Blake Koloseike

Associate Editor

Loyola University Chicago School of Law, JD 2020

In a world where students are swimming in debt, the Education Department has made an effort to regulate career education and ensure students receive a quality education. During the Obama Administration, rules were implemented that require educational institutions to prove they are preparing graduates for gainful employment. In addition, the borrower defense rule allows for federal student loan forgiveness when the student can prove their institution misled them relating to the loan or education services provided. With so many students in debt, what is the appropriate standard of review to apply when determining these regulations?

Current Status of the Gainful Employment Rule and Borrower Defense Rule

Currently, the gainful employment rule restricts access to federal student aid to colleges whose graduates have annual debt payments exceeding 8%. This rule is meant to protect students from career education programs that leave its alumni with enormous debt that they cannot afford to pay. In addition, the rule is meant to prevent these poor quality institutions from enrolling as many students as possible to maximize their revenue. The gainful employment rule only applied to degrees and certificate programs from for-profit institutions and vocational certificate programs at community colleges and other nonprofit institutions. The rule, however, did not apply to degree programs from non-profit institutions.

The current borrower defense rule allows students to obtain monetary relief from colleges and universities if that school misled students or engaged in misconduct violating specific state laws. Students can bring claims without proving the school’s alleged misrepresentations harmed them and the colleges cannot dispute the claims. The program allows borrowers to recover without consideration of their payment status and court actions against a school can stand alone as cause for filing a claim. The current evidentiary standard is preponderance of the evidence, meaning more likely than not that the borrower’s claim is valid. Critics of this rule say the standard is much too easy for borrowers to get relief.

The Education Department is seeking to remedy the disparity between non-profit and for-profit colleges by holding all institutions accountable and the power disparity between students and lenders in favor of students seeking relief. The proposed changes are intended to hold schools accountable for the taxpayers’ financial burden of loan forgiveness.

Pending Changes to Gainful Employment and Borrower Defense Regulations

In an effort to treat educational institutions equally, there have been several regulatory rollbacks. In August 2018, the Education Department moved to reverse the gainful employment rule and the borrower defense rule enacted during Obama’s Administration. The gainful employment rule would cost taxpayers billions of dollars and diminish education options for students who can’t afford tuition at for-profit universities. Additionally, this rule would punish schools that enroll low-income students and schools whose graduates take lower-paying jobs in public service. The gainful employment regulation caused many for-profit colleges and universities into economic distress due to the fact that many of their alumni were unable to find decent jobs upon graduation. Education Secretary Betsy DeVos plans to eliminate the regulation altogether. The Education Department proposes to hold institutions accountable by making the information public on a federal database. This would allow students to compare various characteristics prior to deciding to attend the college.

Furthermore, the Education Department proposed altering the “borrower defense” rule. DeVos proposed applying the same standards and procedures that courts use to handle fraud claims. Under the altered borrower defense rule, borrowers will need to be in default before making a claim and may need additional evidence to support students’ claims. Borrowers will now have the burden of proving they acted on a significant misrepresentation by the school and were caused financial harm. The student borrowers would be required to prove that a college made a misrepresentation with knowledge of its falsity. The primary proposal would maintain the preponderance of the evidence standard; however, the Department’s alternative proposal offers a more difficult standard of clear and convincing evidence, meaning the evidence is highly and substantially more likely to be true than untrue.

These proposals are set to go into effect by July 2019. This delayed the implementation of the Obama administration loan forgiveness rules. Several states filed a lawsuit accusing Betsy DeVos of wrongly postponing the implementation of these regulations. A Washington federal court judge recently ruled the Education Department’s delay of the borrower defense rule was procedurally improper, calling the delay “arbitrary.” The court reasoned the Education Department was depriving students “of several concrete benefits that they would have otherwise accrued.” The judge ruled the delays to be invalid and gave the Education Department thirty days to remedy the flaws in the rules.

The Effects on Students and Educational Institutions

These new proposed regulations would allow students to make more informed decisions prior to college enrollment, rather than relying on financial remedies upon the completion of their degree. Students would be able to see additional College Scorecard information to ensure students are able to assess the institutions properly. However, this will cause more significant barriers for relief to students, in that students will be required to prove the institutions intentionally misled them. Furthermore, this will cause hundreds of thousands of students to pay large sums to attend low-quality programs that leave them underemployed and drowning in debt. The colleges that provide these low-quality programs would benefit from these rollbacks, in that they would gain increased revenue from the federal student loans.

Overall, the deregulation of the gainful employment rule and the borrower defense rule will result in constant debate between students and educational institutions. In the upcoming year, it will be interesting to see how institutions, students, and courts handle the potential rollback of these regulations and the present and future litigation that has and will occur.