Department of Education Intends to Revisit Rules that Provide Relief and Protections to Students, Taxpayers from School Fraud

FOR IMMEDIATE RELEASE: JUNE 14, 2017 Contacts: Joanna Darcus, jdarcus(at)nclc.org, 617.542.8010, or Stephen Rouzer, srouzer(at)nclc.org, 202.595.7847

Secretary DeVos intends to delay borrower defense rule that would help students avoid unfair debt and holds predatory schools accountable.

BOSTON – Today, National Consumer Law Center advocates deplored the decision by Secretary of Education Betsy DeVos to revise rules designed to protect federal student loan borrowers—including a disproportionate share of low-income students, women, people of color, and veterans—and taxpayers from predatory schools and abrupt school closures.

Together, the borrower defense and gainful employment rules provide important safeguards for students and taxpayers. “These rules were created through robust negotiation processes,” said Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project. “Starting over wastes taxpayer money and creates uncertainty for students who are wondering how to protect themselves from being ripped off by predatory schools.”

The Secretary also intends to delay implementation of the rules that would provide defrauded borrowers with relief. “It is outrageous that the Secretary intends to block a rule that protects federal student loan borrowers, veterans, and taxpayers when schools like Corinthian Colleges or ITT Technical Institutes engage in fraud or abruptly close,” said NCLC attorney Joanna Darcus of the borrower defense rule.

Under the Higher Education Act (“HEA”), borrowers already had a right to cancel their loans due to a defense to repayment. The borrower defense rule created a much-needed—and long-overdue—process for borrowers harmed by illegal conduct at predatory schools to get the loan relief they are entitled to under the HEA. It also provides for automatic discharges of federal student loans in certain cases when a school closes abruptly. The rule shores up the protections for students whose schools fraudulently enroll them or obtain unauthorized loans in their names.

It also bars schools that rely on federal student loan dollars from using forced arbitration clauses to block court claims arising out of fraud. “Delaying the borrower defense rule would allow schools to continue to use forced arbitration rip-off clauses to avoid accountability for fraud, deny victims their day in court, and leave taxpayers on the hook,” said Darcus.

Similarly, the gainful employment rule, which went into effect on July 1, 2015, ensures that students in career education programs, such as those offered by for-profit schools, are not burdened by excessive debt that they cannot afford to repay on the incomes they earn after graduation. This rule protects students and taxpayers from overpriced, poor-quality education programs.

“These rules prevent predatory schools from lining their pockets by funneling taxpayer dollars through defrauded students,” said Yu. “Defrauded students have been in limbo for far too long. We urge the Secretary to change course and stand up for students, veterans, and taxpayers and against fraud by quickly processing the applications of the borrowers who are still awaiting relief, and ensuring full, timely implementation of the borrower defense and gainful employment rules.”


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