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Education Department proposal makes it very difficult for defrauded students to cancel their loan debts

Proposed borrower defense rules fail to hold schools accountable when they break the law and commit fraud

July 25, 2018 

WASHINGTON, D.C. – New rules proposed by the Department of Education today would make it practically impossible for students who’ve been defrauded by higher education programs to cancel their debts, according to Consumer Union, the advocacy division of Consumer Reports.  The proposal would constitute a reversal from the strong protections issued under the Obama administration in the wake of scandals at for-profit schools like Corinthian College and ITT Tech.

“The Department of Education is turning a blind eye to widespread fraud and abuse at for-profit schools that left thousands of students in debt without a meaningful education,” said Suzanne Martindale, senior attorney for Consumers Union.  “Students and taxpayers should not have to bear the financial burden of subsidizing failing higher education programs.   Instead of helping defrauded students cancel their debts and move on with their lives, these proposed rules would shield poor-performing schools from being held accountable for their misconduct.”

Under the proposed rules, borrowers would first have to default on their loans – and find evidence to prove that the school acted recklessly or intentionally to deceive them – before they can apply for relief.  The Department says it may consider letting other students seek relief, but if so those students would have to overcome still more barriers.  Among other things, they propose 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 learn how to navigate the borrower defense process.

The rule would eliminate the option for group discharges when a school engages in widespread misconduct impacting large numbers of students, and it would end automatic loan discharges for students stranded by school closures.  The rule would also allow schools to used forced arbitration clauses that block students from being able to seek relief in the courts.

Students across the country – especially those from low-income communities and communities of color, as well as servicemembers and veterans – have been targeted with aggressive sales pitches from schools that market training that will lead to good jobs, but fail to deliver on those promises.  Many students take out student loans to attend these programs, only to struggle to find a good paying job when they graduate.  Students who attended schools that failed in recent years, like scandal-plagued Corinthian College and ITT Tech campuses, have been left in debt without getting the training they sought after those schools closed.

Michael McCauley: mmccauley@consumer.org, 415-902-9537 (cell) or 415-431-6747, ext. 7606 (office)

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