Betsy DeVos May Only Offer Partial Loan Refunds To Defrauded College Students

Education Secretary and champion of for-profit colleges Betsy DeVos is once again siding with this controversial industry and against students who were defrauded by schools that tricked them into paying top dollar for a bottom-dollar education.

Amid the collapse of scandalized for-profit school chains like Corinthian Colleges and ITT, the Education Department had sought to simplify the process of allowing defrauded students to get their federal loans refunded.

But that was before DeVos became our nation’s top education regulator. Now, the Associated Press reports that the Secretary is considering a measure that would provide defrauded students with only half of a refund of their student loans.

Sources note that under DeVos’ plan refunds provided to students would be dependent on the average earnings of students in similar programs and schools.

Consumerist has reached out to the Dept. of Education for additional information on the possible change. We’ll update this post when we hear back.

Consumer advocates raised concerns about DeVos’ plan to half loan forgiveness, noting that many students have already received full forgiveness.

“It would be totally different from what was happening under the last administration,” Jennifer Wang, an expert with the Institute of College Access and Success, tells the AP. “It’s not equitable; it’s not fair for students. If she provides partial relief, it’s that she only cares what’s fair for schools and not students.”

The New Borrower Defense?

The change would likely be part of the administration’s revamp of the Borrower Defense rule.

Under the rule — which as been around for decades, but seldom used until recent years — borrowers could have their federal loans forgiven if they attended schools that were found to defraud students.

Following the closure of ITT Technical Institute and Corinthian Colleges, the Obama Administration began the process of revising and redrafting the rules.

The Department had decided to overhaul the rule in Jan. 2016 following an influx of claims from students shortly after Corinthian Colleges Inc — the operator of Heald College, Everest University, and WyoTech – closed in 2014.

Under the revised Borrower Defense rules — unveiled in Oct. 2016 — a student’s federal education loans can be forgiven if they can prove their college used deceptive practices to convince them to enroll.

The rule was also revised so that schools receiving federal aid can no longer put forced arbitration clauses in their student enrollment agreements. This is important because these clauses prevent students from suing the school in court and from joining their complaints together in class actions. While arbitration is now commonly used in consumer goods and services, in the education field it is almost exclusively used by for-profit schools.

While that rule was expected to go into effect in July 2017, DeVos instead called for a “regulatory reset,” claiming the previous rulemaking process “missed an opportunity to get it right,” resulting in a “muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.”

The AP reports that the new consideration comes just three months after DeVos extended a contract to speed up the processing of student loan forgiveness claims.

However, in extending the contract, the Dept. noted that “policy changes may necessitate certain claims already processed be revisited to assess other attributes.”

That could mean that students who had already been approved for — but not yet received — loan forgiveness could find themselves still on the hook for thousands of dollars.

Where’s The Forgiveness?

The DeVos Dept. of Education has come under increased scrutiny for its treatment of students seeking loan forgiveness claiming they were defrauded by their schools.

While DeVos noted when she “reset” the Borrower Defense rules that applications for relief would continue to be processed under the current version of the rule, that hasn’t happened.

As noted by lawmakers and states attorneys general, refunds stemming from the Borrower Defense process have been delayed.

In July, acting undersecretary of education James Manning told Illinois Sen. Dick Durbin in a letter [PDF] that the Dept. of Education had not approved a loan forgiveness claim in six months.

At the time, the letter revealed that more than 65,100 borrower defense applications — 14,949 of which were submitted since Jan. 20 — were currently pending.

Of these applications, 45,092 were associated with students who attended defunct Corinthian College schools and 7,186 belong to those who attended the also-closed ITT Technical schools.

Many students who submitted claims for borrower defense have actually been approved. Despite this, their loans have yet to been discharged, according to lawmakers.

Back in May, lawmakers claimed that while the 23,000 students were notified in January that their Borrower Defense claims had been approved and they would receive discharges and refunds within 60 days and 120 days.

Despite this, the senators contended that they had received reports that many previously approved students had not obtained the relief they were promised within 120 days.