Blog Post | September 3, 2019

Defrauded Students Left Holding the Bag Under Final “Borrower Defense” Rule

Claiming to protect students and hold colleges accountable, on Friday the Department of Education finalized its so-called borrower defense rule. The rule allows students to seek to cancel student loans connected to fraud and other illegal activity by their colleges. “If a school defrauds students, it must be held accountable,” said Secretary of Education Betsy DeVos in the press release.

Yet the Trump Administration’s proposal would do virtually nothing to hold schools accountable for their misdeeds or to protect students who were wronged.  To really understand the impact of the rule, you have look at page 669 of the notice where — in a table titled “Assumptions for Main Budget Estimate Compared to PB2020 Baseline”–  the Department published its own estimates of the likely impact of the rule:

    • Borrowers will be required to repay the vast majority of loans resulting from colleges’ wrongdoing. Only about 3 cents of every dollar borrowed will be forgiven under the borrower defense rule.

 

    • Colleges, on the other hand, will rarely face any questions. They will repay only about a penny for every dollar of loans stemming from misconduct.

 

  • The Department expects substantial amounts of illegal activity by colleges. In 2021 alone, the Department expects nearly 200,000 borrowers to suffer from colleges’ illegal conduct, but their rule would leave borrowers to repay 97 percent of the resulting $2.5 billion in debt.

Source: TICAS analysis of data provided by the U.S. Department of Education, “U.S. Department of Education Finalizes Regulations to Protect Student Borrowers, Hold Higher Education Institutions Accountable and Save Taxpayers $11.1 Billion Over 10 Years,” August 30, 2019. Available at https://bit.ly/2lPOWdk.

METHODOLOGY: Figures derived from U.S. Department of Education’s publication of the unofficial text of the final rule on its web site on August 30, 2019.  U.S. Department of Education, “U.S. Department of Education Finalizes Regulations to Protect Student Borrowers, Hold Higher Education Institutions Accountable and Save Taxpayers $11.1 Billion Over 10 Years,” August 30, 2019. Available at https://bit.ly/2lPOWdk. Because Table 3 provides the data by sector, we used other Department data on loan volume by sector to produce a weighted average, on the assumption that these figures are consistent over time. U.S. Department of Education, “Fiscal Year 2020 Budget Proposal,” March 11, 2019, page Q-30, https://bit.ly/2lXI7Xm. To translate these percentages into the number of affected students, we used other Department data on the number of students borrowing federal loans, again assuming that these figures are similar from year to year. Federal Student Aid Data Center, “Aid Recipients Summary,” April 2019, https://bit.ly/2MGL5wc. To translate these percentages into dollar terms, we used projected loan volume in year 2021 from the Congressional Budget Office. Congressional Budget Office, “Student Loan Programs—CBO’s May 2019 Baseline,” May 2019, https://bit.ly/2lA5juo. We examined fiscal year 2021, the first full year of the rule’s implementation.