On July 31, 2018, the U.S. Department of Education published a Notice of Proposed Rulemaking describing its new policy for borrower defense and student debt. In the following letter, submitted in response to the department’s request for comment, TCF contributor Sean Marvin homes in on how the proposed guidelines dangerously misconstrue the mission set out by the Higher Education Act.
You can also read comments on the notice by TCF senior fellow Jen Mishory, senior fellow Robert Shireman, and senior policy associate Tariq Habash.
Thank you for the opportunity to comment on the department’s notice of proposed rulemaking on borrower defense and related issues. Due to the short timeline for responding, rather than comment on all of the many errors and flaws in this proposed rule, I will focus primarily on the ways in which the proposed rule ignores the history and intent of the Higher Education Act (HEA).
The department states that the purported goal of its proposal is to “enable students to make informed decisions on the front end of college enrollment.” According to the department, “Postsecondary students are adults who can be reasonably expected to make informed decisions and who must take personal accountability for the decisions they make.” Additionally, according to the department, “students have a responsibility when enrolling at an institution or taking student loans to be sure they have explored their options carefully and weighed the available information to make an informed choice.” Further, the department says it “has an obligation to enforce the Master Promissory Note, which makes clear that students are not relieved of their repayment obligations if they later regret the choice they made.”
This approach, however, disproportionately places responsibility for fraudulent colleges on student victims of fraud rather than those colleges that commit fraud. Further, despite the department’s assertions, the borrower defense provision in 20 U.S.C. § 1087e(h) was not added to the HEA due to students who regretted their decision about where to attend school. Instead, that provision was added after years of examples of schools that engaged in fraud and deception so great that it was virtually impossible for prospective students to make informed decisions about where to attend school. The provision was also added due to the department’s recognition that it and academic institutions share a responsibility for students and taxpayers. Unfortunately, however, the department is now ignoring those lessons learned.
Legislative History of 20 U.S.C. § 1087e(h)
In 1993, the Student Loan Reform Act (SLRA) was introduced in both the U.S. Senate and House of Representatives. Among other things, the SLRA directed the education secretary to specify in regulations which acts or omissions by a college would provide a student with the ability to assert a defense to repaying his or her student loans. Later that year, Congress passed the SLRA as part of the Omnibus Budget Reconciliation Act of 1993.
The SLRA’s direction to the secretary of education concerning defense to loan repayment followed various scandals during the previous decade in the for-profit school sector. It marked a culmination of repeated efforts by both the Reagan and George H.W. Bush administrations to crack down on abuses by proprietary schools.
One of the more significant events leading up to the SLRA was in 1984, when the then-named government accounting office (GAO) found that many for-profit schools misrepresented themselves to prospective students, admitted unqualified students, and kept students enrolled even when they did not meet academic progress standards. The GAO estimated that almost two-thirds of the 1,165 for-profit schools receiving federal funds had “misrepresented themselves to varying degrees, particularly during the recruiting process,” often by overstating job placement rates, misrepresenting scholarships, and misrepresenting themselves in advertising.
The next year, President Reagan made Bill Bennett secretary of education. On various occasions, Secretary Bennett urged Congress to take measures to curb abuse of student financial aid programs by proprietary schools. For example, in a 1986 Senate hearing, Bennett testified, “Institutions are defrauding students, and in many instances they are ripping off the American public, when they admit individuals who are manifestly unprepared for the work that will be required of them, or when they graduate students who cannot satisfy minimum standards in their field of study.”
Later, Bennett released a department report that he said showed “extensive evidence” that many for-profit trade schools were exploiting and deceiving students. Explaining that report, Secretary Bennett described “accounts of semiliterate high school dropouts lured to enroll in expensive training programs with false hopes of lucrative jobs, only to have their hopes for a better future cruelly dashed.” Additionally, he described “falsified scores of entrance exams, poor quality training, and harsh refund policies.” He went on, “The pattern of abuses revealed in these documents is an outrage perpetrated not only on the American taxpayer but, most tragically, upon some of the most disadvantaged, and most vulnerable members of society.”
Bennett called on Congress to close “loopholes that invite unscrupulous schools to defraud the taxpayer and take advantage of vulnerable students.” Although some in Congress expressed opposition to his proposals and noted that students, not schools, were taking out government loans, Bennett’s cited the responsibility shared by academic institutions and lenders, not just students.
Nonetheless, examples of schools exploiting students continued, including, for example, reported instances of for-profit schools bussing in homeless people from shelters in different Texas and Louisiana cities, signing them up for federal financial aid, and then leaving them on Houston streets.
