Senate Joins House: Rejects Betsy DeVos’ Rule to Protect For-Profit Colleges and Forgive Borrowers

In the summer of 2018, Education Secretary Betsy DeVos proposed a revision in an Obama-era rule designed to protect student borrowers when their for-profit colleges shut down or when they believed they had been defrauded by a college’s predatory false advertising.  DeVos’s proposed changes in the rule, called “borrowers defense to repayment,” would, she said, save the federal government $700 million annually.  DeVos’s new rule had been scheduled to take effect on July 1, 2020.

Last Wednesday, however, the U.S. Senate voted to reverse DeVos’s proposed revisions to the rule. The House had approved the measure to overturn DeVos’s rule in mid-January. Politico‘s Michael Stratford reports that if President Trump signs the bill which has now passed both Congressional chambers, “the DeVos rule would be nullified, leaving in place the Obama-era standards. The Education Department would be prohibited from writing any new rule that is ‘substantially the same’ unless Congress acts.”  In both the House and Senate, Republicans joined Democrats in voting to overturn Secretary DeVos’s new rule.

Stratford explains the implications of recent Congressional action to reverse DeVos’s rule: “The Senate on Wednesday issued a strong bipartisan rebuff to Education Secretary Betsy DeVos, passing legislation to block her policy that makes it tougher for defrauded student loan borrowers to have their debts forgiven. Ten Republican senators broke with the Trump administration and joined with Democrats on a 53-42 vote to overturn DeVos’s rewrite of the Obama-era “borrower defense” rule, which governs debt relief for students whose colleges engaged in misconduct. The measure, which cleared the House last month, now heads to President Donald Trump’s desk. The White House has threatened a veto of the legislation which did not garner a veto-proof majority in either chamber. But Trump told Republican senators during a closed-door meeting on Tuesday that he was ‘neutral’ on the resolution…  Democrats argue that the Trump administration’s overhaul of the standards makes it too burdensome for legitimately defrauded borrowers to obtain loan forgiveness and protects for-profit colleges at the expense of students.”

The NY TimesErica Green and Stacy Cowley report that DeVos had called the Obama-era “borrowers defense to repayment” rule, “a ‘free money’ giveaway, and sought repeatedly to curtail it.  Her first attempt was blocked in 2018, after a federal judge ruled that the Education Department broke privacy laws by illegally obtaining information from the Social Security Administration on individual borrowers’ earnings.”  The Trump administration had attempted to use a formula based on a borrowers’ wages and supposed ability to pay.  “In December, Ms. DeVos’s department added further restrictions, adopting a complicated formula for calculating relief that limits nearly all applicants to only partial relief and requires the majority to repay most of their loans.” Green and Cowley add that, “So far, the Education Department has approved 51,000 loan-relief applications—nearly all of them during the Obama administration—and eliminated some $535 million in debt.  About 170,000 applications still await a decision.” “Critics said the DeVos regulations would effectively kill the department’s loan forgiveness program by imposing requirements that almost no borrowers would be able to meet.”

The Washington Post‘s Danielle Douglas-Gabriel reminds readers why so many student borrowers have been seeking debt relief: “The closure of Corinthian Colleges and ITT Technical Institute, for-profit chains felled by charges of fraud and predatory lending, resulted in a deluge of claims at the Education Department. Claims continue to mount as other for-profit colleges, including Argosy University and the Art Institutes, have folded.” Douglas-Gabriel adds that DeVos has claimed that her new, more stringent, rule would “save the federal government $11 billion over 10 years.”

Green and Cowley report that support from veterans’ groups for Congressional action to overturn DeVos’s rule was key to building bipartisan support: “Veterans have long been considered among the most vulnerable groups for predatory recruitment tactics because of their lucrative G.I. Bill benefits. The benefits are particularly attractive to for-profit schools, because federal law requires those schools to obtain at least 10 percent of their revenue from sources other than Education Department-backed student loans.  G.I. Bill benefits help schools meet that quota.” The American Legion and other veterans’ groups strongly support Congressional action to restore the the Obama-era rule.

Green and Cowley add that, “If Mr. Trump does not sign it, Democrats say they will press for a veto override. Senator Richard J. Durbin, Democrat of Illinois and the minority whip, successfully recruited Republicans for Wednesday’s vote after veterans groups—which he called a ‘critical ally’—backed the resolution.”

Stratford adds: “If Trump does not sign the measure, it would be only his seventh veto since taking office—and the first on a domestic policy issue.”

