Loyola University Chicago School of Law, JD 2020
A new set of student loan forgiveness regulations introduced earlier this year aimed to hack away at “borrower-defense” protections which shielded students from predatory loan practices by for-profit universities. Under Education Secretary Betsy DeVos, the Department of Education crafted new, more restrictive borrower-defense regulations after blocking an Obama Administration regulation from going into effect last year. U.S. District Court Judge Randolph Moss sided with consumer rights activists who argued against the Secretary of Education, alleging the Department of Education violated federal law and procedure by repealing the Borrower Defense to Repayment rule. The Trump Administration requested another opportunity to delay the regulations from taking effect, but Judge Moss has not yet ruled on their request.
Previous Administration’s Rules Restrict Predatory Lending
In 2016 the Education Department issued its borrower-defense regulations after it was flooded with claims from former for-profit college students. These defrauded students cited a rarely-used provision of a federal statute to seek relief as their institutions collapsed and shuttered under the weight of various federal investigations. The borrower-defense regulations came after a new analysis of Education Department data that linked for-profit colleges with the overwhelming majority of predatory lending complaints.
Students who attended for-profit colleges filed more than 98 percent of the requests for student loan forgiveness. A study of these claims by the Century Foundation is the most thorough analysis of this issue to date, examining 100,000 loan forgiveness claims submitted over the past two decades, known as “borrower defense” claims. The complaints reveal the disturbing reality of student borrowing and lending in America. This study found a disproportionate concentration of predatory behavior occurs among for-profit colleges, proffering extensive evidence that many for-profit trade schools were exploiting and deceiving students.
This problem is longstanding. Three decades ago, under the Reagan Administration, then Secretary of Education Bill Bennett released a report that accused for-profit schools preying on students. Bill Bennett spoke of “accounts of semiliterate high school dropouts lured to enroll in expensive training programs with false hopes of lucrative jobs, only to have their hopes for a better future cruelly dashed.” Among other tactics, he said the for-profit universities “falsified scores of entrance exams, [provided] poor quality training, and [had] harsh refund policies.”
The Obama Administration came after the for-profit sector aggressively in response to the for-profit students’ claims, tightening regulations and expending more than $550 million to forgive the debt of defrauded students. DeVos, in rolling back regulations, argued that the system was unfair to taxpayers and set out to rewrite the rules more fairly. The Obama regulations, if implemented, would have established the first clear federal standard for adjudicating these types of claims.
Under Trump, DeVos Seeks to Deregulate Student Borrowing
In July, the U.S. Department of Education released its proposed student-loan forgiveness regulations. DeVos’ new regulations would cap the amount of relief available to defrauded students and narrow the eligibility restrictions, while also tightening the time frame in which students may apply for relief. The Department of Education’s budget for these types of borrower-defense relief is expected to drop by $12.7 billion dollars in 2018.
Experts criticized the new proposals, claiming they failed to adequately protect defrauded borrowers while making it easier for institutions to practice predatory lending behaviors. Under the new regulations, students would also have a harder time obtaining debt relief if the college or university closed unexpectedly. The proposal also contemplates allowing loan forgiveness applications only for borrowers in default, which would dramatically reduce the number of students who are eligible for relief. Critics have also accused DeVos of looking out for industry interests, citing the fact that she has hired for-profit-school insiders to top positions at the Education Department.
DeVos responded to criticisms, chastising the Obama-era regulations, asserting that they failed to adequately address the concerns of colleges. Like the Obama rules, the department’s new proposals would establish a clear federal standard for borrowers who are pursuing loan discharge but includes several changes that would drastically limit avenues of relief for borrowers and liability for colleges. With respect to the student plaintiffs, Judge Moss found that the Department’s proposed regulations would have deprived students of “several concrete benefits that they would have otherwise accrued under the Borrower Defense Regulations.”
Obama Regulations Are Scheduled to Take Effect Barring New Ruling
The Trump Administration requested another chance to delay the Obama-era regulations from taking effect two days after the court ruled against DeVos. Lawyers for the Department of Education requested the opportunity to correct the mistakes that the court identified in the implementation of the delay. Lawyers also asked that if the court ruled that Obama-era regulations must take effect, the court grant the Department 60 days to prepare. Judge Moss has not yet stated when he would rule on the Department’s request. The ambiguity from the court has left many speculating about the exact future borrower’s protections.