”

The new regulations also make it so that students can’t file claims as a group. They have to file individually, which is inconvenient in the case of widespread fraud, like when Corinthian Colleges closed in 2015.

The Department of Education projects that the new regulations will save taxpayers approximately $11 billion over the next ten years by approving less student claims.

But Wesley Whistle, senior advisor for policy and strategy at New America’s Higher Education Initiative, expressed doubt.

Defrauded students will still be saddled with debt, which impedes their ability to contribute to the economy, he said. And “this is money the government is never going to see from these borrowers. Especially right now in a time when the economy is kind of fragile, and we’re talking about a possible recession, I think it’s silly for us to just be keeping this burden on all of those people when in the long run I don’t think it’ll save any taxpayer money.”

He pointed out that, as of March 2019, Department of Education data has more than 179,000 pending claims. The department hasn’t approved or denied any since June 2018 leaving “the most vulnerable borrowers” in limbo, he said.

According to Whistle, it’s no accident the Department of Education released the new set of regulations the Friday evening before the long Labor Day weekend. He said that officials knew the Borrower Defense to Repayment rule would be badly received, and the timing was a way to avoid scrutiny.

“They wanted to sweep it under the radar, take out the trash Friday,” Whistle said. “They didn’t want anyone to notice what they’re doing, because it’s making it harder for students to get relief and letting these predatory for-profit schools off the hook.”

Sara Weissman can be reached at sweissman@diverseeducation.com

Semantic Tags: