New Borrower Defense Draft 'A Vast Improvement,' But Negotiators Want More

By Allie Bidwell, Communications Staff

Higher education stakeholders kicked off the final negotiated rulemaking session to develop a debt relief system for borrowers who feel they were misled or defrauded by their institutions -- an issue that has attracted the attention of members of Congress, some of whom addressed the committee on Wednesday.

During the final three-day rulemaking session, negotiators representing students and advocacy groups, the financial aid community, the legal community, state agencies, state attorneys general, and the Department of Education (ED) must come to a consensus on what would be included in the Notice of Proposed Rulemaking (NPRM). If the group is unable to come to an agreement, ED can proceed to write proposed rules as it sees fit.

Ahead of Wednesday's session, ED officials circulated a revised proposal that incorporated more of some negotiators' concerns, including options to protect borrowers from mandatory arbitration clauses, and options for both individual and group paths to debt relief through borrower defense.

While the processes for individual and group borrower defense claims apply only to Direct Loans, ED officials said early on during the session that they would be making an announcement on Thursday relating to how it would treat loans made through the Federal Family Education Loan (FFEL) Program.

Another significant change removed the statute of limitations for asserting a borrower defense claim in some circumstances, and expanded it in others, from two years to four years.

For borrower defense claims on loan amounts that the borrower has not repaid, there would be no statute of limitations, and for claims seeking to recover loan repayments that have been made, there would be a four-year statute of limitations. Several student advocates took issue with the fact that there remained any statute of limitations, and noted that ED has no limit on the amount of time it can seek to collect debt from a borrower.

However, negotiators overall said they were pleased with the progress made and the significant changes that appeared in the most recent draft, including a path for group borrower defense claims.

Sen. Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA) addressed the negotiating committee in the afternoon, and said that while the most recent proposal for a borrower defense regulation is a significant step forward, there is still more work to be done to give justice to students who have been defrauded, and to help protect others in the future.

"Corinthian wasn't the first predatory college that got caught swindling students, and frankly it won't be the last," Warren said. "But you have the opportunity this week to make the path to debt relief much clearer for students who have been cheated."

Waters noted that she was "deeply concerned" by the "slow pace and small number of discharges" ED has processed until this point. She noted that trouble within the for-profit college sector is not a new issue -- she said while she was serving in the California State Assembly in the late 1970s, she would see for-profit college representatives trying to lure in potential students from welfare lines and public housing in South Los Angeles, promising a better life.

"This problem has persisted for far too long, and I think the Department of Education ... has not taken the responsibility and used the influence and power that they have to do something about these ripoffs," Waters said. "This is unconscionable, we should not be here even talking about what should happen to these students who were defrauded by Corinthian. We should be looking at this entire for-profit education ... and all of us should decide that we're going to stop this."

Warren said that while the new draft is "a vast improvement" over earlier proposals, negotiators should push further in some areas, including lifting the statute of limitations entirely, saying the distinction doesn't make sense.

"A student who has been cheated, has been cheated, even if the student managed to pay some or all of the debt that was fraudulently incurred," Warren said. "The point of the law is for students who have been defrauded to get their money back. And there's no principle difference between people who owe money and people who have managed to repay some of that money."

Warren also urged negotiators to include language that would allow state agencies and groups of students to bring claims forward in a request for a group discharge. In the most recent proposal, a group borrower defense claim must be initiated by ED.

Several other negotiators took issue with that distinction throughout the day. Allowing other parties to initiate group borrower defense claims, "will really help get this process off the ground so students aren't just sitting around waiting, hoping the Secretary makes a decision," said Bernard Eskandari, California deputy attorney general.

Language within the proposal that would allow ED to only grant partial relief to borrowers in certain circumstances (in Appendix A) also struck a nerve with negotiators. ED could take into account, for example, "the student's earnings one year after leaving the program or school" compared with the average salary the school publicized for its graduates. Many negotiators saw that provision as a punishment for students who were able to find jobs despite being defrauded.

"I haven't seen any situation where less than full relief would be warranted," said Noah Zinner, of the Housing and Economic Rights Advocates.

Meanwhile, Ann Bowers, a former Corinthian Colleges student, shared the story of how school officials pressured her to stay enrolled and return to class following a horribly tragic event in her personal life, telling her there was no option to take a leave of absence.

"There are things you don't know about student's lives," she said, noting it would be impossible to put a dollar amount on the kinds of losses some students suffer.

 

Publication Date: 3/17/2016


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