Consumer groups blasted Education Secretary Betsy DeVos this week over a new rule they say would make it harder for defrauded students to seek debt relief.
Currently, students may be eligible for federal loan forgiveness if their college closed or was accused of fraudulent activity. More than 130,000 borrowers have applied since 2015, a majority of whom attended for-profit colleges.
The new rule would replace one written by the Obama Administration after the government received an unprecedented number of claims following the collapse of Corinthian Colleges in 2015. The government found Corinthian had misled students for years by advertising inaccurate job placement numbers.
But some colleges have argued the policy was too broad and DeVos vowed last year to review the rule.
“Our commitment and our focus has been and remains on protecting students from fraud,” said DeVos in a statement Wednesday.
“The regulations proposed today accomplish that by laying out clear rules of the road for higher education institutions to follow and holding institutions, rather than hardworking taxpayers, accountable for making whole those students who were harmed by an institution’s deceptive practices,” she said.
If finalized, the new rule would apply to new federal loans starting in July 2019.
It could save the government $12.7 billion over a ten-year period compared to the Obama version, an Education Department document shows.
But consumer advocacy groups and Democrats say the new rule makes it too hard for borrowers to seek relief.
Those whose schools shut down while they were enrolled will no longer automatically receive debt relief. Under the new rule, students would have to submit an application and would not be eligible if the school provided an option to complete their program elsewhere.
Other borrowers who feel they were misled by their college would be required to submit more evidence of their school’s misconduct and prove more difficult facts, the National Consumer Law Center said.
The department would consider each application individually. In the past, some have been considered as a group in the event of widespread fraud in an effort to simplify the process.
The Education Department is also considering making only those borrowers who are in default qualify for loan forgiveness. Those who are current on their payments would not qualify for relief.
The Department is seeking comment on the proposed rule in general, but wants to specifically hear on this issue because the implications “are far-reaching.”
The public has 30 days to comment before the rule is finalized.
“This is a clear sign that students cannot rely on Secretary DeVos, and that she will continue to give predatory for-profit colleges and corporations a free pass when they mislead, cheat, and defraud students,” said Senator Patty Murray, the Democratic ranking member of the education committee.
But Senator Lamar Alexander, chair of the committee, applauded the new proposal.
“Secretary DeVos is right to propose new regulations that set important safeguards and clear standards for when a student can file a claim, so taxpayers aren’t paying for unreasonable or unsubstantiated claims of fraud,” he said.
“The Obama Administration went too far in rewriting this provision by setting overly broad and vague standards and as a result, put taxpayers on the hook for too many loans.”