Finding National Standards Lacking, States Step in to Protect Student Borrowers

By Owen Daugherty, NASFAA Staff Reporter

As the Department of Education (ED), under Secretary Betsy DeVos, has chipped away at Obama-era policies and regulations intended to protect borrowers defrauded by institutions they attended, it has faced frequent lawsuits, many coming from state attorneys general (AGs) seeking to protect their residents.

From those that have taken issue with ED’s attempts to limit funds from the federal coronavirus relief package to only Title IV-eligible students to those that have objected to ED’s slowdown of loan forgiveness processing for borrowers subjected to fraud by their colleges, DeVos and the department have spent the better part of four years fending off lawsuits.

In fact, DeVos holds the dubious distinction of being the most-sued secretary in the history of the department, facing more than 455 lawsuits in her four years at the helm.

Robyn Smith, who currently works as of counsel with the National Consumer Law Center focusing on student loan cases and for-profit school issues, said the lawsuits ED has faced over the last several years are largely due to the department’s open hostility to regulations and the Obama-era programs it has sought to do away with.

She added that when a state files a lawsuit in an attempt to protect its citizens, in this case student loan borrowers who attended a school in the state, it’s sending a message to ED that enough is not taking place to protect borrowers at the federal level.

“When the federal government's not acting, it’s states that often try to address the issues first,” she said.

Smith said the blame does not fall solely on ED, noting that accreditors of for-profit colleges should shoulder some of the responsibility as well when a school closes and students are saddled with debt and no degree to show for it.

To that end, Keith Ellison, the Democratic attorney general for the state of Minnesota, said during recent a webinar his advice to other AGs is to remain vigilant and have their own system for policing misconduct. Ellison cited his office’s work fighting to obtain tuition refunds for largely low-income students who were defrauded by Minnesota School of Business and Globe University’s criminal justice program, which was deceptively advertised as a program preparing students for jobs as police and probation officers.

“They advertised that you could be a police officer or a probation officer, but they didn't have the accreditation to do so,” he said. “In other words, they lied and deceived students. And whenever you cut the ability to enforce the law, you’re going to get more of this kind of stuff.”

Ellison and other state AGs have argued that their work protecting borrowers is essentially consumer protection and has been vitally important, particularly over the past four years, as federal agencies such as the Consumer Financial Protection Bureau have experienced a significant decline in activity under the Trump administration.

Examples abound beyond Minnesota of what states have done in recent years to protect their residents. In California, Democratic Attorney General Xavier Becerra has sued ED several times, most recently joining more than 20 other state AGs in a lawsuit challenging the department’s actions to repeal and replace the Obama-era borrower defense regulations.

“The federal government has been AWOL in providing protections,” Becerra said during a panel discussion last month hosted by the Student Borrower Protection Center (SBPC). “Whether it's the Department of Education — which you would think would have the best interest of students in mind, but doesn’t — or the Consumer Financial Protection Bureau, which has the legal authority to protect student consumers, abandoning that role.”

And it’s not just lawsuits against ED that states are filing. New Jersey’s Attorney General Gurbir Grewal announced recently that his office is suing Navient, one of the country’s largest student loan servicers, for what it alleges are “misleading, deceptive, and unconscionable practices that have added to the heavy burden that student loan debt imposes on New Jersey residents.”

The lawsuit alleges Navient failed to provide borrowers with services in a fair and honest manner by steering borrowers into forbearance instead of income-driven repayment plans better suited to their financial circumstances and failing to inform borrowers of deadlines to recertify their eligibility for certain income-driven repayment plans, among other alleged practices.

Both Smith and David Bergeron, a senior fellow for postsecondary education at the Center for American Progress (CAP) who previously worked in the department, said part of the problem is the lack of national standards that all states must follow regarding hot button issues such as defrauded borrowers at for-profit institutions or accountability measures for student loan servicers.

“It's hard to run a national program when each state has their own requirements and limitations,” Bergeron said. “And so there is a tension there, an unnecessary tension.”

He said prior to DeVos taking over at ED, the department attempted to work collaboratively with states so that it didn’t get to the point where an attorney general in the state has to step in to prevent an abusive practice. In recent years, that effort has not been the same, Bergeron added. 

Rick Hess, a resident scholar and the director of education policy studies at the American Enterprise Institute (AEI), pushed back on the notion that the lawsuits are entirely motivated by an attempt to protect borrowers.

“A lot of democratic attorneys general disagree on policy and are looking to score political points,” Hess said.

In his estimation, ED’s guidance during the Obama-era as it relates to borrower defense was too broad and allowed for too many students to take advantage of the program. Hess asserted that under DeVos, ED has appropriately curtailed the program and put the responsibility back on the borrowers themselves.

“Given that government by lawsuit is becoming an increasing trend, one of the things we can be confident about is that 18 to 24 months from now it's likely that some actions [under President-Elect Joe Biden’s] ED will have been challenged in court by a number of Republican AGs,” Hess said.

Biden campaigned on bringing back the borrower defense rule and some believe he will push for even stricter borrower protections and accountability measures. The hope is that the next ED secretary will create new standards for processing the 80,000 pending applications and could even revisit previous denials under DeVos, Bergeron said.

“Hopefully in a Biden administration there will be movement towards trying to come to a place where the department can run a national program with national requirements,” he said. “And state attorneys general will have a greater level of comfort with the way in which the department is behaving, and what the rules are that govern their behavior.”

 

Publication Date: 11/19/2020


Robert W | 11/22/2020 5:3:32 PM

I did see two examples givine for the State of Minessota.

Bob Walker

Robert W | 11/22/2020 4:59:43 PM

I may have missed this but I did not see a single school or incident named in this article. I assume the attorney generals named in the article are aggresively prosecuting any wrong doing institutions in their respective home states, seeking restitution for students from them.


Bob Walker

Jean M | 11/20/2020 11:4:22 AM

I completely agree!!
"Considering that we're in a hyper-partisan atmosphere these days, it would be appreciated if NASFAA would try to hold a more neutral point of view."

Joel T | 11/19/2020 5:54:02 PM

Considering that we're in a hyper-partisan atmosphere these days, it would be appreciated if NASFAA would try to hold a more neutral point of view.

There are a lot of institutions across the country with varying political leanings in leadership that support this organization with our membership dollars. It can be hard to defend thousands in membership fees if some of our administrators start scrutinizing what's really being really said and done with these funds and find that it is becoming a lobbying group for one side of the political aisle.

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