At U.S. House Education Committee Hearing, DeVos Defends Cheating Some Defrauded Students by Only Partially Forgiving Loans

There was a lot going on last week—Judiciary Committee hearings on articles of impeachment, for example. Did you miss learning about Education Secretary Betsy DeVos’s miserable performance before the U.S. House Education Committee?  As she defended her new “borrower defense to repayment” plan, DeVos didn’t seem to worry very much about the hundreds of thousands of students who have been defrauded by for-profit colleges, but she did seem to want to protect the reputation of the for-profit college sector.

DeVos was called before the committee to explain her department’s inexplicable failure to provide loan forgiveness for what DeVos herself said are “nearly 300,000 claims” by students who said they had been defrauded by their for-profit colleges. Many of the claims demanding loan forgiveness under what is called the “borrower defense to repayment” rule were filed by students at the now shut-down Corinthian Colleges and ITT Technical Institute.  Both were shut down because they had lured students to enroll (and take on enormous debt) with fraudulent promises about what would turn out to be shoddy career prep programs.

The Associated Press‘s Colin Binkley explains: “The program, known as borrower defense to repayment, is meant to forgive federal loans for students whose colleges misrepresent the quality of their education or otherwise commit fraud. It was expanded under the Obama administration to help clear loans for thousands of students who attended Corinthian Colleges, a for-profit college chain that collapsed in 2015 amid allegations that it lied about the success of its graduates in order to get students to enroll.  Soon after, thousands of additional claims were coming from students who attended other for-profit colleges, including defunct chains such as ITT Technical College. But after the Trump administration took office, the process ground to a halt. Loans were no longer being discharged, and a pool of 60,000 pending claims ballooned to more than 200,000.”

Not only have Betsy DeVos and her staff slowed loan processing on thousands of claims, but DeVos has devised a new plan to save the government money by denying full repayment to some students whose colleges closed—students who have become employed despite the shoddy programs that trained them and even though their college loans left them deeply in debt. Binkley explains: “Some Democrats believe DeVos intentionally stalled the program for more than a year while she rewrote the rules and made it more difficult for students to get loan relief… Earlier this week, DeVos unveiled a new method for judging claims that she says will help clear the backlog.  It’s meant to provide varying levels of loan forgiveness based on the degree of financial harm a student suffers.  Full forgiveness will be granted only to students from programs that produce graduates with median incomes far below their peers in other similar programs.  Other defrauded students can get 25% to 75% of their debt erased, depending on the median income of the program they attended.”

The NY TimesErica Green explains why DeVos opposes full debt forgiveness: “Ms. DeVos said her department’s overhaul of the debt-relief rule marked a ‘course correction’ from the previous administration, which she claimed ‘weaponized’ it to target for-profit colleges and award ‘blanket’ relief to borrowers who may not have deserved it. ‘I understand that some of you here just want to have blanket forgiveness for anyone who raises their hand and files a claim, but that simply is not right,’ Ms. DeVos told lawmakers… Ms. DeVos maintained that it was ‘probably the case’ that Corinthian Colleges deceived students, but she also said she believed that the ‘prior administration basically forced schools like Corinthian out of business’ with onerous financial restrictions.”

A bit of background is helpful here. The reason the Obama Department of Education began toughening enforcement of rules on for-profit colleges is that, according to Cornell University professor Suzanne Mettler, “Notably these institutions, with only one exception, earned between 60.8 and 85.9 percent of their total revenues in 2010 from Title IV of the Higher Education Act, meaning predominantly student loans and Pell grants.” (Degrees of Inequality, p. 168)  While these colleges claim to be private, for-profit institutions, they depend for most of their revenue on our tax dollars. Corinthian Colleges and ITT Technical Institute were shut down in an effort to eliminate massive federal tax investment in shoddy programs.

The Washington Post‘s Danielle Douglas-Gabriel provides some of the tangled three year history of DeVos’s delay in processing loans: “The secretary’s appearance (before the House Education Committee last week) came days after the Education Department updated its formula for processing debt relief claims made under a statute known as borrower defense to repayment.  One major change involves using a sliding scale based on a borrower’s wages to determine loan forgiveness.  Higher education experts say that will result in substantially less loan cancellation than previously… A federal judge in 2018 blocked DeVos’s first attempt to cancel only a portion of the debt amassed by former Corinthian Colleges students, ruling the department violated privacy laws in its use of earnings data from the Social Security Administration. The case resulted in DeVos being held in contempt Oct. 24 for violating a court order to stop collecting loan payments from former students of the defunct for-profit chain. DeVos said the Corinthian case has prevented the department from issuing decisions on nearly 300,000 claims filed by borrowers—most of whom attended for-profit colleges.”

