DeVos rules would curtail $13B in student loan relief

Students who are defrauded by their schools would have a harder time getting their federal loans erased under new rules proposed by the Trump administration Wednesday.

The proposal, which aims to replace a set of Obama-era rules that were never implemented, drew applause from the for-profit industry but sharp criticism from advocacy groups that represent student borrowers.

Education Secretary Betsy DeVos said the proposal lays out clear rules schools must follow to avoid trouble, while also protecting students harmed by deception.

“Our commitment and our focus has been and remains on protecting students from fraud,” DeVos said.

Under the proposal, students would be eligible for loan relief if they can prove their schools knowingly misled them with statements or actions that directly led them to take out loans or enroll at the school.

That would be a higher bar than the borrower defense rules finalized under Obama in 2016 after the collapse of two for-profit schools, Corinthian Colleges and ITT Technical Institute. Those rules allowed relief in a wider range of cases dealing with breach of contract.

Education Department documents supporting DeVos’ proposal argue that, while students should be protected from fraud, they also have an obligation to do their research before picking schools.

“Postsecondary students are adults who can be reasonably expected to make informed decisions if they have access to relevant and reliable data about program outcomes,” the department said.

The new proposal is estimated to save nearly $13 billion over the next decade compared with spending estimates under the Obama rules, primarily by reducing the amount of loan relief awarded to students.

Department officials say they have received more than 100,000 fraud claims since 2015, and most are still under review. But the new rules would apply only to loans taken out after July 1, 2019, officials said.

Schools would gain an opportunity to respond to claims of fraud under the new proposal, which says schools deserve to defend themselves.

It also would allow schools to force students into arbitration agreements barring them from suing the school, a practice used by some for-profit colleges that would have been banned under Obama’s rules.

Opponents blasted the proposal, saying it places schools ahead of students and discourages victims from pursuing financial relief.