Obama administration finalizes rules to help students defrauded by for-profit colleges

Students have made thousands of claims seeking loan forgiveness after attending predatory for-profit colleges.

Education Secretary John King speaks during the daily briefing at the White House in Washington, Thursday, Sept. 29, 2016. CREDIT: AP/Susan Walsh
Education Secretary John King speaks during the daily briefing at the White House in Washington, Thursday, Sept. 29, 2016. CREDIT: AP/Susan Walsh

The Obama administration finalized new rules on student loan forgiveness and other student protections from predatory for-profit colleges on Friday. The U.S. Department of Education has been working to revise the way it handles students’ claims that an institution of higher education has defrauded them for over a year.

What is known as “borrower defense to repayment,” allowing students to seek loan forgiveness when they are victims of fraud, has been in place since the 1990s. The statute was rarely used, however, until students attending colleges that were owned by the for-profit college chain Corinthian Colleges began claiming borrower defense to repayment.

Corinthian Colleges closed its remaining campuses last year after the department of education said it would fine the chain $30 million for misleading students, alleging that Heald College showed a pattern of falsifying post-graduation data.

It is certainly not the only for-profit college chain to close its doors recently. Education Management Corporation or EDMC, announced a gradual shutdown of 15 of 52 campuses of The Art Institutes in the spring of last year. ITT Educational Services, Inc. officially shut down its academic services in September after the department stopped the company from enrolling students relying on federal student aid after years of federal scrutiny of these schools.

So what would qualify as an event of “substantial misrepresentation” by a college or university? A school could misrepresent the opportunity for graduates to find work in their chosen field or a student’s financial charges. Breach of contract or a court judgment against the school in regard to its loan and educational services, whether federal or state, could also allow a student to make a claim.

Students who couldn’t finish their education after a college closed could also have their eligibility for Pell grants restored. Students who attended schools that closed on or after November of 2013 and haven’t enrolled in another school will receive automatic discharge of student loans. Since many for-profit colleges have required students to sign pre-dispute arbitration agreements, the department has announced a full ban on them.

According to the department, these finalized rules could have an annual budget cost of anywhere between $199 million to $4.2 billion.

Advocates for students who say they have been defrauded by their colleges have waited a long time for these rules. Although it is a significant win for anti-student debt activists, policy advocates, and students, who have been pushing the department to acknowledge these issues for years, some people say that the rules leave too much discretion with the department, UPI reported.

“The group relief provision will only be effective in actually providing student relief if the department commits to making it so … Since most students who are defrauded will not know about their right to student loan discharge, it will be essential that the department act to pursue this relief on their behalf,” Abby Shaforth, an attorney at the National Consumer Law Center, told UPI in an interview.

“The department must use this discretion to ensure students get the maximal amount of relief.”

Maggie Thompson, executive director of Generation Progress, part of The Center for American Progress, said the rules are a major step forward but added, “The borrower defense program established in this rule grant both the secretary and the department too much discretion in determining who gets relief, and how much. The department must use this discretion to ensure students get the maximal amount of relief.”

About 250,000 students who attended these schools are possibly eligible for debt relief but only 82,000 students made claims so far, according to the department. This is why many advocates for defrauded students say there should be blanket forgiveness for Corinthian students.

Alexis Goldstein, senior policy analyst at the Americans for Financial Reform, told The Washington Post, “I don’t understand why the department is insisting on doing this person by person, instead of just approving students automatically.”