The Department of Education has big plans to make it easier for borrowers who attended predatory colleges to apply for relief on their student debt, and to hold the institutions accountable for their wrongdoing — and possibly make them repay the costs, too.
Set recently proposed regulations published July 6, will create a new, separate process for reviewing borrower protection claims, a process for adjudicating wrongdoing by the college in seeking debt relief, and for determining whether the department will reimburse the college for debt relief costs, which were once both considered simultaneously.
According to the department, the change would reduce the time it takes to approve borrower protection claims and would allow the department to “recover the cost to taxpayers” of repaying the loan.
“CEOs and CEOs of these large for-profit education companies are walking away with tens of millions of dollars in their pockets for running what ends up being a fraud school,” said Cody Hunanyan, executive director of the Center on the Student Debt Crisis. “Individuals themselves walk away from these companies incredibly rich, and they bear almost no responsibility for the damage caused under their watch.”
Although the department has always had the ability to reimburse colleges for borrower defense cases, it has never done so successfully. That’s partly because when predatory colleges close their doors and file for bankruptcy, the Department of Education is responsible for forgiving borrowers with approved borrower protection claims. Also, there was never a formal compensation process in the rules.
The proposed rules create that formal process, and many expect the department to have more opportunities to seek reimbursement for borrower defense lawsuits because many more borrower defense lawsuits are being filed against colleges that are still open.
“This language would also help inform institutions that they may be on the hook for funds, and being able to actually pay them back while they’re still open is a big and really important shift on the accountability front,” Michelle Dimino said. , senior advisor for education at the Third Way think tank.
For example, when the Department of Education approved automatic payment of $5.8 billion in student debt to 560,000 former students of Corinthian Colleges, a predatory for-profit college chain that closed in 2015, the department said could not repay the financing without signatures of managers on official documents.
Nicholas Kent, chief counsel for professional education at colleges and universities, which represents for-profit institutions, said he is concerned that the new proposal does not offer colleges the same level of due process as borrowers.
“The department’s proposed foreclosure process is devoid of logic and lacks basic principles of due process,” Kent said. A major issue from the perspective of for-profit colleges was the department’s proposal to separate the review of borrower claims from the review of potential funding reimbursements. “Proposes to separate the borrower protection application review and approval process from the hiring process to forgive student loans en masse with virtually no evidence, while upholding the department’s duty to be a good steward of taxpayer dollars.”
As part of the separation process, borrowers have several opportunities to reevaluate their claims and select evidentiary standards.
While Kent said there are sufficient standards for consideration in the repayment process, standards for colleges in the borrower protection claims process are lacking, and borrowers are afforded far more protections.
The proposed rules give colleges more time to respond to borrower protection claims by extending the current 60-day deadline to 90 days after the college is notified of the claim. Students can then respond to that claim, and if they are unhappy with the outcome of the claim, they can appeal the decision, an option colleges do not have.
Dimino, on the other hand, said the new proposed rules offer a more familiar review process that mirrors other federal reviews, such as program accountability reviews, to protect borrowers.
“This is the first time that the process that they are teaching is the same as the procedures that are already in place at other institutions,” Dimino said.
Recently, the department announced that he is forgiving $6 billion to 200,000 borrowers who participated in a class-action lawsuit against the Department of Claims Protection from nearly 150 colleges. Many of the colleges involved in the agreement, which was reached in late June, are still open. While the department has not said whether it will try to recover the funds, Kent said some of the participating schools listed in the case, which he would not name, are concerned that they were not even notified. the fact that there were pending lawsuits for the protection of their borrowers.
“At this point, we are exploring all options for legal intervention,” Kent said.
The department will have a six-year period to seek refunds on student loans that were repaid under borrower defense claims against the school, applying to all loans issued after July 1, 2023, under the new rules. Therefore, the borrower protection claims in the recent settlement will not apply to the newly proposed standards if they are finalized by the Nov. 1 deadline.