August 07, 2018

Secretary DeVos Moves Against Student Debt Relief for Defrauded Students

During his time in the White House, President Obama’s work on behalf of borrowers earned him plenty of praise. But with a recent proposal from Department of Education Secretary Betsy DeVos, at least one of these efforts could be dialed back – and if approved, would negatively impact borrowers who need the most help. At […]

During his time in the White House, President Obama’s work on behalf of borrowers earned him plenty of praise. But with a recent proposal from Department of Education Secretary Betsy DeVos, at least one of these efforts could be dialed back – and if approved, would negatively impact borrowers who need the most help.

At the end of July, Secretary DeVos made a bid to roll back an Obama-era program that protects borrowers at for-profit institutions. And it instantly sent advocacy groups into action.

What’s in the DeVos Proposal?

Under Secretary DeVos’s new proposal, which draws on much of the same language as its Obama-era predecessor, students would be required to provide more proof of their defrauded status. Essentially, it means showing that a school has knowingly misled a student to enroll and take out loans to attend the school.

Compared to Obama’s Borrower Defense to Repayment rules, where students only had to prove a breach of contract to obtain loan forgiveness, DeVos’s plan would require an extensive, time-consuming process. And it’s why Secretary DeVos is now encouraging would-be students to do their homework before choosing where to attend.

Using the official press release from the Department of Education, we’ve paraphrased the new provisions under DeVos’s proposal, which would include:

  • A clear, consistent, and fair borrower defense to repayment process for borrowers harmed by institutional misconduct
  • New Federal standards for judging claims that allow for a faster review process
  • The gathering and review of evidence on decided claims for the purpose of recovering money from institutions who lost claims to borrowers
  • Urging students to directly seek solutions from schools committing acts of misrepresentation
  • Extending the time period students leaving a school are eligible for a closed school loan discharge from 120 days to 180 days, while incentivizing schools to host teach-outs that help students complete their program
  • Ensuring schools require students to use mandatory arbitration or bar them from participating in class-action lawsuits by making schools offer simple explanations of these provisions so they can make informed enrollment decisions
  • Preventing guaranty agencies (aka student loan servicers) from charging borrowers a fee if a defaulted loan goes into repayment within 60 days
  • Requiring at-risk schools to post a letter of credit when anything occurs that could put the school – or a student’s ability to attend and earn a degree – in jeopardy

While the proposal’s not slated to go into effect until a year from now, students and advocates are already saying it’s just another sign of the Trump administration’s disregard for borrowers.

However, Secretary Devos stated in the same mentioned press release, “Our commitment and our focus has been and remains on protecting students from fraud.”

The Borrower Defense to Repayment Program

Drafted in 2016 when Obama was still in office, the Borrower Defense to Repayment (BDR) rule served as a way for defrauded students to get debt relief on loans they otherwise wouldn’t have taken.

Coming on the heels of the ITT Technical Institute and Corinthian Colleges closures, it sought to help defrauded borrowers earn loan forgiveness by streamlining the application process.

Previously, loan forgiveness had already been available since 1995 for students whose schools closed before or during attendance. However, BDR made getting approval – and not being on the hook for the loans – much easier.

DeVos’s History with Defrauded Students

Last June, just before the BDR program would go into effect, Secretary DeVos began assembling a rulemaking committee to set new regulations. As expected, this put the BDR program on pause while the committee explored other alternatives.

Speaking about the motivations behind her actions, Secretary DeVos said, “It’s time to take a step back and make sure these rules achieve their purpose: helping harmed students. It’s time for a regulatory reset. It is the Department’s aim, and this Administration’s commitment, to protect students from predatory practices while also providing clear, fair and balanced rules for colleges and universities to follow.”

Under the Obama administration, nearly 28,000 loans were forgiven in the six months before he left office. And according to Secretary DeVos, roughly 16,000 more were in the middle of being processed when the committee was announced.

However, as of December 2017, not one BDR claim had been approved by the Department of Education, according to the OIG’s “Federal Student Aid’s Borrower Defense to Repayment Loan Discharge Process” manual.

Have you been defrauded by your institution? Are you looking for options to have your loans discharged? Reach out to our experts by calling (800) 771-6358 or by filling out our free online form.