Profit companies

For-profit liability and defense of borrowers

The Department of Education has big plans to make it easier for borrowers who attended predatory colleges to seek student debt relief and to hold institutions accountable for their wrongdoings, and possibly have them reimbursed for fees as well.

A set of proposed new regulations released July 6 would create a separate new process for reviewing borrower defense claims, the process for judging college wrongdoing to obtain debt relief, and for determining whether the department will recoup the costs of college debt relief, which were once both considered at the same time.

According to the department, the change would shorten the time it takes to approve borrower defense requests and give the department the ability to “recover the cost to taxpayers” for loan releases.

“The CEOs and executives of these large, for-profit educational companies walk away with tens of millions of dollars in their pockets for running what ultimately becomes a fraudulent school,” said Cody Hounanian, executive director of the Student Debt Crisis Center. “Individuals are walking away from these incredibly wealthy companies themselves, and they are virtually not liable for any damages caused under their watch.”

Although the department has always had the ability to recover costs from colleges in borrower defense cases, it has never been able to do so. This is in part because when predatory colleges close their doors and file for bankruptcy, the Department of Education is tasked with canceling borrowers’ debts with approved borrower defense claims. Also, there was never a formal clawback process in the regulations.

The proposed settlement creates this formal process, and many expect the department to have more opportunities to recover the costs of borrower defense claims as many more borrower defense claims are filed against colleges. still open.

“This language would also help let institutions know that they could be responsible for the funds, and then being able to collect them while they’re still open is a big, really big change on the accountability front,” said Michelle Dimino. . , senior policy adviser on education at the think tank Third Way.

For example, when the Department of Education approved the automatic repayment of $5.8 billion in student debt to 560,000 former students at Corinthian Colleges, a chain of predatory for-profit universities that closed in 2015. , the ministry said it could not recover the funding without the leaders’ signatures on official documents.

Nicholas Kent, chief policy adviser at Career Education Colleges and Universities, which represents for-profit institutions, expressed concern that the new proposal does not provide colleges with the same level of due process as borrowers.

“The department’s proposed process for collecting debts from institutions is illogical and lacks fundamental principles of due process,” Kent said. The main concern from the perspective of for-profit colleges was the Ministry’s proposal to separate the review of the borrower’s defense claim from the review of possible recovery of funding. “Bifurcation of the review and approval process for borrower defense applications from the recruitment process is proposed in order to mass forgive student loans with little or no evidence while advocating the department’s responsibility to be a good steward with taxpayers’ money.”

As part of the split process, borrowers have multiple opportunities to have their claims reassessed and to make multiple choices of evidentiary standards.

Although Kent said there are enough standards for review in the recovery process, standards for colleges in the process for reviewing borrower defense claims are lacking, and many other protections are afforded. to borrowers.

The proposed settlement gives colleges more time to respond to borrower defense claims, extending the current 60-day deadline to 90 days after the college is notified of the claim. Students can then respond to that claim, and if they are unhappy with the outcome of the claim, they can appeal the decision, a choice that colleges do not have.

Dimino, on the other hand, said the proposed new regulations provide a more familiar review process that mirrors other federal reviews, such as the Program Accountability Review, for the borrower’s defense.

“This is the first time that the process they are putting in place is the same as the procedures that are already in place elsewhere, for institutions,” Dimino said.

Recently, the department announced it would forgive $6 billion for 200,000 borrowers who were involved in a class action lawsuit against the department for borrower defense claims from nearly more than 150 colleges. Many colleges involved in the settlement, which was reached in late June, are still open. While the department hasn’t said whether it will seek to recover those funds, Kent said some member schools listed in the case, whom he won’t name, are concerned because they haven’t even been told that there had been pending claims for the defense of the borrower involving them.

“We are exploring all of our opportunities for legal intervention at this stage,” Kent said.

The department would have a six-year period to seek recovery of funds for student loans that have been discharged as part of borrower defense claims against a school, applying to all loans disbursed after July 1, 2023. , according to the new regulations. Therefore, the borrower’s defense requests in the recent settlement would not apply to the proposed new standards, if finalized by the November 1 deadline.