DeVos Overrides Obama Administration’s Regulations on Student Loan Forgiveness

Inside Subprime: July 27, 2018

By Ben Moore

The U.S. Secretary of Education, Betsy DeVos, has recently proposed to rewrite the Obama administration’s loan forgiveness rules. These regulations were aimed to provide easy access to student loan forgiveness for students that found themselves overwhelmed with debt from two college chains, Corinthian Colleges and ITT Technical Institute, that used years of false advertising to mislead their student bodies. Many of these students now face difficulties paying their monthly student loan payments, resorting to payday lenders and bad credit loans to fill the financial holes in their monthly incomes.

Under the previous regulations, the Obama administration had moved to begin the forgiveness of hundreds of millions of dollars in student loans for any students that attended the college chains that were exposed for fraudulent activity. But while the new rules would work in favor of the students suffering under the load of tremendous debt, many higher education institutions protested that they were far too broad to enforce effectively and claimed they would be subject to flippant and frivolous claims. A month before the new rules were set to take effect, DeVos overrode them, blocked the loan forgiveness and promised the rules would be rewritten.

The Trump administration will now be proposing rules requiring all borrowers to prove that they have “have fallen into deep financial distress” in order to ask for debt relief, as well as require additional proof that the colleges and universities they attended had intentionally defrauded them. The new regulations will also impose penalties on institutions with signs of poor financial health, including loan defaults and court judgements. It is estimated that $700 million in government funding will be saved once the regulations go in effect by July of 2019, though many believe this is nothing to celebrate. Suzanne Martindale, a senior attorney for Consumers Union fears that “the Department of Education is turning a blind eye to widespread fraud and abuse at for-profit schools that left thousands of students in debt without a meaningful education” and claims that the new rules would keep these institutions from “being held accountable for their misconduct.” Martindale’s concerns stem from DeVos filling her department with past executives from many for-profit colleges and universities, including Robert S. Eitel and Diane Auer Jones of Career Education Corporation. Career Education Corp. recently reached a $10.25M settlement with the state of New York due to their practice of inflating their graduates job placement rates.

The new rules are also being criticized for increasing the criteria needed for debt relief based upon whether the schools borrowers attended were closed or shut down. Previously, a closed school would guarantee full loan forgiveness to the students, but now borrowers would be disqualified from the relief if the closed school simply offered the option to finish the program somewhere else. Aaron Ament, the president of the National Student Legal Defense Network, harshly criticized DeVos for this, claiming she was “effectively stripping [the students] of a realistic path to debt relief” and had given “fraudulent institutions de facto immunity”. In a time when 75% of full-time workers are already living paycheck-to-paycheck, these institutions appear to be moving on seemingly unscathed while their students are left searching for options to dig themselves out of tremendous debt.

Learn more about the dangers of payday loans in the United States in all of our Subprime Reports.

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