Douglas-Gabriel explains that the Department of Education’s inspector general and key staff in the Obama administration had recommended prompt and full cancellation of the loans of defrauded students when Corinthian Colleges and ITT Technical Institute shut down: “Obama…. department staff had recommended that former Corinthian and ITT Tech students receive full relief because the schools provided no value, according to memos reported by NPR this week.  DeVos said Thursday she was unaware of the memos and said, ‘There were many students who received valuable education from Corinthian… The previous administration weaponized the regulation against schools it simply didn’t like.'”

The AP‘s Colin Binkley quotes House Education Committee Chair, Rep. Robert (Bobby) Scott responding to DeVos at last week’s hearing: “Those defrauded borrowers have been left with mountains of debt, worthless degrees and none of the job opportunities they were promised… Defrauded borrowers have been cheated twice: First by their college, and then by a Department of Education that refuses to make them whole.”

Betsy DeVos Held in Contempt. Department of Education fined $100,000. What’s Going On?

Last week should have been a bad week for Education Secretary, Betsy DeVos, but one wonders if it is possible to create a really meaningful punishment for somebody like Betsy DeVos—a punishment for allowing her staff to neglect their responsibility to protect vulnerable student loan borrowers who were defrauded by Corinthian Colleges.

Although last week it was announced that Betsy DeVos was being fined $100,000 for the Corinthian Colleges loan forgiveness disaster, it turns out that the agency—the Department of Education—is really being fined.  And even if DeVos had been personally fined, she is among the wealthiest members of President Trump’s cabinet, and the fine wouldn’t have made much of a difference given the size of her family’s fortune.

But the students who were defrauded are not so lucky. DeVos is responsible for causing what has to be financial misery for at least 16,000 students and parents who were billed for loan payments which had supposedly been cancelled.  These people were hounded by loan collectors, and some of them had their tax refunds and wages seized by the contractors who handle loan collections for the Department of Education.

For the NY Times, Erica Green and Stacy Cowley report: “Magistrate Judge Sallie Kim of the Federal District Court in San Francisco ordered the Education Department to pay a $100,000 fine. The money will go toward various remedies for students who are owed debt relief after President Barack Obama’s Education Department found they were defrauded by the chain, Corinthian Colleges, which collapsed in 2014. The ruling is a victory for the more than 60,000 students who have been on a financial roller coaster since Corinthian imploded, after state and federal officials found that it lured students through deceptive recruitment practices and falsified job placement rates.”

Green and Cowley further explain the legal history of the case. DeVos has tried to implement a system by which ‘borrowers defense to repayment’ claims would be paid only in cases when borrowers were found to be without a living wage: “Last year, Magistrate Judge Kim found the system illegal, ruling that the Education Department had violated borrowers’ privacy by obtaining and misusing their earnings data from the Social Security Administration.  She issued an injunction ordering the department to stop using the data and collecting the debts of Corinthian students. The department appealed the decision to the United States court of Appeals for the Ninth Circuit and is waiting or a ruling.”

Early in October, Politico’s Michael Stratford reported: U.S. Magistrate Judge Sallie Kim said in a hearing she was ‘extremely disturbed’ and ‘really astounded’ that the department and Secretary Betsy DeVos had sought to collect on the student loans in spite of her May 2018 order to stop doing so. ‘Whether it’s contempt or whether it’s sanctions, I’m going to entertain them,’ Kim said during the hearing… She added: ‘I’m not sending anyone to jail yet but it’s good to know I have that ability. There have to be some consequences for the violation of my order 16,000 times.'”

Last week Judge Kim followed through on her threat to hold the Department of Education accountable. The Washington Post‘s Danielle Douglas-Gabriel explains: “A federal judge on Thursday held Education Secretary Betsy DeVos in contempt for violating an order to stop collecting loan payments from former Corinthian Colleges students… In September, the federal agency revealed in a court filing that former Corinthian students ‘were incorrectly informed at one time or another… that they had payments due on their federal student loans’ after Kim put a hold on collections in May 2018.  Although the agency has since stopped pursuing nearly 15,000 of those borrowers, it is still working to resolve the problem with the remaining borrowers.  About 1,808 people lost wages or tax refunds as a result of the department’s actions.”

Douglas-Gabriel adds that apparently the Department’s instructions to the contractors who handle collections lacked clarity: “The Education Department has said it sent emails to the loan-servicing companies it pays to manage the federal student loan portfolio, directing them to postpone the payments of Corinthian students and halt collection of their debts.  But the agency did not send specific instructions to the companies to postpone the payments indefinitely. Two department officials have since been disciplined, while the agency reprimanded loan servicers for their failings.”

