Federal law provides for loan discharges when students are defrauded by schools like Corinthian Colleges that seek to profit from federal student loans, grants, and veterans benefits at student and taxpayer expense. However, until recently, this right has not been publicized and few borrowers have gotten the relief to which they are entitled. The Education Department has proposed new rules to clarify and strengthen some protections for defrauded federal student loan borrowers, and these rules will help curb bad behavior by predatory colleges. However, the rules would also roll back eligibility for relief in some cases and make it likely that many defrauded borrowers will get partial or no relief.
The Department deserves praise for proposing regulations to better protect students and taxpayers from fraud and other misconduct by unscrupulous colleges, but the new rules need to make it easier for borrowers to get full relief, not harder.
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We need to tell Education Secretary John King that the rules should provide full loan relief to defrauded students, provide automatic discharges when there is sufficient evidence of a school’s wrongdoing, not impose time limits on relief for defrauded borrowers, and close gaping loopholes allowing unscrupulous schools to prevent injured students from having their day in court.
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RE: Docket ID ED-2015-OPE-0103
Dear Secretary King:
Thank you for proposing regulations to better protect students and taxpayers from fraud and other misconduct by unscrupulous colleges.
I urge you to strengthen the rules to make it easier for borrowers to get full relief, not harder, and to better hold colleges accountable for wrongdoing, including in the following ways:
1. Provide full loan relief to defrauded students. Under the Department’s proposal, after the Department has determined that a student has been defrauded, there would be a separate highly subjective, time-consuming and costly process for determining how much relief, if any, the borrower should receive. This is inappropriate, will lead to inconsistent treatment of borrowers, and will unnecessarily delay borrower relief.
2. Provide automatic discharges when there is sufficient evidence of a school’s wrongdoing. While the proposed rules make explicit the Department’s authority to automatically discharge loans on behalf of groups of defrauded borrowers, they lack guidance to ensure that this authority is exercised. For example, the Department is currently requiring former students of Corinthian Colleges to submit unnecessary individual applications when the Department has already determined that they are eligible for full loan discharges. The final rules should establish a process for state attorneys general to petition the Department to provide automatic loan discharges for groups of students. The rule should also provide further guidance to encourage the Department to use its authority to automatically discharge loans when the Department knows that a group of students took out loans based on school misconduct.
3. Do not impose time limits on relief for defrauded borrowers. The Department’s proposal creates a new six-year time limit on the ability of borrowers to recover amounts paid on loans taken out due to school fraud. These time limits begin at ambiguous and varying times depending on the type of school misconduct, and will limit relief for borrowers who may not know that such a time limit exists or applies to them. The Department should not impose time limits on borrowers when there are none on the government’s ability to collect student loan debt.
4. Ensure unscrupulous schools cannot prevent students from having their day in court. The proposed rules are intended to ensure that students can sue schools for wrongdoing, rather than being forced to pursue any claims individually in secret arbitration proceedings that usually favor the schools. Unfortunately, loopholes in the proposed rules would allow institutions to continue to use pre-dispute arbitration agreements in many cases and to ban class action lawsuits for important claims, two of the tactics that Corinthian Colleges used to shield itself from liability. In addition, loopholes in the proposed rules could leave more than one million students at covered schools, including many veterans, completely unprotected from these tactics each year. The Department should close these loopholes to stop schools that receive federal aid from barring any student from holding schools accountable in the courts.
These changes are necessary to protect students and taxpayers. I urge you to include them in the final rule.