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DeVos Toughens Rules for Student Borrowers Bilked by Colleges

Education Secretary Betsy DeVos on Friday significantly tightened Obama-era rules for student borrowers who say their schools defrauded them, imposing a deadline on claims and eliminating a requirement that the department automatically wipe away the loans of some students whose schools closed while they were enrolled.

The new rules apply to federal student loans made from July 2020 onward. They will replace a set of policies, completed by the Obama administration in 2016, that Ms. DeVos had delayed carrying out until a court ordered her to do so last year.

Under the new rules, borrowers seeking loan forgiveness will have much higher hurdles to clear. They will need to prove that their college made a deceptive statement “with knowledge of its false, misleading or deceptive nature or with reckless disregard for the truth,” and that they relied on the claim in deciding to enroll or stay at the school. They will also need to show that the deception harmed them financially.

There is currently no time limit on submitting claims, but Ms. DeVos set a three-year deadline from the date that students graduate or leave their school.

“We believe that within three years, the borrower will know whether or not there has been misrepresentation,” Diane Auer Jones, the Education Department’s principal deputy under secretary, said Friday on a call with reporters.

The new rules also eliminate the “automatic closed school discharge,” a program that wipes away the loans of students whose school closed before they could complete their degree. Students who do not transfer their credits elsewhere can apply to have their loans erased, but many do not know about the option and never apply.

The 2016 rules required the department to automatically eliminate their debts if the students did not enroll elsewhere within three years. That approach has contributed to the discharge of $222 million in loans owed by nearly 20,000 borrowers, according to Education Department data gathered by the National Student Legal Defense Network, an advocacy group.

The new rules from Ms. DeVos will cut debt forgiveness for borrowers by around $500 million a year compared with the 2016 rules if they were in full effect, the Education Department said in its draft of the changes.

The tightening of debt relief is the latest in a series of moves by the Trump administration to roll back Obama-era regulations aimed at for-profit colleges and universities. In June, Ms. DeVos officially repealed a rule that sought to crack down on for-profit colleges and universities that produced graduates with no meaningful job prospects and mountains of student debt they could not hope to repay. In 2018, the Education Department unwound a special unit detailed to investigate fraud in the for-profit sector.

Senator Richard J. Durbin, Democrat of Illinois, called the latest changes “another Trump-DeVos giveaway to their for-profit college cronies at the expense of defrauded student borrowers.”

Consumer advocates said they planned to challenge the new rules in court. Rolling back the 2016 rules will “encourage schools to break the law, engage in risky practices that lead to abrupt closures and harm students with impunity,” said Abby Shafroth, a lawyer with the National Consumer Law Center.

ImageCreditChristine Armario/Associated Press

For two years, Ms. DeVos has “refused to follow existing law and cancel the loans for these students, leaving them in debt they can’t get away from,” said Eileen Connor, legal director of the Project on Predatory Student Lending. “Now, she’s shredding a set of fair, common-sense rules that level the playing field between students and those who take advantage of them.”

The federal government is the primary financier for Americans borrowing to attend college — it has made or backed more than $1.4 trillion in student loans to nearly 43 million people. Borrowers must repay their loans even if they drop out, are unhappy with their education or cannot find a job in the field they trained for.

But the government contracts include one escape clause: Borrowers can seek to have their loans eliminated if they can demonstrate that their school defrauded them or broke certain laws.

The clause, known as “borrower defense to repayment,” was little used for decades, until a wave of large, for-profit chain failures began in 2014, when Corinthian Colleges collapsed. Caught off guard by a deluge of claims, the Obama administration struggled to create a process for managing and adjudicating them. It eventually approved or set in motion approvals on nearly 48,000 claims, many of them in the last few weeks of President Barack Obama’s term, eliminating $600 million in borrower debt.

But when Ms. DeVos took over, the process stalled. The department had nearly 180,000 pending claims as of March 30, and had not approved or denied any in more than a year. Those cases must still be evaluated under the rules in place when the loans were made.

Many of the claims relate to false promises by for-profit schools about their graduates’ career prospects. In a coordinated crackdown, state attorneys general and Obama-era federal regulators brought a series of lawsuits against schools that saddled students with high debts for subpar educations. Several large chains, including Corinthian and ITT Educational Services, went under.

The Obama administration granted full loan discharges to the borrower defense claims that it approved, but Ms. DeVos tried a new tactic, discharging only a portion of the debt owed by some Corinthian students. A federal judge in California blocked that approach last year, ruling that the department had violated privacy laws by improperly obtaining information from the Social Security Administration on individual applicants’ earnings. The department appealed the decision and is waiting for a court ruling before it addresses those borrowers’ claims, Ms. Jones said.

“We are diligently working to see if there is a different methodology we could employ so we can resolve those claims,” she said.

Some people, like Jessica Jacobson, have been waiting for more than four years for a decision on their claim. In June, she and six others asked the federal court in the Northern District of California to compel the Education Department to make decisions on their cases.

Ms. Jacobson earned a bachelor’s degree from the New England Institute of Art, which she hoped would lead to a career in visual effects. She picked the school, she said, because it marketed its industry connections and state-of-the-art technology. But the equipment was scarce and obsolete, she said, and the school’s career support was limited to pointing students toward public job postings and giving them handouts like one titled “Tips for Applying to a Job From Craigslist.”

After her graduation, Ms. Jacobson worked a succession of low-wage retail and restaurant jobs. The New England Institute of Art closed in 2017. The Massachusetts attorney general sued its former operators last year, accusing the school of predatory recruiting tactics and of deceiving students by misrepresenting its job placement rates.

Ms. Jacobson sent her borrower defense claim to the Education Department in March 2015, seeking to have $25,000 in federal loans forgiven. While the claim has been pending, she has held off on several major life decisions, including a marriage proposal from her boyfriend. If the claim is denied, she said, she does not want him to be ensnared in her debt.

“I’m in limbo,” she said. “I don’t know what the government is going to decide to do, and this debt is just hanging over my head. I feel trapped by it.”


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