For over a year, the National Consumer Law Center and other borrower advocates have been calling on the Department of Education to relieve the heavy debt burdens of students harmed by the deceptive and illegal practices of for-profit schools. It appeared that the Department was poised to do so when it decided to convene a negotiated rulemaking session to revise the procedures to be used for a borrower to establish a defense to repayment (DTR) claim process.
The Department’s draft of the proposed regulations, released Friday, leaves us deeply disappointed. Here are some of the key problems with the proposal:
- Unfair Time Limit for Borrower Claims: While the Department may use draconian collection tools without any time limit, it proposes to allow borrowers only 2 years to submit a DTR claim in most circumstances. This is unjust and arbitrary. Borrowers harmed by for-profit schools are often unaware of their rights and are likely to miss this short time-window, while the Department may collect on their loans for decades. It’s straightforward: if a school defrauds borrowers, the Department should not deny relief simply because some of those borrowers learned of their rights too late.
- No Relief for State Law Violations Absent Court Judgment: State laws are the primary laws that protect borrowers from abusive recruitment and other predatory practices, and the current borrower defense regulations recognize this by allowing for defenses based on state law violations. Yet, the Department proposes to deny relief to borrowers who are harmed by state law violations unless there has been a court judgment in the borrower’s favor. Because court judgments on these issues are exceedingly rare (in part because of mandatory arbitration provisions predatory schools use to bar students from going to court), this would have the effect of removing relief for victims of state law violations.
- Process Pits Students Against Wealthy For-Profit Schools: The Department’s proposal would create a complicated trial-like process allowing schools to defend against borrowers’ claims and requiring individualized proof of injury. This “David and Goliath” process would pit borrowers who do not have access to attorneys against wealthy schools and their attorneys in a process that favors the party with more experience with the process and better access to evidence and legal knowledge.
- No Group Relief: The proposal’s individualized proof requirements would effectively preclude group discharges and dramatically reduce the number of borrowers who will actually get relief. Providing group relief for students subject to common misconduct would be far more efficient and fair to similarly situated borrowers.
- Lack of Protections for Current Borrowers: The Department’s proposal is largely inapplicable to loans originated before 2017. There are millions of borrowers currently affected by the deceptive and illegal practices of Corinthian and other predatory schools who urgently need relief.
The proposal represents a disappointing attempt by the Department to pin the cost of its own lack of oversight on the backs of harmed low-income students. It makes it as hard as possible for students to get out of debt, while many of the schools that fraudulently obtained billions in student loans from federal taxpayers will never have to pay it back. This is an unfair and unjust way for the Department to recoup its losses.
Former Secretary Arne Duncan stated: “We are determined to protect students who have been victims of these unethical companies, by ensuring they get every penny of the debt relief they are entitled to, through a streamlined and straightforward process. We’re going to make that as simple as we legally can . . . .” While the Department’s proposal would do the opposite, there is still time for the Department to reconsider and retailor its proposal through the rulemaking process in a manner that honors its stated commitment to protecting students.
The National Consumer Law Center’s proposal for a fair process can be found here.
