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Borrower Defense Rule Shafts Students & Taxpayers — Fraudulent Schools Smiling

A person with 10 yachts, no student debt woes, and never went to public school is in charge of running and ruining our national education system. Called “Ditsy DeVos” by the White House, Education Secretary Betsy DeVos’s proposed borrower defense rule would make it much harder for students who were defrauded by predatory schools to receive federal student loan relief. 

The proposed rule dramatically rolls back the stronger student protections that were put in place in 2016 for students who were victims of predatory for-profit schools that acted illegally or closed unexpectedly before they could graduate.

Under the proposed rule, borrowers would need to first default on their student loans before they could apply for debt relief, effectively ruining their credit and financial health. Rather than proving the school breached its contract, or rely on a court judgment of fraud to discharge the predatory loans, the Department’s proposal would require that defrauded students bring an unreasonably high burden of proof to receive relief. These claims would also require release of an unprecedented amount of loan borrowers’ personal information, which is likely intended to deter claims from being filed.

Widespread for-profit school closures, like those of Corinthian Colleges, ITT Tech and, most recently, The Art Institutes, leave students with mountains of debt and without a degree. Yet, the Department of Education’s proposal eliminates group discharges and closed school relief as long as the school provides an alternative place for students to transfer to.

The proposed rule also allows for-profit programs to use forced arbitration clauses during enrollment, denying students who were defrauded their day in court.

San Francisco-based Consumer Action (CA) says this proposal is the Trump Administration’s latest attempt to stand with powerful corporations over consumers. The Department is sending a clear message to predatory institutions that they have nothing to worry about as they continue to scam and deceive those trying to make a better life for themselves through higher education.

Consumer Action also noted this new proposal will provide billions of taxpayer dollars to under-performing colleges, students will be left with mountains of debt and worthless degrees, and taxpayers will foot the bill.

The gainful employment rule sought to address the major concern that thousands of students across the country were enrolling in predatory career education programs that left them without the credentials and training needed to find full-time work and saddled with insurmountable debt. If these scam schools continued to fail to meet the established debt-to-earnings rates for graduates, the program risked losing access to federal student aid.

Instead of making each school publicly disclose the debt-to-earnings information for its graduates, the Department of Education plans to update its College Scorecard website with the data. However, unlike the stronger gainful employment rule that was put into place (and later suspended by the Trump Administration), there is no law or regulation that will mandate that the information be published, and under-performing schools will no longer worry about losing their federal funding. In fact, the Trump Administration’s own estimates show that eliminating the gainful employment rule will cost taxpayers nearly $5 billion over the next decade.

Read Proposed Rule

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