Accordingly, in 1990, the U.S. Senate permanent subcommittee on investigations, chaired by Senator Sam Nunn (D-GA), opened an investigation into problems with the guaranteed student loan program. During eight days of hearings, nearly fifty witnesses testified, many of whom described various forms of fraud and abuse in the for-profit school sector. For example, a recruiter for a truck driving school described how 99 percent of his sales were in “poor, black areas [at] welfare offices and unemployment lines and in housing projects.” Said the recruiter, “My approach was that if [a prospect] could breathe, scribble his name, and had a driver’s license, and was over 18 years of age, he was qualified for [our] program.”
The committee’s investigation was largely bipartisan. During the hearings, the ranking Republican on the committee, Senator William Roth (R-DE) noted, “Because of the deceptive practices of such schools, these students have to pay for an education they never received.” The following year, all Republicans on the committee during the hearings approved the committee’s report.
The Nunn committee’s report found that the federal student loan program, “particularly as it relates to proprietary schools, is riddled with fraud, waste, and abuse, and is plagued by substantial mismanagement and incompetence. . . fail[ing] . . . to insure that federal dollars are providing quality, not merely quantity, in education.”
The report went on, “As a result, many of the program’s intended beneficiaries—hundreds of thousands of young people, many of whom come from backgrounds with already limited opportunities—have suffered further. . . . Victimized by unscrupulous profiteers and their fraudulent schools, students have received neither the training nor the skills they hoped to acquire and, instead, have been left burdened with debts they cannot repay.”
Earlier that same year, the new education secretary, Lamar Alexander, also proposed increased regulation of the for-profit sector. Said Alexander to Congress, “we must ask not only ‘do our students have access,’ but also ‘access to what’? Access to an institution that produces mostly dropouts, not graduates, or produces graduates that are not employable in the fields for which they have been trained. Or access to an educational program that is responsive to the needs of both students and the Nation?”
The following year, when the Higher Education Act was reauthorized by Congress, the new law included many recommendations from the Nunn committee. The accompanying report from the house committee on education and labor indicated that the reauthorized HEA’s creation of a direct loan program was in direct response to the 1991 Nunn committee’s findings concerning fraud and abuse by certain lenders and trade schools. The new HEA also increased state oversight. For example, under the new law, each state was made responsible for establishing an authority to conduct oversight and define acceptable standards for its institutions. Further, the law included a provision directing the secretary of education to study the impact of fraud-based defenses on the federal family education loan program.
Upon signing the legislation, President Bush noted that a number of provisions in the new law “will crack down on sham schools that have defrauded students and the American taxpayers in the past.”
The following year, the SLRA further amended the HEA by directing the secretary of education to specify which acts or omissions by a college provided a student a defense to repaying his or her student loans.
Proposed Rule
The department’s statement that “Postsecondary students . . . must take personal accountability for the decisions they make” ignores the general principle recognized in various areas of the law that consumers are not responsible for fraudulent behavior of businesses. Numerous federal and state laws exist to prevent businesses from engaging in fraud and other unfair practices that would otherwise allow such businesses to gain advantage over their competitors, and prey on vulnerable consumers.
Further, the department’s statement and proposed rule also ignore the history of the HEA, which has evolved to make specific requirements of academic institutions. Among other things, Title IV of the HEA requires that institutions receiving aid under that title be legally authorized to operate in the state where it is physically located, hold proper accreditation, and be certified by the department as eligible to participate in Title IV programs.
Such requirements reflect the responsibility that Secretary Bennett spoke of and which the department and academic institutions share in ensuring the integrity of institutions that receive federal tax dollars, and in protecting taxpayers and students. As Secretary Alexander indicated, it is not enough for the department of education to only ensure that students have access to higher education—students must also have access to institutions that produce graduates that are employable in the fields for which they have been trained.
The department’s proposed rule also ignores the great imbalance that exists between students and academic institutions, and particularly between the most vulnerable prospective students that certain schools have repeatedly preyed on in the past. For example, in past instances where schools have enrolled students with limited literacy, it is difficult to imagine how those same students could be expected to know that, despite promises by those schools, a degree from those schools would not likely lead to a better future, let alone work that would allow them to pay off their student loans. Moreover, bad actor institutions take advantage of that imbalance.
