Defining Colleges' Liability for Fraud Claims

"The U.S. Department of Education will ask the appointed panel charged with overhauling an Obama-era rule to protect student borrowers to reconsider the extent to which colleges and universities should be liable for loan discharge claims based on fraud or misrepresentation," Inside Higher Ed reports.

"That question is one of many that the panelists will be asked to grapple with in a process called negotiated rule making, according to a source with knowledge of the discussions. Education Secretary Betsy DeVos announced in June that she would block the student protection regulation, known as borrower defense, from going into effect and would launch a rule-making process to craft a new rule.

DeVos has said the Obama administration’s rule did not sufficiently address the concerns of colleges. For-profit colleges have been among the most vocal critics of the regulation, but higher education groups representing public and nonprofit institutions have also been critical.

Some observers of past rule-making processes said reconsidering the liability of institutions for covering borrower-defense claims would make for a more fair regulation. Student and consumer advocates said it confirmed what many suspected after the initial suspension of the Obama rule and numerous public comments from DeVos -- that the department intends to craft a rule that lets abusive colleges off the hook for the cost of discharging student loans.

'The Trump administration wants to help schools shed those borrower-defense liabilities,' said Clare McCann, the deputy director of higher education policy at New America.

... In the negotiation of the Obama rule, the department did not ask panelists to consider the extent to which colleges should be liable for borrower-defense claims.

The department ultimately separated debate of how the federal government seeks restitution from deciding the process a borrower would follow to submit a claim, said Karen McCarthy, director of policy at the National Association of Student Financial Aid Administrators. The department plans to ask negotiators in the upcoming rule-making process to separately consider the process for filing a claim, according to a person with knowledge of those discussions. McCarthy said that would reflect the conclusion of the previous rule-making process."

NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.


Publication Date: 11/7/2017

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