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Trump administration moves to make it harder for defrauded students to erase debt

Education Secretary Betsy DeVos attends the National Teacher of the Year award ceremony at the White House on May 2. (Carlos Barria/Reuters)

Education Secretary Betsy DeVos moved Wednesday to make it harder for students who say they were defrauded by colleges to erase their debts, rolling back Obama-era regulations that for-profit colleges saw as threatening their survival.

The proposed rules published Wednesday require students to prove schools knowingly deceived them if they want their federal loans canceled. And it scuttled an Obama administration provision that allowed similar claims to be processed as a group. Instead, students will have to prove their claims individually.

The rules are DeVos’s rewrite of an Obama-era regulation published in 2016 and part of that administration’s crackdown on for-profit colleges that critics say prey on vulnerable students. In ways big and small, the new version makes it harder for students to win debt forgiveness.

“Postsecondary students are adults who can be reasonably expected to make informed decisions and who must take personal accountability for the decisions they make,” said the proposed regulation, which was posted online Wednesday.

Still, DeVos said in a statement, “our commitment and our focus has been and remains on protecting students from fraud.”

The Education Department punted for now on one key question: whether students must be in default to apply for loan forgiveness. The agency warned that allowing “affirmative claims” from students who are current on their loans could invite a flood of applications because there is little downside to asking for loan forgiveness. At the same time, the Education Department said, it does not want to create incentives for borrowers to fall into default in hopes of winning debt relief.

The department said it wants feedback on the matter. But it said that if claims are permitted from people not in default, they may be required to meet a higher burden of proof. In general, the agency is suggesting that applicants prove their case with a “preponderance of evidence,” the same standard used by the Obama version. But the department said it was considering the tougher standard of “clear and convincing” evidence in the case of claims from people not in default, if those are allowed.

The department aims to publish a final rule by Nov. 1 so that it can take effect for loans originating after July 1, 2019. The agency will allow 30 days for public comments on the proposal.

Students with existing student loans can ask for loan forgiveness under standards established in 1995. That process was rarely used before two huge for-profit chains, Corinthian Colleges and ITT Technical Institutes, collapsed following complaints of deceptive marketing and predatory recruitment.

The department said that about 139,000 applications for what is known as borrower defense have been received since 2015. As of May 1, more than 99,000 were pending, according to agency data released by Sen. Richard J. Durbin (D-Ill.). A plurality of the claims were from Corinthian students, but there were thousands from other schools, which Durbin said makes clear the problem is pervasive.

The package is a victory for conservatives worried about the hit on federal taxpayers if a large number of student borrowers are allowed to avoid paying off their student loans. It’s also a win for colleges, particularly for-profit ventures, that opposed the Obama rules as harmful to their programs and to students seeking loans to attend them.

The department estimated that the proposal would save the federal government $567.4 million a year. The additional money comes from student loan payments that would have gone uncollected under the 2016 Obama rules.

It’s a defeat for consumer advocates who favor a more aggressive posture against colleges that they say routinely take advantage of veterans and older students. They said it would be outrageous for the department to bar applications from people who are not in default, and also unacceptable to require that group to meet the higher “clear and convincing” standard of proof.

“Today’s proposal is a giveaway to predatory for-profit colleges and a stunning show of indifference toward students working to better their lives,” said Aaron Ament, president of the National Student Legal Defense Network and a former Obama administration official who helped write the 2016 regulation.

Consumer advocates also said it is unrealistic to expect borrowers to prove that their college intended to mislead them.

“How are borrowers supposed to prove intent? They don’t have any discovery rights. They don’t have the ability to get testimony from the person who lied to them about what they knew or didn’t know,” said Abby Shafroth, an attorney at the National Consumer Law Center.

[Colleges are using consultants to manipulate student loan default rates, GAO says]

A senior Education Department official said that proving a school intentionally deceived students should be straightforward if the students can show false marketing and other materials. She said the agency’s goal was to prevent holding schools responsible for a stray or unofficial comment that may be false but does not reflect the school’s intent or official position.

The rules were welcomed by the industry group representing for-profit colleges, who said it balanced protection for those involved with due process. Under the rules, the government will seek to recoup from schools money that is forgiven, but schools will have a chance to present evidence to defend themselves.

“This rule will help students who are victims of fraud find relief, and ensure colleges and universities are part of a fair and objective adjudication process,” said Steve Gunderson, president of the trade group Career Education Colleges and Universities.

Sen. Lamar Alexander (R-Tenn.), chairman of the Senate education committee, said the DeVos rewrite offered “important safeguards and clear standards” for claims. The Obama version was overly broad, he said, and “put taxpayers on the hook for too many loans.”

DeVos adopted a number of other changes to the Obama regulation that set tougher limits on students seeking redress.

For one, borrowers may have less time to apply for relief. The Education Department also will no longer group together similar claims to speed up the application process, with the rationale that everyone in the group may not have suffered the same harm.

The new rules also kill an Obama provision that barred colleges from requiring students to sign agreements that force them into arbitration in the event of a dispute.

And the agency will no longer offer automatic loan forgiveness for anyone whose school closes. Students whose colleges offer a route to complete their courses — what’s known as a “teach-out” plan — will now be ineligible for this type of loan forgiveness. Most states require schools to have teach-out plans. In some cases, that could mean no more than an online course, which could be impractical for programs requiring hands-on training.

The department is expected to soon release its rewrite of another Obama-era regulation aimed at the for-profit college sector. That rule cut off federally backed loans to schools if their graduates’ earnings are not sufficient to pay off their student debt.