For example, lawsuits against Corinthian Colleges revealed that the company made untrue and misleading representations about their job placement rates, ran ads for programs they did not offer, and unlawfully used military seals that reasonably could have been interpreted as implying an endorsement. It was also revealed that Corinthian targeted low-income individuals who it, in internal company documents, described as “isolated,” “impatient,” individuals with “low self-esteem” who have “few people in their lives who care about them” and are “stuck” and “unable to see and plan well for future.”
By putting the burden on such students to make an “informed choice,” the department is ignoring the disparity that exists between companies such as Corinthian, which say anything in order to get prospective students to enroll, and prospective students who reasonably believe that such schools receiving federal aid are honest. Moreover, by ignoring that disparity and placing the burden on students, the department is only encouraging more bad behavior by fraudulent companies.
Additionally, although the department states that it “has an obligation to enforce the Master Promissory Note, which makes clear that students are not relieved of their repayment obligations if they later regret the choice they made,” it provides no examples of students who, under the current borrower defense rule, asserted a defense to repayment simply because they regretted their educational choice.
Likewise, it includes no explanation of why, even if some students were to assert a defense to repayment based on ”regret,” the department is unable to simply separate those applications out from meritorious claims. It also ignores the fact that applicants who assert a defense to repayment using the department’s current application are asked a number of questions about how their school misled them, and to provide specific details about such deception. The same application also asks applicants to state that the information they provide is true and complete to the best of their knowledge, and informs applicants that they are that they are subject to penalties under 18 USC § 1001 for certain false statements.
As with Secretary Betsy DeVos’s recent statement that, under the previous borrower defense rule, “all one had to do was raise his or her hands to be entitled to so-called free money,” the department’s stance with regard to the previous borrower defense rule is simply not supported by fact.
Ultimately, the department’s proposed rule would make students almost entirely responsible for fraud perpetrated by schools, thereby making it easier for bad actor schools to engage in fraud, and making the borrower defense protection that Congress added to the HEA in 1993 essentially meaningless. In proposing such a rule, the department has shown that it would flunk a class in its own history, and that it is failing to protect the students it is meant to serve.
The department should withdraw its proposed rule and allow for the full implementation of the 2016 borrower defense rule.
Sincerely,
Sean Marvin
Contributor, The Century Foundation
Tags: student debt, U.S. Department of Education, borrower defense, student loan
How the Education Department Wants to Make Predatory Colleges Untouchable
On July 31, 2018, the U.S. Department of Education published a Notice of Proposed Rulemaking describing its new policy for borrower defense and student debt. In the following letter, submitted in response to the department’s request for comment, TCF contributor Sean Marvin homes in on how the proposed guidelines dangerously misconstrue the mission set out by the Higher Education Act.
You can also read comments on the notice by TCF senior fellow Jen Mishory, senior fellow Robert Shireman, and senior policy associate Tariq Habash.
Thank you for the opportunity to comment on the department’s notice of proposed rulemaking on borrower defense and related issues. Due to the short timeline for responding, rather than comment on all of the many errors and flaws in this proposed rule, I will focus primarily on the ways in which the proposed rule ignores the history and intent of the Higher Education Act (HEA).
The department states that the purported goal of its proposal is to “enable students to make informed decisions on the front end of college enrollment.” According to the department, “Postsecondary students are adults who can be reasonably expected to make informed decisions and who must take personal accountability for the decisions they make.” Additionally, according to the department, “students have a responsibility when enrolling at an institution or taking student loans to be sure they have explored their options carefully and weighed the available information to make an informed choice.” Further, the department says it “has an obligation to enforce the Master Promissory Note, which makes clear that students are not relieved of their repayment obligations if they later regret the choice they made.”
This approach, however, disproportionately places responsibility for fraudulent colleges on student victims of fraud rather than those colleges that commit fraud. Further, despite the department’s assertions, the borrower defense provision in 20 U.S.C. § 1087e(h) was not added to the HEA due to students who regretted their decision about where to attend school. Instead, that provision was added after years of examples of schools that engaged in fraud and deception so great that it was virtually impossible for prospective students to make informed decisions about where to attend school. The provision was also added due to the department’s recognition that it and academic institutions share a responsibility for students and taxpayers. Unfortunately, however, the department is now ignoring those lessons learned.
