Betsy DeVos' Department of Education to curb college loan forgiveness, cutting estimated $13 billion in relief for defrauded students

The rewrite to Obama-era rules would impose stricter standards for debt relief.

July 26, 2018, 7:05 PM

New rules proposed by Secretary of Education Betsy DeVos would impose stricter standards for students defrauded by for-profit colleges to qualify for relief on federal loans.

The planned rewrite of “borrower defense to repayment” rules, proposed on Wednesday by DeVos, would cut an estimated $13 billion in department spending -- primarily awarded directly to defrauded students as debt relief -- compared with Obama-era aid.

Raising the bar on federal loan relief claims, the proposal would require borrowers to prove that for-profit institutions either knowingly misled them or acted with “reckless disregard for the truth.”

The change would substantially limit Obama-era regulations, passed after the collapse of predatory for-profit colleges ITT Technical Institute and Corinthian Colleges, which granted borrowers aid for various breach of contract claims.

Borrowers would also be required to transfer existing credits and find an alternative institution to attend if their college closed. Previous rules had allocated funds for borrowers in the event that a student's for-profit school shuttered unexpectedly.

The proposal, which is slated to open for public comment through the Federal Register, would apply to repayment for loans first disbursed on or after July 1, 2019.

DeVos has come under fire in the past for staffing her department with multiple former for-profit college sector executives.

Among them: DeVos's senior advisor Robert Eitel, who prior to serving in the Trump administration spent years as an executive at for-profit college firms Bridgepoint Education and Career Education Corp.

Eitel was brought on by the Education Department as DeVos worked to develop the stricter standards on borrower defense to repayment for defrauded students.

“Postsecondary students are adults who can be reasonably expected to make informed decisions if they have access to relevant and reliable data about program outcomes,” a Department of Education statement on the new rules reads.

The proposal noted that the new regulations would “encourage students -- including those who pay cash or use other forms of credit to pay for college -- to seek remedies directly from institutions that have committed acts or omissions that constitute misrepresentation.”

Unchecked fraudulent and predatory behavior in the for-profit education industry has been extensively documented and appears to be on the rise. The Project on Predatory Student Lending, a clinic at Harvard Law School's Legal Services Center, was founded in 2012 "to combat the massive fraud that is being perpetrated against students and taxpayers by for-profit colleges, and government policies that enable the predatory industry to continue to cheat borrowers and taxpayers," according to its website.

Reports by the clinic have stressed that fraudulent practices in the for-profit education sector harm African American students at substantially higher rates than other populations. The sector "is as predatory as any payday or subprime lender, and is disproportionately responsible for racial disparities in education debt," a report on for-profit colleges and racial justice notes.