Perhaps the Department of Education’s failure to cancel the debt collection from students at Corinthian Colleges is related to dogged efforts by DeVos’s department to rewrite the Obama era rule that should have protected the students.  In a report in early September, Douglas-Gabriel explained the history of the ‘borrowers defense to repayment’ rule, under which  the debts of students enrolled at Corinthian Colleges were forgiven:  “A 1995 law known as “borrower defense to repayment” gives the Education Department authority to cancel the federal debt of students whose colleges misled them about graduation or job placement rates to get them to enroll. The Obama administration updated the regulation to shift more of the cost of forgiveness onto schools, after the closure of for-profit giant Corinthian Colleges ushered in a flood of claims. The Trump administration Friday (August 30, 2019) finalized its rewrite of the Obama-era rules, after two years of trying to delay and then scuttle the regulations. Those efforts have spawned lawsuits, with the courts forcing the Trump administration to implement the 2016 rules and process a backlog of applications for debt relief. Still, more than 180,000 borrowers await answers.”

Douglas-Gabriel describes the new rules, as updated by DeVos’s Department in late August, 2019: “The Trump administration is asking students to jump through more hoops…. Borrowers will have to show their school engaged in actions or made statements ‘with knowledge of its false, misleading, or deceptive nature or with a reckless regard for truth.’ Even if students convince the department that they were defrauded, they must still prove financial harm before loans are canceled… Borrowers will have less time to apply for relief—three years from graduation or withdrawal from college… The new rules also kill an Obama provision that barred colleges from requiring students to sign agreements during enrollment forcing them into arbitration if there is a dispute.” “The Trump administration estimates the rules will save the federal government $11 billion over 10 years—loan payments that would have gone uncollected under existing rules.”

The new rules won’t formally take effect until July of 2020.

Last week, by holding Betsy DeVos in contempt and fining the Department of Education $100,000, federal Magistrate Judge Sallie Kim tried to stop the U.S. Department of Education from trying to collect repayments from the former students of Corinthian Colleges on their previously cancelled loans. The Department, of course, claims it was all a mistake.  But the NY Times‘ Green and Cowley suggest that the Department’s failure to enforce the law may instead result from inaction while DeVos and her staff wait for the appeals court to rule: “The department has essentially stopped evaluating borrower defense claims—leaving borrowers in limbo, sometimes for years—while it waits for the courts to resolve its appeal.  The agency had 210,000 pending claims awaiting a decision as of June, up from the 106,000 claims it had sitting in its queue a year earlier.”

New Rules Proposed by DeVos Would Reduce Student Loan Forgiveness, Favor For-Profit Colleges

Betsy DeVos is busy eliminating regulation of for-profit colleges and reducing protection of the rights of students who use federal loans to attend them. President Obama’s administration had tried to crack down, but DeVos and her Department of Education are cozier with the for-profit college sector.

Last Wednesday, Betsy DeVos’s U.S. Department of Education proposed new rules to set the parameters for loan forgiveness when students file claims alleging their colleges have defrauded them. Under the new “borrowers’ defense to repayment” rules, DeVos expects the Department of Education to save money—approximately $700 million annually. Then on Thursday, the NY Times obtained a copy of draft plans to end what has been called the “gainful employment rule,” which has been used to shut down for-profit trade schools and colleges when their students are so unemployable they cannot pay off their federal loans.

Borrowers Defense to Repayment — Advocates for protecting the rights of student borrowers say the rules released last week will make it much harder for students who believe they have been defrauded to have their student loans cancelled. The very existence of many for-profit colleges depends on a steady revenue stream of federally backed student loans. After Corinthian Colleges and ITT Technical Institute were shut down, thousands of their former students filed claims for cancellation of loans used to pay tuition for programs that had been terminated.

For the Washington Post, Laura Meckler and Danielle Douglas-Gabrielle explain: “Education Secretary Betsy DeVos moved Wednesday to make it harder for students who say they were defrauded by colleges to erase their debts, rolling back Obama-era regulations that for-profit colleges saw as threatening their survival. The proposed rules… require students to prove schools knowingly deceived them if they want their federal loans canceled. And it scuttled an Obama administration provision that allowed similar claims to be processed as a group. Instead, students will have to prove their claims individually. The rules are DeVos’s rewrite of an Obama-era regulation published in 2016 and part of that administration’s crackdown on for-profit colleges that critics say prey on vulnerable students. In ways big and small, the new version makes it harder for students to win debt forgiveness… The department aims to publish a final rule by Nov. 1 so that it can take effect for loans originating after July 1, 2019. The agency will allow 30 days for public comments on the proposal.”

