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Department of Education Moves to Strip Away Relief for Misled Student Loan Borrowers

July 25, 2018
Contact: Paydon Miller
(202) 734-6543 |

Department of Education Moves to Strip Away Relief for Misled Student Loan Borrowers

Washington, DC – Today, the U.S. Department of Education released a final draft of their new version of the “Borrower Defense Rule.” The rule contains several provisions that would severely weaken consumer protections in higher education, unfairly burdening struggling borrowers and making it harder for students to file claims for debt relief after they have been misled or defrauded.

In response to this proposed rule, Reid Setzer, Government Affairs Director for Young Invincibles, issued the following statement:

“Secretary DeVos and the Trump Department of Education have once again sided with bad-acting schools instead of students. This new proposed Borrower Defense Rule is a gut punch for hundreds of thousands of misled and defrauded borrowers. The rule discourages and prevents borrowers from seeking the relief they deserve by making the standards for relief unreasonably high, eliminates group discharge, and allows schools to use forced arbitration clauses in enrollment agreements that deny students their day in court. Alarmingly, relief could only be available to borrowers who have already defaulted, forcing thousands of misled students to accept the long term financial harm that comes with default before they can even begin the process of seeking relief.

The last thing students who have been defrauded need is an arduous and adversarial process to get their loans relieved and their lives back on track. This is not an abstract debate – there are tens of thousands of students, including some of the most financially vulnerable members of our society and military veterans, who were harmed by Corinthian, ITT Tech, and other predatory for-profit schools that need borrower defense relief to restart their lives and are still waiting. This rule will make it nearly impossible for future abused students to obtain relief, and discourages the Department of Education from proactively ensuring school quality on behalf of students. Sadly, we’re not surprised – it has been clear since the day they took office that Secretary DeVos and this Administration are turning their backs on students.”

The following are some of the damaging changes proposed by the rule:  

  • Borrower defense claims could be reserved only as a legal defense, forcing responsible borrowers to default and risk their financial security to assert a claim against a deceptive school. Barring affirmative claims would effectively terminate the borrower defense right for many individuals who do not want to default on their federal loans.
  • The standard of proof that students must meet for relief could be elevated, making it nearly impossible for students to get their loans discharged. Students would now have to prove that the expected outcomes misrepresented by the school were directly related to the loan for which they are seeking discharge and that the school acted with knowledge of falsity or reckless disregard for the truth. This would open the door for schools to misrepresent figures like job placement rates, as long as those misrepresentations were not directly related to the lending process. It would also require students to act as detectives during enrollment to document evidence of the school’s deceptive intent, something that no student can reasonably be expected to do.
  • The legal avenues currently available for borrowers to make claims of borrower defense under could be narrowed. The rule proposes eliminating state law violations and breach of contract as grounds for relief for borrowers. Schools could be allowed to view and respond to borrower claims and information with their own evidence, as well as appeal adverse decisions. Borrowers will not be afforded any of those options.
  • The ban on forced arbitration and class actions in enrollment contracts would be eliminated, eroding students’ constitutional access to the court system and favoring large corporations.
  • Group discharge of similarly-situated students would be eliminated, meaning that groups of students systematically misled or defrauded by bad acting schools could receive varying degrees of relief, or none at all, despite their shared experience attending a school found to be predatory or deceptive.

Following the official publication of the draft rule, likely to be this week, there will be a 30 day comment period to respond. Young Invincibles urges everyone concerned by this attack on borrowers’ rights to submit public comments between now and late August to let your voice be heard. Submit comments here.