Education Secretary Betsy DeVos on Friday finalized rules that make it more difficult for federal student loan borrowers to cancel their debt on the grounds that their college defrauded them, scaling back an Obama-era policy aimed at abuses by for-profit colleges.
The rules, which the Trump administration weighed for more than a year, set a more stringent standard for when the Education Department will wipe out the debt of borrowers who claim they were misled or deceived by their respective colleges.
The overhaul of the rules — called “borrower defense to repayment” — is a response to conservative criticism that the current federal standards, set by the Obama administration, are too lenient and expensive for taxpayers. The Obama-era rules were written following the collapse of for-profit college company Corinthian Colleges in 2015, when tens of thousands of former students flooded the Education Department with requests for loan forgiveness.
DeVos previously said those standards allowed students to raise their hands and receive “free money” from the government. For-profit colleges have also long criticized the rules as unfair.
In an announcement about the new rules, DeVos said on Friday that fraud in higher education “will not be tolerated” by the Trump administration. The rules, she said, include “carefully crafted reforms that hold colleges and universities accountable and treat students and taxpayers fairly.”
The tighter standards will reduce the amount of loan forgiveness provided to students by more than $500 million each year compared to the amount under the current Obama-era policies, the department estimated. The entire package of regulations — which also curtails loan discharges for students whose schools suddenly close — is projected to save taxpayers more than $11 billion over the next decade.
The final policy, which takes effect July 1, 2020, sets a more stringent standard for loan forgiveness than exists under the Obama-era policy. But it’s not as restrictive as the one DeVos initially proposed last year.
The initial Trump administration plan would have required borrowers to prove that their college intentionally misled them in order for them to have their loans forgiven. It considered forcing student loan borrowers to wait until they had defaulted on their debt before allowing them to file a fraud claim, an obstacle that would have threatened borrowers’ credit history and could have jeopardized security clearances for military servicemembers.
“We made substantive changes to our proposed rule based” on public input, DeVos said.
But those changes did not go far enough for consumer advocates and Democrats, who said Friday that the Trump administration was gutting important protections for students defrauded by their college.
“This rule is another Trump-DeVos giveaway to their for-profit college cronies at the expense of defrauded student borrowers,” said Sen. Dick Durbin (D-Ill.), the No. 2 Democrat in the Senate.
Rep. Bobby Scott (D-Va.), chairman of the House education committee, said that “the Trump administration is sending an alarming message: Schools can cheat [their] student borrowers and still reap the rewards of federal student aid.”
Harvard Law School’s Project on Predatory Student Lending — whose successful lawsuit last year forced DeVos to implement the Obama-era rules — vowed on Friday to bring a new legal challenge “in the coming days” to stop the latest regulations from taking effect.
“If Betsy DeVos won’t do her job and stand up for students, then we will fill that void,” the organization’s legal director, Eileen Connor, said in a statement. “That is why we will be filing a suit challenge these harmful new regulations that give a green light to for-profit colleges to continue scamming students.”
The new rules narrow the type of misconduct by colleges that could trigger loan forgiveness and also require that borrowers provide more extensive documentation about the financial harm they faced. Borrowers will also have to file their claims within three years of leaving school.
In addition, the final rule allows colleges to resume using mandatory arbitration agreements in their enrollment agreements with students, reversing an Obama-era ban on the practice, which was common at for-profit schools.
DeVos first proposed a rewrite of the “borrower defense” rules more than a year ago. Since then, she’s been forced to implement the Obama administration’s version of the rules after a federal court last fall struck down the Trump administration’s efforts to delay them.
The Trump administration separately is facing criticism and a proposed class-action lawsuit over the backlog of existing “borrower defense” claims, which now exceeds 170,000 applications. The Education Department hasn’t approved or denied any claims in more than a year.