Do new regulations to protect student borrowers go far enough?

By Nisa Islam Muhammad -Staff Writer- | Last updated: Nov 9, 2016 - 1:51:48 PM

WASHINGTON—Some for- profit institutions of high learning have robbed many students, mostly students of color, of millions of dollars with false promises of job placement but instead leaving them with sky-high debt and little relief of having their student loans discharged, critics argue.

Those days may soon be in the past with the final regulations from the Department of Education designed to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct.

The final regulations amend the Borrower Defense to Repayment provision of the Higher Education Act (HEA) to ensure that students and taxpayers do not have to bear the financial burdens that arise when predatory higher learning institutions make misrepresentations and fail to provide students with an adequate education.

“Since taking office, the Obama Administration has worked tirelessly to protect students and taxpayers and crack down on dodgy schools,” said U.S. Secretary of Education John B. King, Jr., October 26, when the new regulations were released.

“Today’s regulations build on that progress by ensuring that students who are lied to and mistreated by their school get the relief they are owed, and that schools that harm students are held responsible for their behavior.”

Student loan debt is upwards of $1.3 trillion and is a crippling force behind wage garnishment, loss of jobs and income tax refund seizure.

Student loan debt is upwards of $1.3 trillion and is a crippling force behind wage garnishment, loss of jobs and income tax refund seizure. The Debt Collective, a new membership group that offers debtors a shared platform for organization, advocacy, and direct action rallied thousands of students to join the “Defense to Repayment” campaign which pushed the Department of Education to make sweeping changes.

The new regulations are designed to protect students like Debt Collective member Natasha Hornes of Columbia, Mo. “I attended Everest in California where I earned a Paralegal degree. I earned consistently high grades and was on the Dean’s list. But Everest won’t release my diploma because I owe them a few hundred dollars in fees. That is in addition to the thousands in student loans that I won’t pay. I was never able to find a job after college. I can’t even afford the monthly interest payments on my debt,” she said.

“And even if I could afford to pay, I refuse to do so because I was coerced into taking out these loans. Some Everest students were pulled out of class and told they could not return unless they signed loan paperwork. Other times, loan officers came into class and made us stop what we were doing to sign financial aid forms. We were told that we had no choice. If we didn’t sign, we couldn’t stay in school,” added Ms. Hornes.

But do the regulations go far enough in preventing fraud and relieving the debt of duped students?

“While the Center for Responsible Lending applauds the Department for making significant improvements to the regulations, we still have concerns that the rule falls short in several ways,” explained Center for Responsible Lending Counsel Ashley Harrington in a statement.

“While the regulations do provide more guidance on how the Department will determine the amount of relief for each borrower and places the burden on the school for proving that any value was obtained from the education, the final regulations do not include a presumption of full relief for borrowers at the outset of a claim,” she added.

Because of these concerns, it is unclear how effective the new rule will be in ensuring that borrowers get relief and that “bad actors” are further rooted out, explained Ms. Harrington. “Many provisions afford the Secretary significant discretion and provide no clarity as to how these decisions will be made. We look forward to the issuance of procedural guidelines that we hope will provide further guidance on how this rule will be implemented.”

The regulations are a response to the Department of Education’s unprecedented influx of borrower defense claims following the closure of Corinthian Colleges. The then-current regulation, promulgated in 1995, provided little detail on how borrowers could submit, and how the Department would adjudicate claims.

After the Corinthian Colleges closure, the department established a system for reviewing and evaluating incoming defense to repayment claims from student borrowers. The report released with the new regulations announced the approval of more than 11,000 new claims based on the Department’s findings concerning Corinthian’s misleading job placement rates. To date, more than 15,000 claims have been approved, with a combined outstanding loan balance of $247 million.

The final regulations include key provisions from the proposed regulations that will protect the rights of borrowers and hold institutions accountable by:

• Giving borrowers access to consistent, clear, fair, and transparent processes to file claims

• Empowering the Secretary to provide debt relief to borrowers without requiring individual applications in instances of widespread misrepresentations

• Protecting taxpayers by ensuring that financially troubled institutions provide the government with protection against the risks they create and that institutions whose actions lead to discharges of Federal student loans are held responsible.

The Final Call