Published by USA Today
By Kevin McCoy
People with student loans could soon find it harder to prove that the federal government should forgive their debts based on allegations of false promises or frauds by their schools.
The Trump administration on Wednesday issued a proposed new rule for dealing with so-called borrower defense claims filed by former students who say colleges misled them with unrealistic data about their job prospects after graduation or other frauds.
The changes would overhaul the system that’s handling tens of thousands of loan forgiveness applications from former students who say they collectively took on millions of dollars in debts. They say they took out loans based on misleading hiring data from Corinthian Colleges, a for-profit educational chain that ceased operations and closed its campuses in 2015.
The U.S. Department of Education says the proposed changes would aid students who were genuinely victimized by fraud, reduce frivolous claims, give colleges an opportunity to respond to borrower allegations, and help ensure that American taxpayers don’t end up bearing excessive costs from forgiven student loans.
However, the changes sparked immediate criticism from advocacy groups for student loan borrowers, presaging expected Capitol Hill opposition from Democrats.
Among the proposed changes:
- The Department of Education is weighing two standards, one that would require student loan borrowers to be in default before applying for debt forgiveness, and another that would allow them to apply while in good standing in their repayments.
- Student loan borrowers would need to show that their colleges had an “intent to deceive,” or a “reckless disregard for the truth” in their advertising or student recruitment efforts.
- Borrowers could also be required to show that the deceptions “resulted in financial harm to the borrower.” Former students also could need to show that the harm was related to their program of study.
- Colleges would not be barred from requiring students to submit their claims to arbitration, rather than pursuing relief in courts, including class-action lawsuits.
- Borrowers could have less time to seek relief because loan forgiveness application deadlines could be required within three years after the end of their college enrollment.
- Students who are able to transfer their credits to another college might not be eligible for loan relief.
- The Department of Education would have five years from the date of a final ruling on a student loan borrower’s claim to start proceedings to recover losses from the colleges.
“The Department is trying very carefully to balance relief for borrowers who have been harmed by acts of institutional wrongdoing, with its obligation to the taxpayer to provide reliable stewardship of Federal dollars,” the text of the proposal said.
Education Secretary Betsy DeVos and other Trump administration officials have argued that the debt forgiveness rule enacted during the administration of President Barack Obama lacked sufficient standards of proof from borrowers.
“Under the previous rules, all one had to do was raise his or her hands to be entitled to so-called free money,” DeVos said during a 2017 speech, according to a report by the Detroit News.
Although borrower defense to student loan repayment has been in effect since 1995, it was rarely used until 2015. Since then, more than 100,000 claims have been filed, the Department of Education said.
The new proposal could unfairly remove borrower rights, encourage predatory behavior by some higher education providers and benefit the for-profit college industry, said Toby Merrill, the director of the Project on Predatory Student Lending.
The legal advocacy group has gone to court battling for loan forgiveness on behalf of former Corinthian Colleges students, and also has sued the Department of Education for delaying borrower defense regulations enacted during the administration of President Barack Obama.
“The rule discourages and prevents borrowers from seeking the relief they deserve,” said a statement issued by Reid Setzer, the Government Affairs Director for Young Invincibles, an advocacy group for young adults.
However, Steve Gunderson, the President and CEO of Career Education Colleges and Universities, a trade organization that represents for-profit colleges, said the proposed rule would “help students who are victims of fraud find relief, and ensure colleges and universities are part of a fair and objective adjudication process.”