Ed Dept. Issues Final Rules for Defrauded Students; Activists Say the Rules Fall Short

After some two years of deliberation, the U.S. Department of Education has released final rules meant to protect students from colleges that close or defraud them.

The “borrower defense to repayment” rule allows students to have their federal student loans discharged in cases where they were given false or misleading information, for example. The closed school discharge gives some students the option of having their loans forgiven if a college closes suddenly.

The new rules, which go into effect in July, will replace a 2016 regulation issued under former President Barack Obama, and will save the federal government an estimated $11 billion over 10 years. Until that date, the department will enforce the existing regulations. An estimated 180,000 claims for debt relief are now being reviewed by the department, mostly from students affected by the closures of major for-profit colleges such as Corinthian Colleges and ITT Technical Institute.

Education department officials said the new rules were changed quite a bit from the draft proposals, in response to the nearly 40,000 public comments they received. For example, students who file a claim under the borrower defense regulations, will not have to be in default on their loans as the department had originally proposed.

Claims of fraud also will be judged under the existing standard of “preponderance of evidence” rather than the higher standard of “clear and convincing evidence,” as the draft regulations had proposed.

Under the final rule, students also will not have to show that the institution intended to defraud them, said Diane Auer Jones, principal deputy undersecretary, who described the changes to reporters in a phone call.

But student advocates and consumer protection groups derided the department’s final regulations, saying that they create a nearly impossible hurdle to show they have been wronged.

While the standard of evidence is lower, students still have to prove that a statement or action by the college was “made with knowledge of its false, misleading, or deceptive nature or with a reckless disregard for the truth,” Sam Gilford, a spokesman for the National Student Legal Defense Network, said in an email.

Ashley Harrington, senior policy counsel at the Center for Responsible Lending, said even if a student manages to prove that they were defrauded, the department will not necessarily provide them any relief from their student loans. Instead, the student must prove evidence of financial harm, for instance by showing that they could not get a job in the field for which they earned a credential.

As in the draft rule, the final rule also prohibits the department from granting relief to an entire group of students when they are defrauded or their school closes. Instead, all students must apply individually for relief.

The new rule “does anything but defend students,” said a prepared statement from James Kvaal, president of The Institute for College Access and Success. “It requires students to submit evidence that students do not have and cannot get, and it prevents students who were harmed as a group from getting relief as a group,” the statement said. “By the Department’s own estimates, their rule would discharge only a tiny fraction of the loans made to cheated borrowers.”

Eric Kelderman writes about money and accountability in higher education, including such areas as state policy, accreditation, and legal affairs. You can find him on Twitter @etkeld, or email him at eric.kelderman@chronicle.com.