For over a year the U.S. Department of Education has worked on a plan designed to address student claims that colleges defrauded them. Last week the Obama Administration finalized a rule that will help protect students from predatory lending practices.
The new rule is called the “borrower defense to repayment” and it allows borrowers to discharge billions in student debt. This rule aims to clarify the Higher Education Act of 1965, which allows the secretary of education to forgive student loans based on “acts of omissions of an institution of higher education”.
The Department of Education has been overwhelmed with claims from for-profit graduates requesting debt relief. Last year the department set up a committee to make this process easier but after the committee could not agree, the department decided to rewrite the law entirely.
This rule allows loans to be forgiven if a department official concludes that evidence is substantial to proven that a college purposely misled students. This includes omitting information and making misleading statements, such as misrepresenting jobs opportunities after graduation. Most states require a demonstration of fraud so this rule requires a much lower burden of proof.
The education secretary can appoint a department advocate to represent the borrowers and resolve the claims. The department has also determined that students who were unable to finish school after a college was shut down can have their Pell Grant eligibility restored.
According to the department, the borrower defense to repayment rule could add anywhere from $199 million to $4.2 billion to the budget.
Both students and advocates have been waiting a long time for these rules. Although this new rule represents a win for both students and activists, some people feel that it still gives the department too much discretion.
Maggie Thompson is the executive director of Generation Progress which is part of The Center for American Progress. She felt the rules were a step in the right direction but is concerned that it still gives the department get too much discretion in choosing who get debt relief. She said the department must use their discretion to give the maximum amount of debt relief to students.
Many advocates argue there should be blanket forgiveness for students who attended Corinthian colleges, a for-profit chain of colleges that was closed for misleading and defrauding students. According to the department, only about 82,000 students have made claims so far, even though over 250,000 students may be eligible for debt relief.
Abby Shaforth is an attorney with the National Consumer Law Center and said the department must commit to providing debt relief to students and acting on behalf of students who may not know they have a right to have their loans forgiven.