The Obama administration revised the regulation last year to simplify the claims process and shift more of the cost of discharging loans onto schools. Those changes were slated to take effect in July, but DeVos suspended them for a year and said she would convene a new rulemaking committee to rewrite the regulation entirely. To give that committee more time, the secretary now wants to further postpone the revisions.
“This is another illegal delay by Secretary DeVos to allow predatory for-profit colleges to cheat students and taxpayers,” said Massachusetts Attorney General Maura Healey (D), who is leading 19 state attorneys general in suing DeVos over the delays to the new borrower defense rule. “Our office will fight these unlawful attempts by the Department of Education to abuse vulnerable students and families who are drowning in unaffordable debt.”
The Trump administration argues that the additional delay is necessary to comply with a statute that says any regulatory change that has been finalized on or before Nov. 1 must take effect the following July, the start of the new financial aid award year.
“Given that the first negotiated rulemaking session is scheduled for November 13-15, 2017, we cannot complete the negotiated rulemaking process and the development of revised regulations by November 1, 2018,” the department wrote in Tuesday’s notice. “The regulations resulting from negotiated rulemaking could not be effective before July 1, 2019.”
Department officials estimate that delaying the borrower defense revisions by a year will save taxpayers nearly $38 million, and pushing the rule back yet another year will save $46 million more. The Trump administration says it will continue to process borrower defense claims under the existing regulation, but critics say that pledge is meaningless as not a single claim has been approved since DeVos took office.
There are over 87,000 applications for debt relief pending at the department, according to people within the agency who were not authorized to speak publicly. At least 10,000 of those claims have been recommended for approval, but people familiar with the matter say department officials are refusing to pull the trigger.
They say leadership in the Office of Federal Student Aid and the Office of the General Counsel would prefer to grant partial relief based on the debt-to-earnings data collected from vocational programs. For example, if a former nursing student from Corinthian Colleges applied for relief, her claim could be judged based on the average salary of students in similar programs at other schools. But those familiar with the issue say there is no consensus on a path forward at the department.
The Education Department did not immediately respond to requests for comment.
Borrower defense has become a last resort for many former students of defunct for-profit schools ITT Tech and Corinthian Colleges. Both schools spent their last few years clouded by allegations of fraud, deceptive marketing and steering students into predatory loans. Their students had hoped the evidence in the state and federal cases against the schools would create a clear path for loan discharge, but for the most part it has not.
Revisions to the borrower defense rule were supposed to simplify and speed up the claims process, but DeVos said the Obama administration created “a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.” Consumer attorneys argue that the changes achieved the exact opposite. The new rule, for instance, expands the conditions under which colleges have to get a letter of credit from a bank assuring the availability of at least 10 percent of the total amount of federal financial aid funds it receives, a stipulation meant to limit financial risk to taxpayers.
“Instead of giving predatory corporations the green light to continue to take advantage of students, Secretary DeVos needs to stop these outrageous delays and start providing relief to the tens of thousands of students who have been cheated out of their education and savings,” said Sen. Patty Murray (D-Wash.), ranking Democrat on the Senate Health, Education, Labor and Pensions Committee.