Secretary of Education Betsy DeVos is at it again.
The Borrower Defense to Repayment program was established in 2016 following the high-profile collapse of for-profit schools like Corinthian Colleges and ITT Technical Institutes. The program was enacted to provide student loan relief for borrowers who had been defrauded by predatory schools.
The basic premise of the program is that students who were subjected to rampant fraud or misrepresentations by their school, and who were saddled with debt and a useless degree, should have a mechanism to request student loan forgiveness. This, coupled with stricter federal oversight of for-profit schools and greater accountability for their educational and career outcomes, would hopefully diminish widespread abuse of federal aid by predatory institutions.
Since DeVos took over the Department of Education in 2017, her administration has made consistent efforts to eliminate or water down the program. The Department of Education initially tried to re-write the regulations governing the program, only to have those new rules thrown out by a federal court following legal challenges. Her office has also been effectively ignoring around 160,000 applications for loan forgiveness submitted by student loan borrowers, leaving them in limbo.
The Department of Education has now released a new set of Borrower Defense rules designed to replace the original 2016 regulations that govern the program. This latest attempt to rewrite of the rules would significantly restrict borrowers’ ability to get relief under Borrower Defense to Repayment. Here are the major changes:
- Student loan borrowers will have to demonstrate that they relied on misrepresentations by the college (as opposed to just showing that the school engaged in widespread fraud or other deceptive practices). While this may sound easy, providing evidence of “reliance” can be difficult.
- Borrowers will also need to demonstrate that they suffered specific financial harm. While on the surface this may seem reasonable, this will allow the Dept. of Education to deny relief to borrowers on a widespread scale given its discretion to determine what actually constitutes financial harm (consumer advocates argue that being stuck with debt and a useless degree is harm in and of itself).
- The Department of Education also added in a strict statute of limitations for borrowers seeking relief. Borrowers will need to submit an application for Defense to Repayment within three years of graduation. Under this standard, over two-thirds of the 160,000 claims already submitted would be automatically rejected.
- The new rules would also allow schools to use mandatory arbitration clauses in enrollment agreements, a practice that tends to favor schools over consumers and was restricted by the previous regulations.
To the Department of Education’s credit, the administration did back away from more extreme changes that were initially proposed during the rule-making phase, such as a requirement that borrowers must first default on their student loans — and incur associated credit damage — before being allowed to request relief.
Nevertheless, consumer advocates are sounding the alarm. The chairman of the House education committee, Rep. Bobby Scott, accused the administration of “sending an alarming message [that] schools can cheat student loan borrowers and still reap the rewards of federal student aid.” And the Project on Predatory Student Lending announced that it intends to challenge the new rules in court.
One thing is clear: the Borrower Defense to Repayment program remains embattled and in legal limbo.