Education Secretary Betsy DeVos moved Wednesday to make it harder for students who say they were defrauded by colleges and universities to erase their debts, rolling back Obama-era regulations that for-profit colleges saw as onerous.
The rules published Wednesday require students to prove schools knowingly deceived them if they want their federal loans canceled. And it scuttled an Obama provision that allowed similar claims to be processed as a group. Instead, students will have to prove their claims individually.
The new rules also kill an Obama provision that barred colleges from requiring students to sign agreements that force them into arbitration in the event of a dispute.
The rules are DeVos’s rewrite of an Obama-era regulation published in 2016 and part of that administration’s crackdown on for-profit colleges that critics say prey on vulnerable students. In ways big and small, the new version makes it harder for students to win debt forgiveness.
“Postsecondary students are adults who can be reasonably expected to make informed decisions and who must take personal accountability for the decisions they make,” said the proposed regulation, which was posted online Wednesday.
Still, DeVos said in a statement, “Our commitment and our focus has been and remains on protecting students from fraud.”
The agency punted for now on one key question: whether students must be in default in order to apply for loan forgiveness. Allowing “affirmative claims” from students who are current on their loan payments could invite a flood of applications, the agency warned, because there is little downside to asking for loan forgiveness. At the same time, the Education Department said, it does not want to create incentives for borrowers to fall into default in hopes of winning debt relief.
The agency is also seeking comments on what the standard should be for students to prove their case. The Obama rule imposed a “preponderance of evidence” standard, but the agency is also considering the higher burden of “clear and convincing” evidence, particularly in the case of claims from people not in default, if those are ultimately permitted.
The department aims to publish a final rule by Nov. 1 so that it can take effect for loans originating after July 1, 2019. The agency will allow 30 days for public comments on the proposal.
Students with existing student loans can also ask for loan forgiveness under standards established in 1995. That process was rarely used before two huge for-profit chains, Corinthian Colleges and ITT Technical Institutes, collapsed following complaints of deceptive marketing and predatory recruitment.
The package is a victory for conservatives worried about the hit on federal taxpayers if a large number of student borrowers are allowed to escape responsibility for paying off their student loans. It’s also a win for colleges, particularly for-profit ventures, who opposed the Obama rules as threatening their survival and harmful to students seeking loans to attend their programs.
It’s a defeat for consumer advocates who favor a more aggressive posture against colleges that they say routinely take advantage of veterans and other nontraditional students.
“Today’s proposal is a giveaway to predatory for-profit colleges and a stunning show of indifference toward students working to better their lives,” said Aaron Ament, a former Obama Education Department official who is president of the National Student Legal Defense Network. He said the standard for winning debt relief is too high.
Advocates said several provisions of the proposed rule were deterrents that could have a chilling effect on borrowers applying for student debt relief. Chief among them: Applicants would have to prove their college intended to mislead them, a hurdle that consumer attorneys say would be nearly impossible to clear without the sort of evidence presented in a courtroom.
“How are borrowers supposed to prove intent? They don’t have any discovery rights. They don’t have the ability to get testimony from the person who lied to them about what they knew or didn’t know,” said Abby Shafroth, an attorney at the National Consumer Law Center.
Not even state attorneys general, whose fraud cases against for-profit colleges have in the past laid the groundwork for loan forgiveness, rely on evidence of intent in their consumer protection lawsuits. Under the proposed rule, those cases would not be enough to bolster a borrower’s defense claim.
Borrowers may also have less time to apply for relief. Instead of giving students six years from the time they discover a breach of contract to file a claim, as the Obama administration provided, the new proposal would limit that to three years from when a borrower leaves school in the case of affirmative claims. That timing coincides with the period in which schools must report the share of people not making payments on their federal student loans.
The Education Department also will no longer group together similar claims to speed up the application process, with the rationale that everyone in the group may not have suffered the same harm.
And the agency will no longer offer automatic loan forgiveness for anyone whose school closes. Students whose colleges offer a route to complete their courses – what’s known as a “teach-out” plan – will now be ineligible for this type of loan forgiveness. Most states require schools to have teach-out plans. In some cases that could mean no more than an online course, which could be impractical for programs requiring hands-on training.
The department is also expected to soon release its rewrite of another Obama-era regulation aimed at the for-profit college sector. That rule cut off federally backed loans to schools if their graduates’ earnings are not sufficient to pay off their student debt.
