By Shelbe Klebs, Education Policy Advisor and Tamara Hiler, Director of Education
Imagine this: You’re a recent graduate who was informed that your school would be closing down suddenly due to liability from illegal recruitment practices, serious financial mismanagement, and distress that long went unchecked. You’re over $20,000 in debt and left with a worthless degree in a dead-end job. And even though you’ve been misled by your institution, a new rule recently released by the Department of Education (the Department) claims that in order to get the financial debt relief you are entitled to receive under federal law, you will not only have to prove that your school was using fraudulent marketing to prey on students during the time you enrolled, but also that you personally saw and enrolled based on the fraudulent messaging (which often happened years prior) — and your sworn affidavit does not count. Worse yet, you have to prove that your college knew the messaging misrepresented the truth, and that you suffered financial harm (beyond the fact that you have student debt) as a result.
Just think — how exactly are you supposed to prove that? The school has shredded all its paper files. They stopped paying their internet provider, so you can’t get into your school email. You are financially underwater because the Department garnishes your wages in order to pay itself back for your fraudulently-created student loan debt.
Unfortunately, for many of the more than 200,000 students who have “borrower defense to repayment” claims pending with the Department under their final rewrite of the Obama-era Borrower Defense to Repayment rule, this scenario is all too familiar. Updated in 2016, the borrower defense rule was designed to provide clarity for borrowers who are legally entitled under the Higher Education Act (HEA) to a discharge of their federal student loans if they experienced “misconduct by their institution.”
And while tens of thousands of students in virtually every state have already met this standard, under Betsy DeVos’ new rule, only an estimated 3% of all student loans impacted by colleges’ illegal activity would be cancelled — leaving the vast majority of defrauded students on the hook for actions taken by the colleges they paid to educate them.
That’s because this haphazard rewrite puts in place a number of hurdles that would make it nearly impossible for borrowers to find their deserved relief. For one, DeVos’ rule requires defrauded borrowers to meet nearly impossible thresholds to receive loan cancellation, despite clear evidence of their colleges’ illegal activity and misconduct. Previously, a student only had to prove that he or she relied on a substantial misrepresentation made by the college, which they could do by showing the representation was made in marketing materials during the time they enrolled — essentially that those lies were used to recruit their class. Now, the student must prove not only that there was a substantial misrepresentation on which they relied, but also that the college did it with affirmative knowledge that it was false, or the school acted with reckless disregard toward accurate information, and that the student personally suffered financial harm in the process — for which they can’t count the loans they took out and are obligated to repay. Unless a student has access to the email accounts or surveillance of college marketers from back when those materials were created, proving that kind of specific knowledge is near impossible — and sets a significantly higher standard than other consumer protection law.
Further, this new rule sets in place a ridiculously short statute of limitations, preventing students from filing claims for relief beyond a three-year time limit from when they left school, even if new evidence of a college’s misconduct emerges later. The reality is that most misconduct doesn’t even come to light until years later, such as with the case of the 80,000 students facing debt collection after Corinthian Colleges collapsed in 2015 in light of a Department investigation into predatory and misleading practices. Many of these students have applied for loan forgiveness under DeVos’ Department and have either heard nothing on their forgiveness status one year later or been denied outright. Worse, in the unlikely event that the student does manage to file a claim for forgiveness within the three years and is successful, the college can retaliate and punish the student by denying transcripts and refusing to verify earned credentials.
And, if these changes don’t sound burdensome enough, the Department will no longer be able to process borrowers’ claims as a group, speeding up the time to process the forms, even if there is proof of systemic misconduct towards large numbers of borrowers. Instead, all students will now be required to individually apply for loan forgiveness and must prove their claim on their own — another burdensome hurdle for students already dealing with the significant fallout from their institution suddenly closing.
No matter which way you cut it, it’s clear that Secretary DeVos’ new borrower defense rule is both extreme and extremely bad for students. It does little to ensure that colleges will follow the letter of the law and asks significantly more of students than other consumer protection law. It may even go so far as to incentivize retaliation towards students if they succeed in filing a claim under this new process. You don’t have to support the original Obama-era borrower defense rule to see that this new regulation is untenable and unfair. The American people agree — according to a poll conducted by New America, 78% of all Americans (including 71% of Republicans, 87% of Democrats) think that students should have their federal student loan debt forgiven if their college deceived or defrauded them.
The Department of Education has an obligation to carry out the intent of federal law to combat fraudulent behavior by predatory institutions and protect both students’ and taxpayers’ investments in the higher education system. There is an opportunity to do right by students who have had their lives turned upside-down by predatory schools. Members of Congress on both sides of the aisle should reject this attempt to rewrite the borrower defense rule and ask the Department to figure out a better way to do right by students. Folks who attended these schools were simply trying to better their lives, but they had the rug pulled out from under them, at great cost in student loan debt. It’s clear that the new regulation provides no actual defense of borrowers — undermining the spirit and the language of the law and making life harder for students who have already been devastated and preyed upon.