ALHAMBRA, CA – APRIL 27: A group of Medical Assistant students reporting for class are been turned away at the gate to Everest College on April 27, 2015 in Alhambra, California. Corinthian Colleges Inc., a Santa Ana company that was once one of the
Los Angeles Times via Getty Images
Late today, Secretary of Education Betsy DeVos released her latest regulatory change for higher education—this time to the “borrower defense to repayment” rule. This regulation allows student borrowers to seek relief when their colleges defrauded them. Sneaking in a regulation at the last possible minute on a Friday before a holiday weekend begs the question of why she didn’t want anyone to notice, though not surprising given the criticisms of her initial proposal. Experts are still analyzing the new regulation for its impacts. But just as importantly, issuing new regulations doesn’t explain why the Trump Administration has refused to process nearly 180,000 existing claims from student borrowers under the current regulation.
The borrower defense to repayment rule—often referred to as borrower defense—provides a path to forgiveness of federal student loans of borrowers if a “school if that school misled them or engaged in other misconduct in violation of certain laws.” The borrower defense rule hadn’t previously been used often until the large for-profit chain of Corinthian College closed. Suddenly, tens of thousands of borrowers were seeking to have their loans discharged. The Department of Education had made its own findings that the school had lied, which formed the basis of thousands of borrowers’ claims. Students who were enrolled in the school when it closed qualified more easily for loan discharge through a “closed school discharge,” but many more were seeking relief due to fraud.
The Department initiated the rulemaking process to establish a procedure to process borrower defense claims and discharge the debt. Though the regulation was finalized in November 2016, Secretary DeVos delayed the implementation of the rule the following year eventually restarting the process to reissue a new regulation, resulting in today’s release of the new regulation. But in the meantime, defrauded borrowers have been struggling to repay and few have seen relief.
As of March 2019, the Department had 179,377 pending applications from students seeking loan forgiveness due to colleges misleading or defrauding them. And that number is continuing to climb. What’s worse is the Department hasn’t processed a single application since June of 2018—not a single application approved or denied. While not every claim will likely have merit, many of these borrowers attended schools like Corinthian where it is known that borrowers were defrauded and should have their loans discharged.
Borrowers who are applying to have their loans discharged under borrower defense to repayment are some of the most vulnerable borrowers. They attended schools like Corinthian that lied to about job placement rates and saddled them up with debt with little to show for it. Yet, the Department is failing to act with the urgency many of these students need.
Further delays in discharge are unlikely to save taxpayers any money in the long run. These borrowers are applying for relief now because they haven’t benefited from a degree that gave them a return on investment. They likely haven’t seen much of an earnings bump—certainly not one significant enough to help repay their loans. And their schools broke the law, lying to prospective students about their outcomes If that’s the case, it’s unlikely taxpayers will foot the bill eventually. In fact, delaying forgiveness could end up costing taxpayers more.
Instead, many will be driven into default on their loans—a worst-case scenario. Withholding relief from these borrowers could actually cost taxpayers in the long run. The economy is fueled by consumers but struggling borrowers aren’t able to spend money on other goods and with an already fragile economy, the struggle of these borrowers could ripple out into the economy broadly. Even more, if these students aren’t earning a sufficient income and end up in default, it’s likely they could end up relying on safety net programs adding to the cost of not forgiving their debt.
Though the impact of the new regulation is not yet known, it is clear action is needed. With the number of borrowers applying for borrower defense approaching 200,000, students—not to mention the economy—cannot wait around any longer. The Department must act now, rather than drag their feet. In the end, they’re dragging vulnerable students and the economy with them.
