U.S. Looking At Deceptive Practices Of Higher Education Institutions For Student Borrowers

“Our commitment and our focus has been and remains on protecting students from fraud,” said U.S. Secretary of Education Betsy DeVos. “The regulations proposed today accomplish that…

WASHINGTON—Last week the U.S. Department of Education proposed a new package of higher education regulations aimed at protecting student borrowers, holding higher education institutions accountable for misrepresentation and fraud and providing financial protections to taxpayers by at-risk institutions.

The Institutional Accountability regulations, which were published on the Department’s website last week, come after months of public hearings and negotiated rulemaking that engaged a wide variety of higher education stakeholders.

“Our commitment and our focus has been and remains on protecting students from fraud,” said U.S. Secretary of Education Betsy DeVos. “The regulations proposed today accomplish that by laying out clear rules of the road for higher education institutions to follow and holding institutions, rather than hardworking taxpayers, accountable for making whole those students who were harmed by an institution’s deceptive practices.”

The proposed Institutional Accountability regulations include provisions that would:

• Put into place a borrower defense to repayment adjudication process that is clear, consistent and fair to borrowers who were harmed by institutional misconduct
• Replace the current “state standard” for adjudicating claims with a Federal standard that clearly defines misrepresentation and enables more expeditious review of student claims
• Facilitate collection and review of evidence for deciding claims and ensure that the Secretary of Education can recoup from institutions the financial losses associated with successful borrower defense claims
• Encourage students to seek remedies directly from institutions that have committed acts of misrepresentation
• Expand from 120 days to 180 days the period of time during which students who left an institution prior to its closure are eligible for a closed school loan discharge while at the same time incentivize closing institutions to engage in orderly teach-outs, which enable more students to complete their program
• Ensure that institutions requiring students to engage in mandatory arbitration or prohibiting them from participating in class action lawsuits provide plain language explanations of these provisions to enable students to make an informed enrollment decision
• Prevent guaranty agencies from charging borrowers a fee if a defaulted loan goes into repayment within 60 days
• Protect taxpayers by requiring institutions to post a letter of credit when events occur that put the institution’s continuing operations or financial stability at risk

The proposed regulations will be open for public comment over the next 30 days.  In addition to seeking public comment on all provisions of the proposed regulation, the Department has included a directed question asking for public comment on two different approaches to accepting borrower defense to repayment claims, which include:

• Accepting “defensive” claims only, which limit borrower defense claims to defaulted borrowers who are in a collections proceeding; or
• Accepting both “defensive” and “affirmative” claims, including from borrowers still in repayment

Because the implications of this determination are far-reaching for taxpayers and borrowers, the Department is seeking comment on how to balance the need to protect borrowers from acts of institutional fraud with the need to protect taxpayers from the high cost of unjustified claims.

To view the proposed regulations package in its entirety click here.