Legislative History of 20 U.S.C. § 1087e(h)
In 1993, the Student Loan Reform Act (SLRA) was introduced in both the U.S. Senate and House of Representatives.1 Among other things, the SLRA directed the education secretary to specify in regulations which acts or omissions by a college would provide a student with the ability to assert a defense to repaying his or her student loans.2 Later that year, Congress passed the SLRA as part of the Omnibus Budget Reconciliation Act of 1993.3
The SLRA’s direction to the secretary of education concerning defense to loan repayment followed various scandals during the previous decade in the for-profit school sector. It marked a culmination of repeated efforts by both the Reagan and George H.W. Bush administrations to crack down on abuses by proprietary schools.4
One of the more significant events leading up to the SLRA was in 1984, when the then-named government accounting office (GAO) found that many for-profit schools misrepresented themselves to prospective students, admitted unqualified students, and kept students enrolled even when they did not meet academic progress standards.5 The GAO estimated that almost two-thirds of the 1,165 for-profit schools receiving federal funds had “misrepresented themselves to varying degrees, particularly during the recruiting process,” often by overstating job placement rates, misrepresenting scholarships, and misrepresenting themselves in advertising.6
The next year, President Reagan made Bill Bennett secretary of education. On various occasions, Secretary Bennett urged Congress to take measures to curb abuse of student financial aid programs by proprietary schools. For example, in a 1986 Senate hearing, Bennett testified, “Institutions are defrauding students, and in many instances they are ripping off the American public, when they admit individuals who are manifestly unprepared for the work that will be required of them, or when they graduate students who cannot satisfy minimum standards in their field of study.”7
Later, Bennett released a department report that he said showed “extensive evidence” that many for-profit trade schools were exploiting and deceiving students.8 Explaining that report, Secretary Bennett described “accounts of semiliterate high school dropouts lured to enroll in expensive training programs with false hopes of lucrative jobs, only to have their hopes for a better future cruelly dashed.”9 Additionally, he described “falsified scores of entrance exams, poor quality training, and harsh refund policies.”10 He went on, “The pattern of abuses revealed in these documents is an outrage perpetrated not only on the American taxpayer but, most tragically, upon some of the most disadvantaged, and most vulnerable members of society.”11
Bennett called on Congress to close “loopholes that invite unscrupulous schools to defraud the taxpayer and take advantage of vulnerable students.”12 Although some in Congress expressed opposition to his proposals and noted that students, not schools, were taking out government loans, Bennett’s cited the responsibility shared by academic institutions and lenders, not just students.13
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Nonetheless, examples of schools exploiting students continued, including, for example, reported instances of for-profit schools bussing in homeless people from shelters in different Texas and Louisiana cities, signing them up for federal financial aid, and then leaving them on Houston streets.14
Accordingly, in 1990, the U.S. Senate permanent subcommittee on investigations, chaired by Senator Sam Nunn (D-GA), opened an investigation into problems with the guaranteed student loan program.15 During eight days of hearings, nearly fifty witnesses testified, many of whom described various forms of fraud and abuse in the for-profit school sector.16 For example, a recruiter for a truck driving school described how 99 percent of his sales were in “poor, black areas [at] welfare offices and unemployment lines and in housing projects.”17 Said the recruiter, “My approach was that if [a prospect] could breathe, scribble his name, and had a driver’s license, and was over 18 years of age, he was qualified for [our] program.”18
The committee’s investigation was largely bipartisan.19 During the hearings, the ranking Republican on the committee, Senator William Roth (R-DE) noted, “Because of the deceptive practices of such schools, these students have to pay for an education they never received.”20 The following year, all Republicans on the committee during the hearings approved the committee’s report.21
The Nunn committee’s report found that the federal student loan program, “particularly as it relates to proprietary schools, is riddled with fraud, waste, and abuse, and is plagued by substantial mismanagement and incompetence. . . fail[ing] . . . to insure that federal dollars are providing quality, not merely quantity, in education.”22
The report went on, “As a result, many of the program’s intended beneficiaries—hundreds of thousands of young people, many of whom come from backgrounds with already limited opportunities—have suffered further. . . . Victimized by unscrupulous profiteers and their fraudulent schools, students have received neither the training nor the skills they hoped to acquire and, instead, have been left burdened with debts they cannot repay.”23
Earlier that same year, the new education secretary, Lamar Alexander, also proposed increased regulation of the for-profit sector. Said Alexander to Congress, “we must ask not only ‘do our students have access,’ but also ‘access to what’? Access to an institution that produces mostly dropouts, not graduates, or produces graduates that are not employable in the fields for which they have been trained. Or access to an educational program that is responsive to the needs of both students and the Nation?”24
