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DeVos proposes rule to make it harder for defrauded students to get their loans forgiven

Under the rule change, students would have to prove that their college knowingly made false or misleading statements.

Education Secretary Betsy DeVos arrives with Chairman Roy Blunt, R-Mo., before she testified at a Senate Appropriations Subcommittee in Dirksen Building on the FY2019 budget request for the Department of Education on June 5, 2018. (Credit: Tom Williams/CQ Roll Call)
Education Secretary Betsy DeVos arrives with Chairman Roy Blunt, R-Mo., before she testified at a Senate Appropriations Subcommittee in Dirksen Building on the FY2019 budget request for the Department of Education on June 5, 2018. (Credit: Tom Williams/CQ Roll Call)

The Education Department proposed a rules change Wednesday that would make it harder for students who were victims of predatory lending practices at for-profit colleges to get their loans forgiven. 

The proposed policy change continues the Trump administration’s goal of deregulating higher education and chipping away at protections for studentsThe new rules would make it harder for students to make use of what’s called “borrower defense,” a form of loan forgiveness that applies to students who were misled by their universities.

Under the proposal, students applying for borrower defense must prove that their college or university knowingly made false or misleading statements. By placing the onus on students to demonstrate such behavior and by simultaneously cutting back on investigations into such predatory actions, student advocates say the Education Department is making it easier for for-profit institutions to mislead students and break laws.

“If the department isn’t doing those investigations, it’s not clear to me how anyone would ever have evidence of intent,” Clare McCann, deputy director for federal higher-education policy at New America told The Chronicle for Higher Education.

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Predatory for profit-colleges gained attention when for-profit chain Corinthian Colleges shut down its campuses in 2015, after the Education Department fined the institution $30 million for falsifying post-graduation data and misleading students. Shortly thereafter, the Obama administration began making changes to the borrower defense rule, announcing a plan in 2016 to allow students of such institutions to make claims and have a clear path to debt relief.

Donald Trump’s Education Secretary Betsy DeVos criticized the Obama-era rule, claiming that it was too lenient in allowing borrowers to obtain debt relief. In October 2017, one month before the Obama-era rules were set to begin, DeVos announced that the rule would be delayed, paving the way for the administration to propose its own version.

The new rule, which comes in the midst of a looming student loan crisis, would reduce debt relief to students by $10.5 billion over a decade, according to the Education Department.

A recent Brookings Institution report found that about 40 percent of borrowers will likely default on their student loans by 2023. For-profit borrowers default at twice the rate of public two-year borrowers. The numbers are even more alarming for black student borrowers, who default at five times the rate of white undergraduates.

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The proposal would also make it harder for students at colleges that have suddenly closed to obtain a loan discharge — a move that would reduce debt relief by about $2.2 billion over 10 years, at the expense of vulnerable students.

According to Inside Higher Ed, borrowers who withdraw within 120 days of a school’s closure can receive debt relief. “However, the rule would end automatic loan discharge for students who have not re-enrolled elsewhere within three years of a school closure.”

While DeVos said in a statement that the rule aims to protect students from fraud, student and education advocates say the proposal leaves students out on a lurch.

“The department is nervous that colleges may have a large potential liability when they have lied to their students, and pretty much everything they’re doing would go pretty far to reduce that potential liability,” McCann said. “It takes the risk off of schools, but it doesn’t do anything for the students. The students kind of wind up on their own, left without options.”

The new rule is currently open for comments for 30 days and must be finalized by November.