July 25, 2018

New Trump-DeVos Loan Relief Rule Trashes Students’ Rights, Aids Predatory Colleges

New Trump-DeVos Loan Relief Rule Trashes Students' Rights, Aids Predatory Colleges

The Betsy DeVos Department of Education, about an hour ago, released a proposed rule to repeal and replace the 2016 Obama borrower defense regulation, which was aimed at cancelling federal student loan debts for people who are ripped off by predatory colleges. The new DeVos rule represents a complete negation of the important reforms in the Obama rule, a total surrender of policy to the for-profit and career colleges whose bad behavior triggered that rule, and a fundamental rejection of the interests of students and taxpayers.

This action by DeVos is particularly disgraceful because it comes as yet another for-profit college chain — the Art Institutes and other schools formerly run by EDMC and now by faux non-profit DCEH — is collapsing under the weight of decades of predatory recruiting and high prices, resulting in system-wide chaos and turmoil for students.

And while the DeVos Department is claiming that gutting the Obama rule will save taxpayers a lot of money, in reality the opposite is true: This DeVos gift to predatory colleges will end up costing taxpayers billions more, while ruining countless students’ lives in the process. (Republic Report obtained a draft version of the rule a few weeks ago; the version released today differs in only minor respects.)

While the Obama rule established reasonable standards and a fair process for injured students to seek loan relief, the Trump/DeVos rule inserts so many barriers to relief that it would be extremely difficult for any student to prevail.

For example, unlike in the Obama rule, loan relief under the DeVos rule is permitted only for certain defined types of false statements by a school, and not for breaches of contract or violations of state law. Then, in order to obtain loan relief based on a claim that the school made such misrepresentations, the student must somehow prove not only that the school’s statements were false, but also that the school knew the information was false or that it acted with reckless disregard for the truth. But students enrolling in college programs are unlikely to be simultaneously spending time investigating and documenting the knowledge and intent of the school recruiters and others; and nor would they be likely to find a way to document such intent after the fact.

Next, the DeVos proposed rule would require students to prove not only that they took out the loans based on the school’s misrepresentation, but also that the misrepresentation caused a financial harm beyond just the loan debt — for example that they wouldn’t have enrolled in the school if the loan hadn’t been available and that their attendance at the school, rather than job market conditions, was the cause of their lack of employment.

The Department has shelved for now its previous proposal, offered in public meetings with stakeholders, that students prove entitlement to debt relief by the demanding standard of “clear and convincing evidence” — a rare requirement imposed, for example, on the government when it seeks to take away a child from a parent. But, not prepared to give up on the idea, the Department is still asking for public comment on whether it should revert to “clear and convincing.” During the rule-making meetings, for-profit college representatives repeatedly stressed their love for forcing students to prove their cases by this absurd standard.

More barriers: Under the DeVos Department’s proposed rule, only students whose loans are in default and turned over to a collections agency may seek relief — despite concern by experts, including in the federal government, that such a requirement would encourage people to default. Permitting claims only from former students who default is also wholly unfair, because it  would deter many valid applications for relief; defaulting exposes people to a range of serious financial consequences, as the Department explains on its own website.

The Department says it might consider including in the rule a provision letting other students seek relief, but if so those students would be required to surmount still more barriers, in order to deter “frivolous” claims. Among other things, DeVos proposes that non-default claims be barred once a student is three years out of school, even though it can take far longer for students to realize how badly they have been deceived and ripped off.

In another one-sided provision, the Department would let the accused school see all the student borrower’s evidence, but would conceal the school’s response from the student.

It gets even worse: The Trump/DeVos rule would cancel the Obama rule’s provisions for a “group discharge” of loans where a school engaged in a pattern of bad behavior, and for an automatic “closed school discharge” where a school shuts down; instead every student must pursue their own claim.

All of these obstacles would have the effect of deterring or defeating meritorious student claims for loan relief.

In the rule-making meetings, the Department presented draft proposals that were similarly stacked against students. Many of the negotiators on the panel representing students, veterans, and consumers strongly objected. But they weren’t the only ones. Negotiator Michale McComis, the head of a major for-profit college accreditor, ACCSC, said that combining all the barriers to loan cancellation “feels a little stacked against the student.” McComis later described the collective constraints as “belts and suspenders on pants that are too tight.” He added, “I find it just not reasonable that a student would be able to achieve anything… If that’s the intent, I’m not sure why we’re here.”

Looking at the new rule, it’s clear there was only one reason that McComis and the others were invited by the DeVos Department to endure eleven full days of rulemaking meetings (in parallel with similar meetings on the Obama gainful employment rule): to go through the legally-mandated motions before DeVos could completely trash the Obama regulations.

Even if individual students could clear all the hurdles for proving entitlement for loan relief, that only would allow them to enter the next DeVos circle of hell: the circle where her minions would apply a rigged, illogical set of rules aimed at offering only partial relief to many students — as the DeVos Department has already been doing with former students of the disgraced, predatory, collapsed Corinthian Colleges.

The DeVos Department’s 436-page notice explaining the new rule claims that the 2016 Obama rule would be too expensive — an estimated $14.9 billion net budget loss for 2017-26 student loan recipients. But that position is as phony as it is hard-hearted.

