AFR Statement: Final Borrower Defense to Repayment Regulations


October 28, 2016

PRESS INQUIRIES: Alexis Goldstein,

Americans for Financial Reform welcomes the news that the Department of Education has finalized a rule that will prohibit the use of forced arbitration clauses at schools that receive federal financial aid, a practice that denies students the right to hold their school accountable in court when it breaks the law. We commend the Department for protecting students from these “ripoff clauses,” and for making this change happen prior to the end of the Administration. We are also encouraged that Corinthian students who were enrolled when the school closed (and those who withdrew on or after June 20, 2014) will be able to benefit from a streamlined closed school discharge process sooner. And we applaud today’s additional news the Department has announced that Pell Grant recipients who attended institutions that closed will have semesters of Pell Grant eligibility restored, following calls for this restoration from Senator Patty Murray and Representative Luke Messer.

However, AFR is disappointed that the borrower defense discharge portions of final rule remains largely unchanged from the proposal, despite suggestions for improvement from lawmakers, law enforcement, and advocates. The final rule establishes a new federal standard that may reduce borrower’s ability to pursue relief based on State law claims. While the final rule allows for non-default, contested judgments based on any State or Federal law to form the basis for a borrower defense claim, default judgements are rare, even in clear-cut cases like Corinthian: the judgements received by Consumer Financial Protection Bureau and the California state Attorney General in the Corinthian case have both been default judgements, as the school had gone bankrupt and did not continue its defense against the suit. The final rule also does not presume full relief for harmed borrowers, nor does it establish any formalized process for attorneys general and nonprofits to petition for group relief. We hope that as the Department moves forward to procedural guidance and to enforcement that it does everything possible to ensure that no defrauded borrower be left buried in debt from a school that broke the law, betrayed its students, and cheated taxpayers.

Today, the Department also provided new details about the number of former Corinthian students who’ve been approved for debt relief due to Corinthian’s lawbreaking using the existing borrower defense regulations. While we welcome the news that an additional 11,822 former Corinthian students who were victim to misrepresentations have now been approved for relief, this is just 12.5% of the entire universe of students who are eligible for relief due to the Department’s prior findings — leaving over 87% of those eligible for relief under the findings still buried in debt. The students approved for relief represent an even smaller fraction of the some 500,000 students who are estimated to have attended Corinthian historically.

Rather than spending the Administration’s time and resources adjudicating individual claims, conducting Facebook and servicing pilots, and sending emails to potentially eligible borrowers, we urge the Department to finally heed the calls that lawmakers, law enforcement and advocates alike have been making for years now, and automatically grant relief to all former Corinthian students.