Trump Vetoes Move to Ease Loan Forgiveness for Defrauded Students - Higher Education

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Trump Vetoes Move to Ease Loan Forgiveness for Defrauded Students

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President Donald Trump late on Friday vetoed a resolution that would have made it easier for students defrauded by for-profit schools to get their student loans erased.

President Donald Trump

Veterans and low-income students, especially Black students and others of color, will be most affected by this veto because they are the main target of many for-profit schools.

Without Trump’s veto, the bipartisan congressional resolution — passed with the support of 10 Senate Republicans — would have overturned a Department of Education rule that makes it harder for student borrowers to prove the colleges they enrolled in defrauded them. Trump’s veto means Secretary of Education Betsy Devos’s rule, released last year, will go into effect July 1. The administration says Devos’ rule will save the federal government $11 billion over the next decade.

Trump justified the veto by calling the measure “a misguided resolution that would increase costs for American students and undermine their ability to make choices about their education in order to best meet their needs.”

But critics contend Devos’ rule will allow predatory for-profit colleges, which were earlier held accountable, to get away scot-free. After the for-profit Corinthian Colleges was sued for predatory lending, it shut down in 2015 and many of its students had their loans forgiven. A year later, ITT Technical Institutes shut shop after “allegations of fraud, deceptive marketing and steering students into predatory loans.”

Students at these institutions got some relief from a 1992 borrower defense policy, but that policy wasn’t detailed enough.  In 2016, spurred by the Corinthian and ITT Technical debacles, President Barack Obama’s Department of Education created the Borrower Defense to Repayment Rule, which laid out clearer guidelines on how students could seek forgiveness. The rule went into effect on October 17, 2018. But since 2017, Devos has sought to roll this back. She claimed Obama’s rule made it too easy for students to seek debt forgiveness.

Education Secretary Betsy DeVos

Meanwhile, for-profit schools have continued to grow. More than 1 million students were enrolled at degree-granting, for-profit schools in 2017, according to data from the Department of Education, reported USA Today last year. Trump’s veto affects “more than 200,000 students who currently have borrower defense to repayment claims pending with the Department of Education,” according to Tamara Hiler, director of education at think tank Third Way.

Devos’ rule requires students to file claims within three years of leaving school and puts the onus on students to show they were defrauded. It states that students need to prove they took on loans based on false information that the college knowingly misrepresented. They also need to thoroughly prove the financial harm they suffered.

Hiler said only 3% of all student loans associated with colleges’ illegal activity would be canceled under Devos’ rule. Under Obama’s borrower defense rule, 53% of students who filed for a claim were provided relief, 23% of which was paid for by the fraudulent college.

Tamara Hiler

Devos’ rule, Hiler said, “sets an unjustly short statute of limitations, requires claims to be discharged individually even in cases of well-documented and widespread abuse, and leaves the majority of debt burden on taxpayers rather than the fraudulent institutions.”

James Kvaal, president of the Institute for College Access & Success, called Devos’ rule a “watered down version” of the “strong” Obama era rule governing loan forgiveness for student debt borrowers.

Now, “students cheated by their colleges will be required to repay 97 percent of the resulting debts, based upon Department of Education estimates,” Kvaal said in a statement.

Trump’s veto shows that he and Devos are siding with “corporate cronies” instead of students, said Randi Weingarten, president of the American Federation of Teachers.

“Students across this country—including thousands who admirably served in the military—were handed a raw deal when these bogus, for-profit colleges preyed on their desire to earn a degree, then left them drowning in debt with very little to show for it,” Weingarten said in a statement. “Just once, we’d love to see Donald Trump make good on his word and stand up for the people he promised to stand up for when he ran for president.”

Randi Weingarten

Studies have shown a disproportionately large number of Black and Latino and veteran students attend these schools, leaving with huge debts and bleak job prospects.

For-profit colleges target African American students and other students of color because college acceptance rates for them historically lag those of White students.

“For-profit colleges have positioned themselves as a means for traditionally underserved students of color to achieve educational success and thus to increase their ability to earn higher incomes and build wealth,” said a 2014 report from the Center for Responsible Lending. “If these schools do not engender better outcomes for their students and instead merely saddle students with debt, then the access these schools provide could prove to widen existing income and wealth gaps, rather than to narrow them.”

Another target of for-profit colleges is veterans, who bring in education funding via the GI Bill when they enroll in postsecondary institutions. Critics say for-profit colleges benefit by exploiting a  loophole in the 90-10 rule, which says they must get at least 10% of their revenue from non-federal funds.

How does that work? The website of Veterans Education Success cites the explanation of Holly Petraeus, head of service member affairs at the Consumer Financial Protection Bureau.

“Put simply, the rule says that a for-profit college must obtain at least 10 percent of its revenue from a source other than Title IV education funds, the primary source of federal student aid. Funds from Tuition Assistance and the G.I. Bill are not defined as Title IV funds, so they count toward the 10 percent requirement, just like private sources of financing,” she is quoted as saying.

This makes veterans wanting to enroll in college very attractive to for-profit colleges looking to enhance their revenue and income.

Holly Petraeus

Just hours before Trump’s veto on Friday, American Legion National Commander James W. “Bill” Oxford in a statement urged the President to protect veteran students.

“Veterans have been aggressively targeted due to their service to our country,” said Oxford. “Student veterans are a tempting target for certain online and for-profit schools to mislead with deceptive promises, while offering degrees and certificates of little-to-no value.”

For some critics, the timing of Trump’s veto, days after Memorial Day, was particularly disturbing.

“My question to the President: in four days did you forget those flag waving Memorial Day speeches as you vetoed a bill the veterans were begging for?” said Sen. Richard J. Durbin (D-Ill.), who introduced what became the congressional resolution in the Senate, in a statement.

For other critics, the timing of Trump’s veto is doubly bad coming as it does during the COVID-19 pandemic.

“Especially during a pandemic, accountability is key,” said Democratic Rep. Susie Lee (Nev.-03), who introduced the resolution in the House, in a statement. “Under the 2019 rule’s weaker oversight guidelines, if a school suddenly closes during or because of fallout from the coronavirus, student borrowers will be left with little to no relief as their loans pile up amidst a devastating pandemic.”

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