The following year, when the Higher Education Act was reauthorized by Congress, the new law included many recommendations from the Nunn committee. The accompanying report from the house committee on education and labor indicated that the reauthorized HEA’s creation of a direct loan program was in direct response to the 1991 Nunn committee’s findings concerning fraud and abuse by certain lenders and trade schools.25 The new HEA also increased state oversight.26 For example, under the new law, each state was made responsible for establishing an authority to conduct oversight and define acceptable standards for its institutions.27 Further, the law included a provision directing the secretary of education to study the impact of fraud-based defenses on the federal family education loan program.28
Upon signing the legislation, President Bush noted that a number of provisions in the new law “will crack down on sham schools that have defrauded students and the American taxpayers in the past.”29
The following year, the SLRA further amended the HEA by directing the secretary of education to specify which acts or omissions by a college provided a student a defense to repaying his or her student loans.30
Proposed Rule
The department’s statement that “Postsecondary students . . . must take personal accountability for the decisions they make” ignores the general principle recognized in various areas of the law that consumers are not responsible for fraudulent behavior of businesses. Numerous federal and state laws exist to prevent businesses from engaging in fraud and other unfair practices that would otherwise allow such businesses to gain advantage over their competitors, and prey on vulnerable consumers.31
Further, the department’s statement and proposed rule also ignore the history of the HEA, which has evolved to make specific requirements of academic institutions. Among other things, Title IV of the HEA requires that institutions receiving aid under that title be legally authorized to operate in the state where it is physically located, hold proper accreditation, and be certified by the department as eligible to participate in Title IV programs.32
Such requirements reflect the responsibility that Secretary Bennett spoke of and which the department and academic institutions share in ensuring the integrity of institutions that receive federal tax dollars, and in protecting taxpayers and students. As Secretary Alexander indicated, it is not enough for the department of education to only ensure that students have access to higher education—students must also have access to institutions that produce graduates that are employable in the fields for which they have been trained.
The department’s proposed rule also ignores the great imbalance that exists between students and academic institutions, and particularly between the most vulnerable prospective students that certain schools have repeatedly preyed on in the past. For example, in past instances where schools have enrolled students with limited literacy, it is difficult to imagine how those same students could be expected to know that, despite promises by those schools, a degree from those schools would not likely lead to a better future, let alone work that would allow them to pay off their student loans. Moreover, bad actor institutions take advantage of that imbalance.
For example, lawsuits against Corinthian Colleges revealed that the company made untrue and misleading representations about their job placement rates, ran ads for programs they did not offer, and unlawfully used military seals that reasonably could have been interpreted as implying an endorsement.33 It was also revealed that Corinthian targeted low-income individuals who it, in internal company documents, described as “isolated,” “impatient,” individuals with “low self-esteem” who have “few people in their lives who care about them” and are “stuck” and “unable to see and plan well for future.”34
By putting the burden on such students to make an “informed choice,” the department is ignoring the disparity that exists between companies such as Corinthian, which say anything in order to get prospective students to enroll, and prospective students who reasonably believe that such schools receiving federal aid are honest. Moreover, by ignoring that disparity and placing the burden on students, the department is only encouraging more bad behavior by fraudulent companies.
Additionally, although the department states that it “has an obligation to enforce the Master Promissory Note, which makes clear that students are not relieved of their repayment obligations if they later regret the choice they made,” it provides no examples of students who, under the current borrower defense rule, asserted a defense to repayment simply because they regretted their educational choice.
Likewise, it includes no explanation of why, even if some students were to assert a defense to repayment based on ”regret,” the department is unable to simply separate those applications out from meritorious claims. It also ignores the fact that applicants who assert a defense to repayment using the department’s current application are asked a number of questions about how their school misled them, and to provide specific details about such deception.35 The same application also asks applicants to state that the information they provide is true and complete to the best of their knowledge, and informs applicants that they are that they are subject to penalties under 18 USC § 1001 for certain false statements.36
As with Secretary Betsy DeVos’s recent statement that, under the previous borrower defense rule, “all one had to do was raise his or her hands to be entitled to so-called free money,”37 the department’s stance with regard to the previous borrower defense rule is simply not supported by fact.
Ultimately, the department’s proposed rule would make students almost entirely responsible for fraud perpetrated by schools, thereby making it easier for bad actor schools to engage in fraud, and making the borrower defense protection that Congress added to the HEA in 1993 essentially meaningless. In proposing such a rule, the department has shown that it would flunk a class in its own history, and that it is failing to protect the students it is meant to serve.
The department should withdraw its proposed rule and allow for the full implementation of the 2016 borrower defense rule.
Sincerely,
Sean Marvin
Contributor, The Century Foundation
Notes
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Tags: student debt, U.S. Department of Education, borrower defense, student loan