Released: July 26, 2018

Consumer Action condemns the Education Department’s borrower defense rule

Contact: Alegra Howard | [email protected] | (408) 460-6797

The new proposed rule tells defrauded students “You’re on your own”

Education Secretary Betsy DeVos’s proposed borrower defense rule would make it much harder for students who were defrauded by predatory schools to receive federal student loan relief. The proposed rule dramatically rolls back the stronger student protections that were put in place in 2016 for students who were victims of predatory for-profit schools that acted illegally or closed unexpectedly before they could graduate.

“Once again, Secretary DeVos proves her allegiance is to the multi-billion-dollar for-profit college industry and not to the students she’s supposed to protect,” said Linda Sherry, Consumer Action’s director of national priorities. “Victims of for-profit school fraud come from some of our most vulnerable communities, including veterans, single parents, and those who are first in their families to attend college. That this Administration could so brazenly turn its back on these students when they have been victims of proven fraud is unconscionable.”  

Under the proposed rule, borrowers would need to first default on their student loans before they could apply for debt relief, effectively ruining their credit and financial health. Rather than proving the school breached its contract, or rely on a court judgment of fraud to discharge the predatory loans, the Department’s proposal would require that defrauded students bring an unreasonably high burden of proof to receive relief. These claims would also require release of an unprecedented amount of loan borrowers’ personal information, which is likely intended to deter claims from being filed.

Widespread for-profit school closures, like those of Corinthian Colleges, ITT Tech and, most recently, The Art Institutes, leave students with mountains of debt and without a degree. Yet, the Department of Education’s proposal eliminates group discharges and closed school relief as long as the school provides an alternative place for students to transfer to.

The proposed rule also allows for-profit programs to use forced arbitration clauses during enrollment, denying students who were defrauded their day in court.

This proposal is the Trump Administration’s latest attempt to stand with powerful corporations over consumers. The Department is sending a clear message to predatory institutions that they have nothing to worry about as they continue to scam and deceive those trying to make a better life for themselves through higher education.

 

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