US slows refunds to students defrauded by for-profits to trickle

Despite legal setbacks, administration stops Obama rule forgiving duped borrowers

April 2, 2019
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The Trump administration appears to have virtually halted a process of reimbursing students defrauded by for-profit providers of higher education as part its bid to protect such institutions.

The backlog of students seeking relief under a federal “borrower defence” provision now exceeds 158,000, and there has been no final action on any of them since June 2018, the US Education Department reported.

“That’s not fair to those students, their families or their future,” said Patty Murray, a Democratic senator from Washington who asked the department for the data.

The Obama administration created borrower defence rules in 2016 after the failure of Corinthian Colleges, one of several leading for-profit providers to collapse after their operating models became unsustainable.

The rules, aimed primarily at the non-profit sector, allowed borrowers to seek a discharge of federally backed loans if they could prove that their institution had defrauded them.

The Trump administration, after taking office in January 2017, accepted some borrower defence claims – more than $664 million (£509 million) in discharges to more than 62,000 borrowers, according to an Education Department spokeswoman.

But the Trump administration, which includes staff with experience in the for-profit industry, also has made clear its opposition to the idea. Education secretary Betsy DeVos first delayed acting on borrower defence claims while her department reviewed the Obama policy, and she then argued that its provisions were too favourable to students.

In line with that argument, the administration adopted changes that would examine the earnings of borrowers seeking forgiveness, and compare that amount with the average earnings of graduates of similar programmes, to help determine how much of the loan debt should be set aside.

Federal courts have ruled against the changes. One said that the pursuit of individual student earnings data violated their privacy rights. Another, in a case brought by 19 states, ordered the department this past autumn to immediately implement the Obama-era rules.

The Education Department spokeswoman said that the administration would be moving faster without ongoing legal scrutiny of its work. “Pending litigation has slowed down the department’s processing to provide relief to additional borrowers,” she said. “We will fully implement the 2016 borrower defence regulations and ensure those who qualify for discharge receive it.”

Outside experts questioned the rationale for delay. James Kvaal, president of the Institute for College Access and Success, a non-profit group promoting college affordability, said that it was not clear that measuring future job income would show whether a student was defrauded by a particular college.

Under the borrower defence regulation, the cost of forgiving student loans is covered by the federal government. The government can then seek repayment from the colleges, although the companies that closed them typically leave few assets vulnerable to seizure, said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities.

The administration’s delays in helping defrauded borrowers likely reflects a desire by administration officials to both reduce government expenditure and protect the reputation of the for-profit industry, Mr Nassirian said.

“The escalating tab for fraud would show the harm that the for-profits are causing and undermine the administration’s policy priorities,” he said.

paul.basken@timeshighereducation.com

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