AFR Statement: The Department of Education’s Proposed Rule on Borrower Defense to Repayment

CONTACT: Alexis Goldstein, Americans for Financial Reform / 202-973-8005

For years, lawmakers, law enforcement, advocates and scammed students alike have been urging the Department of Education to relieve the staggering debt of students who attended for-profit colleges like Corinthian which broke the law. Today, the Department released a forward-looking proposal outlining how students who were victims of illegal acts by their school may pursue a “borrower defense to repayment,” or cancellation of the debt on their federal student loans.

We applaud the steps in the proposal to protect students from forced arbitration—a practice used by many for-profits schools that AFR has long advocated against which forces students to give up their right to sue the moment they enroll. We urge the Department to strengthen this proposal by making certain all students are covered by it; currently, the proposal appears to leave out non-federal borrowers, meaning that students who pay tuition out-of-pocket, and students who rely on scholarships and grants such as the GI bill may still be subject to unfair forced arbitration clauses.

We have several concerns with the draft proposal, and intend to press the Department to strengthen the rule during the comment process. We are disappointed that the Department does not presume that defrauded students will receive full relief. Students harmed by deceptive and illegal practices by their schools can never get back the time they invested, and further, the illegal conduct schools face enforcement actions for are often only a subset of the fraudulent and deceptive acts that occurred. The Department should ensure that they are entitled to a full discharge of their debt. We are also concerned that the new federal standard for borrower defense contained in the proposal, which replaces the current state law standard, may narrow a borrower’s ability to pursue relief, especially for borrowers in states with strong consumer protection law.

We appreciate that the Department has taken this step today, and look forward to working with the Department to improve the final proposal so that all students victimized by unlawful and deceptive conduct receive every penny of relief they deserve.