Common Sense and the Borrowers Defense Rule
|Topics:||Administrative Law & Regulation • Education Policy|
|Sponsors:||Administrative Law & Regulation Practice Group|
In 1994, Congress passed an amendment to the Higher Education Act that delegated responsibility to the Secretary of Education to promulgate regulations allowing students to assert a defense to repayment of their higher education loans. Specifically, the Secretary of Education has the authority to establish rules that give students a defense against repayment of their college loans based on an act or omission of the college.
Before July 1, 2016, around $73 million in loans had borrowers’ defense claims approved. In the following 7 months, $376 million in claims were approved. The Obama administration attempted to codify their lax approval of claims in a new rule that would forgive entire loan obligations. That new rule was delayed indefinitely in June 2017, as Secretary Betsy DeVos put a pause on claims in the midst of a lawsuit concerning the new rule.
Attorneys General from 18 democratic states then sued the Department of Education and Secretary DeVos to enforce the Obama-era regulation.
Driven by purported misconduct on the part of Corinthian Colleges—such as allegedly inflating job placement rates, misrepresenting career services, and making false claims about credit transfers—the Obama-era rule was estimated to cost $15 billion over the next ten years because it intended to completely forgive student loan repayment obligations. By contrast, Secretary DeVos has proposed only allowing claims based on the actual damages a student has suffered. In other words, if an alumna is making what she would have made had she attended a college that didn’t make fraudulent representations, then the student will be on the hook for most or all of her loans. Effectively, the new policy prevents windfalls to students that haven’t been significantly harmed.
While that return to the status quo jibes with common sense and standard calculations of damages, progressive politicians and liberal advocacy have nonetheless used it to attack Secretary DeVos. Secretary DeVos should ignore the bluster and continue to keep taxpayers from getting the short end of the Obama administration’s midnight rule.