When the Department of Education allows a college to become and remain eligible for federal student grants and loans, it essentially puts its stamp of approval on the school, and recruiters for many colleges have played up those endorsements. Thus, when it turns out that one of those schools has deceived students about tuition costs, graduation rates, or job placement, or otherwise abused them, it’s not just the school that has let the students down, it’s also the Department.

But because, among other reasons, so many for-profit schools force enrolling students to agree never to sue the school, and because the Department never developed until 2016 a process for implementing the loan relief law Congress more than 20 years ago, there has been little consequence for schools that consistently engage in predatory behavior.

A solid borrower defense rule, like the one issued by the Obama administration — in its final year, when it finally got serious about protecting students — would force the Department to come to grips with the problem of perpetually sending taxpayer money to schools that consistently ruin students’ lives. As more and more students filed serious debt relief claims against particularly schools, the Department would be compelled to take seriously the idea of cutting off federal aid to those schools. That reality would deter bad behavior by schools, increasing their incentives to tell students the truth and offer them a quality education, or else shut down. That’s why a serious borrower defense rule would, within a few years, start saving money for taxpayers.

In addition to imposing multiple obstacles to ripped-off students getting debt relief from the Department, the Trump/DeVos rule eliminates an Obama rule provision that would have barred colleges from forcing students to accept secret, private arbitration as the only option when they are deceived, abused, or otherwise harmed by their school, and also would have barred colleges from denying students the right to aggregate similar claims into a class action lawsuit. Today, no legitimate nonprofit or state college includes such oppressive ripoff clauses in their enrollment agreements; only shady for-profit and career schools do that. They do it so they can get away with bad acts. And now the DeVos Department has ratified this predatory behavior.

The new DeVos rule also softens the Department’s requirements for schools to provide letters of credit to ensure money is available if the school shuts down, even though the collapses of Corinthian and ITT Tech, among others, left students, taxpayers, and creditors holding the bag. The Department, as usual, cites as its reason that it doesn’t want to excessively burden the poor for-profit college industry.

The lengthy new DeVos document insists that students are at fault if the school does not deliver what they sought:  “Postsecondary students are adults who can be reasonably expected to make informed decision and who must take personal accountability for the decisions they make…. students have a responsibility when enrolling at an institution or taking student loans to be sure they have explored their options carefully and weighted the available information to make an informed choice.” This scolding ignores the voluminous evidence that predatory colleges have fine-tuned the process of separating students from their (and taxpayer) money, taking advantage of a population of students — veterans, single parents, immigrants, first in their family to attend college — who are not always equipped to cope with such sophisticated, deceptive, high-pressure sales approaches.

The DeVos Department document suggests that it’s the students, rather than the colleges, who are the shady operators, that students will take unfair advantage of a strong borrower defense rule to submit “[f]alse claims” based on “unsubstantiated allegations” — mirroring DeVos’s ugly suggestion in a speech last year that injured students seeking loan relief are simply after “free money.”

In fact, federal student loan cancellation would not be “free”: The Obama rule did not provide students a path to recovering against guiltless, honest colleges. The former students, even if they somehow prevailed before the Department with bogus claims, would not also get their expensive private loans, which many for-profit students are forced to take out to pay the astronomical tuition, cancelled; in most cases they would not get renewed eligibility for grants or scholarships already used; and they already would have put in countless hours studying, commuting, and attending classes, often with no useful degree to show for all their precious time.

It wouldn’t be a very good scam, then. That’s why almost all of the borrower defense claims filed by students are against a small cluster of awful predatory for-profit colleges, schools that also have been under investigation by multiple law enforcement agencies.

As evinced by comparing the new Trump/DeVos rule with the debates among the negotiators, including negotiators associated with predatory for-profit schools, during the rule-making meetings, the new rule gives the for-profit college industry just about everything that it sought, and gives students and taxpayers just about nothing. No one is surprised, given that DeVos has stacked her office with former executives of predatory colleges, and again and again handed over policy to the industry.  No one is surprised, but every conscientious American should be disgusted.

The Department is giving the public just 30 summer days to file comments on the proposed rule.  I imagine Betsy DeVos will be spending some of those days at her enormous homes in Michigan and Florida, while students at closing campuses of the Art Institutes chain and other broke Americans ripped off by for-profit colleges and by her Department struggle to pay their bills.

Despite DeVos’s proposed cancellation of a sound accountability rule, some predatory schools will falter and topple of their own weight in the years ahead, because prospective students are learning the truth. But operators of some of the worst-behaving institutions will use their skills to stay alive, and continue bringing taxpayer billions into their re-sculpted, mostly online faux non-profits — Purdue Global (previously Kaplan), Ashford, Grand Canyon, Independence University, Ultimate Medical Academy, and others.

DeVos, whose own portfolio has included for-profit education stocks, is a disgrace. And so is her boss, the vulgar con artist whose unaccredited Trump University engaged in the same kinds of deceptive scamming that DeVos’s new rule will protect. Today’s latest step in the handover of policy to a predatory industry is the kind of blatant, cynical, maximum-swamp corruption that could help spur a political revolt against these shameless kleptocratic barons.