Andrew Crighton
News Editor
The Department of Education is in the final stages of approving new guidelines that will streamline the process of a little-known provision within Title IV of the Higher Education Act of 1965. With a name like that it’s no surprise it’s not well known.
The defense to repayment provision, also known as borrower defense, allows individuals who have been defrauded by their college or university to file a claim with the Department of Education, and if granted, will absolve any outstanding federal student loan debt that the individual has.
Borrower defense had rarely been used until 2015, when Corinthian College, Inc. declared bankruptcy. This private company ran several for-profit colleges including Everest University, Wyotech and Heald College.
Before filing for bankruptcy the company was subjected to state and federal investigations. One such federal investigation found that the colleges had misrepresented their job placement rates.
The “Corinthian Collapse” and the resulting thousands of submissions for borrower defense are cited as causing these changes within the Department of Education’s Borrower’s Defense Fact Sheet.
Some of the key features of these new regulations include streamlining the filing process for borrower defense, installing precautionary standards that can be triggered by post-secondary education institutions that may indicate an imminent financial collapse as well as ban the use of pre-dispute, mandatory arbitration agreements and class action bans as part of enrollment agreements.
Some of those triggers include instances such as: an institution under state or federal investigation, having a large number of borrower defense claims submitted against it, or default on credit obligations and non-compliance with several pre-existing Department of Education standards.
If an institution activates any of these, and is deemed to be in financial risk, the university would be required to post a Letter of Credit, an assurance of payment and of at least 10 percent of the Title IV federal funds that university received the year prior.
The third feature is banning the use of agreements that legally hold students to forced arbitration, whereby agreeing to enroll, they waive their right to sue the institution or take part in a class action lawsuit.
Agreements and clauses like this were in use by the Corinthian colleges.
Various sectors have risen up in either support or criticism of these proposed regulations.
One of the groups in favor of these changes is The Debt Collective, an organization with the goal of forming a Debtor’s Union to leverage the power of collective bargaining against “the injustice of public goods, such as education and health care, to be personally debt financed,” according to its website, debtcollective.org.
The Debt Collective has been in support of the Corinthian Debt Strike, a group of approximately 200 past Corinthian College Inc. students who refused pay their debt on the basis that they were forced into debt that they cannot repay with the education they received.
A wizard for filing a borrower defence claim can be found on the Debt Collective website.
Opponents of these regulations come from all angles of the higher education community. There is pushback by for-profit universities and those who support them because these regulations are targeted towards them.
There is, however, a group of people who are within the nonprofit sector of higher education who also oppose these changes.
The basis of these critics lies largely in the vocabulary and definitions used within the regulations, namely that they are too broad and ambiguous, and fear that their institutions could be caught under the same umbrella of allegations of wrongdoing.
While these changes were made because of for-profit schools, the regulations still apply to public universities and colleges as well.
The largest concern is that many schools will be drawn into multiple, expensive and frivolous lawsuits by students who simply want their debt to be removed.
These lawsuits could be filed because of the vagueness of what ‘defrauding students’ actually means.
Falsifying graduation and job placement rates are commonly sighted as the intended meaning, however, sloppy marketing techniques could carry the same penalty, with no intention of fraud.
Predatory agencies that entice students to file claims even though they may not be warranted have the potential to increase the number of these frivolous lawsuits.
One such agency is budgetbuddyclub.com, which has various pages urging students from different universities, such as Emory, to file for borrower defense claims. At the very bottom of the page is a statement reading, “THIS IS AN ADVERTORIAL AND NOT A NEWS ARTICLE, BLOG OR CONSUMER PROTECTION UPDATE. This is a paid attorney/advocate advertisement.”
These frivolous lawsuits could force an institution into financial danger, critics say.
Possible cost to taxpayers is another criticism.
The Department of Education has estimated that with these changes, between $1.99 billion and $42 billion of federally-owned loan debt could be dismissed over 10 years.
Whatever amount of loan debt is absolved is effectively paid for with taxes.
Finalized regulations are expected to be posted by November 1, 2016.
Idaho State University was asked to comment, we have not received a response.