Consumer and borrower advocates believe the standard of proof under the DeVos rules proposed last week favors the for-profit college industry and fails adequately to protect students. The NY Times’ Erica Green reports that DeVos has filled the positions who regulate for-profit colleges with former employees and advocates for the for-profits: “DeVos advisers include her senior counselor, Robert S. Eitel, and Diane Auer Jones, a senior adviser on postsecondary education, both of whom worked for Career Education Corporation, a company that operates for-profit colleges, and reached a $10.25 million settlement with the New York attorney general over charges that it had inflated graduates’ job placement rates. The department’s general counsel, Carlos G. Muñiz, worked as a consultant for the company.”

POLITICO‘s Benjamin Wermund adds that the newly proposed rules will reduce loan reimbursements to students whose colleges suddenly close as long as those colleges provide a phase out that allows students to complete some of their coursework: “Under the plan, the Education Department would no longer provide “closed school” discharges to students if the school offers an approved “teach-out” or a wind-down of their program — a move the agency predicts would reduce the amount of closed school discharges by $96.5 million each year.”

The newly proposed rules require students to prove they were intentionally defrauded. Meckler and Douglas-Gabrielle report: “Consumer advocates also said it is unrealistic to expect borrowers to prove that their college intended to mislead them. ‘How are borrowers supposed to prove intent? They don’t have any discovery rights. They don’t have the ability to get testimony from the person who lied to them about what they knew or didn’t know,’ said Abby Shafroth, an attorney at the National Consumer Law Center.”

Advocates for protection of borrower’s rights criticize the proposed rules because they require that students filing complaints submit to arbitration:  Green explains: “The proposal also restores ‘pre-dispute arbitration agreements,’ which allow colleges to force students to sign waivers saying they will settle their disputes with institutions through arbitration. The Obama administration had removed those agreements from its rule because they essentially forced to students to sign away their rights to sue and file federal claims, and shielded student complaints from the public.”

Gainful Employment Rule — The Obama administration began to crack down on trade schools’ unscrupulous recruiting practices and fraudulent promises that students would be prepared for jobs when the colleges’ programs were weak or worthless. Last Thursday, the NY Times Erica Green obtained a draft plan from the U.S. Department of Education to eliminate the Obama “gainful employment rule” altogether.

Green explains: “Education Secretary Betsy DeVos plans to eliminate regulations that forced for-profit colleges to prove that they provide gainful employment to the students they enroll, in what would be the most drastic in a series of moves that she has made to free the for-profit sector from safeguards put in effect during the Obama era. The so-called gainful employment regulations put into force by the Obama administration cut off federally guaranteed student loans to colleges if their graduates did not earn enough money to pay them off. That sent many for-profit colleges and universities into an economic tailspin because so many of their alumni were failing to find decent jobs. The Obama regulations — years in the making and the subject of a bitter fight that pulled in heavy hitters from both parties who backed the for-profit schools — also required such schools to advertise whether or not they met federal standards for job placement in promotional materials and to prospective students.”

Green continues, describing implications of  the Department’s plan to eliminate the “gainful employment rule”: “The move would punctuate a series of decisions to freeze, modify and now eliminate safeguards put in place after hundreds of for-profit colleges were accused of widespread fraud and subsequently collapsed, leaving their enrolled students with huge debts and no degrees. The failure of two mammoth chains, Corinthian Colleges and ITT Technical Institutes, capped years of complaints that some career-training colleges took advantage of veterans and other nontraditional students, using deceptive marketing and illegal recruitment practices.”

Green reports that the department would continue efforts by the Obama administration to make available some information about for-profit colleges, but far less than the Obama administration required, and the Department of Education would no longer enforce the rule by withholding federal loans: “The existing database, created under the Obama administration, includes such data for more than 7,000 institutions, but it does not include program-by-program success rates for such certificates as nursing assistance, cosmetology or auto maintenance, nor does it contain the detailed employment statistics that the gainful employment regulations targeted… (I)t would eliminate the powerful threat to withhold access to guaranteed student loans from colleges whose graduates cannot find the work to pay them back. Few higher-education institutions could survive without federal student aid.”

DeVos’s plans to reduce regulations of for-profit colleges and trade schools should not be surprising. Not only has DeVos continued to hire former administrators from the for-profit college sector as well as lobbyists for the sector, but from the beginning, DeVos has shown her intent to roll back efforts begun by the Obama administration to protect the tax investment in student loans and to protect students from predatory recruiting by for-profit colleges whose programs are so weak that their students have been unemployable.

The Washington Post’s Valerie Strauss quotes Connecticut Senator Chris Murphy, who, when presented with the new rule changes, wondered, “Why would anyone deliberately hurt students who have been screwed over by scam schools?”