The Education Department is about to make it a lot harder for defrauded students to get debt relief, undoing years of work from activists calling on the department to provide relief to students who were victims of fraud at for-profit colleges.
Some of these colleges promised students they would get jobs despite evidence to the contrary, used manipulative tactics to persuade students to enroll, and pushed students into risky private loans. Predatory for-profit colleges gained more attention after Corinthian Colleges shut down all of its campuses in 2015. The Education Department told the company it would be fined $30 million for misleading students, such as giving prospective students inaccurate or misleading post-graduation data.
But under the new proposed changes, students would have to clear a higher evidentiary standard in order to receive debt relief and may be expected to have discovered fraud at a “reasonable time.” The rule would impose a three-year limit on claims and does not mention anything about allowing state attorneys general to apply for cohorts of borrowers with claims, according to people familiar with the rulemaking sessions. The last rulemaking session in negotiations over the borrower defense to repayment rule begins this week.
The borrower defense to repayment rule has existed since the 1990s, but students rarely took advantage of it. Then, student debt activists drew attention to the rule, which held that if colleges and universities engaged in behavior that violated state law, borrowers could have federal student loans cancelled, be relieved of the obligation to repay all or part of the loan, or be reimbursed for the payment of the loan.
The Obama administration began the slow work of making changes to process so that students could make claims and have a clear path to debt relief. In 2016, the Education Department announced a revised borrower defense plan. But a few months into the Trump administration, Education Secretary Betsy DeVos announced a “reset” of the rule. In October, DeVos announced the rule would be delayed even further and that the earliest it could take effect would be July 2019. If the rulemaking panel doesn’t reach unanimous consensus on a plan for the rule, the department gets to formally propose its own version. According to Politico, it’s likely the panel won’t reach consensus.
Some things wouldn’t change, such as the need for borrowers to show the fraud led to monetary damage and to demonstrate that a for-profit college intentionally misrepresented itself or at least showed “a reckless disregard” for the truth. But the Trump administration has discussed the possibility of using a different standard than preponderance of the evidence. Under preponderance of the evidence, someone has to show that it’s more likely than not that the fraud happened, which is not based on the amount of evidence the student presents. But the Department of Education has suggested using the higher clear and convincing standard or substantial weight of the evidence standard. The clear and convincing standard means that you must walk away believing it is highly probable the fraud happened, slightly lower than the “beyond a reasonable doubt” standard. Substantial weight of the evidence requires that someone provide enough evidence that a reasonable person would deem adequate to come to a certain conclusion.
Both of these standards put additional burdens on students, added Jennifer Wang, director of The Institute for College Access and Success’ DC office, said it’s common in cases of consumer protection to use the preponderance of the evidence standard and that it is unrealistic for the department to assume many students could meet these higher standards.
“What could be a more obvious consumer protection than the rule which is supposed to govern whether mistreated students get refunded for what has happened to them?” Wang said. “The preponderance evidence standard is a commonly used standard in consumer protection law because you don’t want to assume that students are going to have all the tools in the toolbox to be able to make these defenses with those standards. Consumers and students are not sitting around collecting evidence. That’s not the main purpose of why they’re going to school.”
Wang said she expects to see a “robust discussion” of what the department sees as meeting the clear and convincing or substantial weight of the evidence standard.
“I think the higher education community deserves examples of what would qualify as substantial weight of evidence,” Wang said. “Last [session], it was pretty clear that the department heard the advocates in saying that they didn’t want students to need an attorney to even apply for borrower defense. But I really fear for students and their ability to understand what this is and successfully apply.”
Wang said she was also concerned about draft rules not including information on how attorneys general would apply for cohorts of students in borrower defense to repayment complaints, making it harder for a large number of students to apply at the same time. For example, on January 13, the department announced it would grant borrower defense relief for American Career Institute (ACI) in Massachusetts. The now defunct ACI was investigated by the department and found to have made misleading representations to students, including job placement rates. But as in many cases of for-profit colleges defrauding students, it was the state’s attorney general, Maura Healey, who pushed the department to further investigate ACI and applied for a group discharge.
“ACI was another exceptionally troubling school that committed widespread misconduct and that was an amazing example of how government should work. The state attorney general, on behalf of her constituents, saw widespread abuse in her state and applied to the department of education for quick relief and they got that relief,” Wang said. “There is nothing in these draft issue papers that would allow states attorneys general to do that and they’re going to be the ones finding out about this misconduct in real time.”
The department is also floating the idea of a three-year statute on claims, which Wang said is troubling because for many Corinthian students, it took years to apply. Students must file the claim within three years of when they discovered the misrepresentation or “reasonably should have” discovered it. The department has also proposed that borrowers show that their college intended to mislead them. Under the Obama administration’s rule, there was no statute of limitations on remaining debt, and for debt already paid, borrowers had six years after discovering misrepresentation to file a claim.
“Who is going to decide what is reasonable in that case — a Department of Education attorney, who has far more sophistication and resources than the student who has often been tricked into enrolling into a school like this?” Wang said. “I just worry that a substantial chunk of students aren’t going to realize they were mistreated until that statute of limitations is up.”
The Department of Education usually chooses two representatives of for-profit colleges to be on the stakeholder panels that negotiate new rules, but this time there were four representatives, and many of the industry representatives present at the sessions have ties to colleges with shady records, Mark Halperin reported at the Huffington Post. The department has also tried to stop people from livestreaming the rule-making sessions.
“All these people who have ties to for-profit colleges or are representatives of for-profit colleges were chiming in and saying, ‘I support the department’s draft rule as written,'” Wang said. “It’s a rule that appears to have been written to satisfy all of the needs and wants of the industry. And there is enough evidence out there about misconduct happening in the industry that it should get anyone’s attention.”
Many students are still waiting on debt relief. In December, California Attorney General Xavier Becerra sued Education Secretary Betsy DeVos and the Education Department for not processing debt relief claims from the thousands of Corinthian students. On the same day, the attorneys general of New York, Illinois, and Massachusetts filed a lawsuit against the administration for not making decisions on these claims. The National Consumer Law Center and Legal Aid of Los Angeles also filed a lawsuit on behalf of a student who attended a now defunct cosmetology school and seeks an immediate approval of her loan discharge application. In addition to changes to the borrower defense rule, the department has also continued the process of gutting the gainful employment rule that was supposed to bring accountability to for-profit schools and protect students from racking up debt at low-quality institutions.