DeVos On Defensive for Plan to Shortchange Defrauded Student Borrowers

Washington D.C. — During her contentious appearance before the House Education Committee today, Trump Education Secretary Betsy DeVos’ new and not-at-all-improved plan to deal with her department’s backlog of over 200,000 borrower defense claims went over like a lead balloon. After finding herself in contempt of court in October for illegally collecting debts not owed by defrauded borrowers, DeVos struggled to defend her response: a new proposal to roll back Obama era protections and provide only “partial” relief for the vast majority of harmed borrowers. Her planned use of a rigid earnings comparison formula may still “run afoul of the law,” but it is music to the ears of bad actors in the for-profit college industry that would be let off the hook from making defrauded borrowers whole.

DeVos, with an assist from Republican Ranking Member Virginia Foxx, resorted to outright falsehoods to excuse her inaction, claiming the Obama administration “had no process in place for reviewing any claims.” This claim flies in the face of the reality that the Obama Education Department had a “‘dedicated team to process claims’” and successfully discharged 12,000 loans made to defrauded Corinthian students. And DeVos’ own department said it would “process claims as prescribed” in the original Obama-era rule when a court declared she could no longer delay processing claims.

The DeVos agenda has been a boon to the for-profit college industry that has given over $8 million to Republican campaigns. Earlier this week, records came to light that ACICS, the chronically substandard for-profit college accreditor that DeVos controversially restored federal recognition to last year, was found to have ongoing “compliance concerns” by her own department’s career auditors. Meanwhile, DeVos continues to consider new rules that would “lower the bar for new accreditors to start granting access to federal aid, including those with minimal to no experience.”

“Secretary DeVos is working to keep problematic accreditors in business while allowing anyone off the street to become one. This only invites more incidents of substandard for-profit colleges robbing students of the quality education they paid for,” said Jeremy Funk, spokesman for Allied Progress. “The Secretary is creating a perfect storm for borrower mistreatment. After making the problem worse, it takes real chutzpah to now try to shortchange defrauded students in order to protect the profits of their abusers. Victims of fraud deserve the full relief established by the Obama administration, period.”

Added Funk: “DeVos claims this is all about saving taxpayer money, so here’s an idea: start holding the for-profit college industry accountable which would minimize the number of borrower defense claims to begin with. But that of course would be met with “extreme displeasure from all the former industry lobbyists and executives she’s surrounded herself with at the Department.”

WHAT YOU NEED TO KNOW:

Betsy DeVos Misled Congress In Her Testimony After Selling Out To The For-Profit College Industry

RHETORIC: Betsy DeVos Told Congress The Obama Administration “Had No Process In Place For Reviewing Any Claims” Filed Under The Borrower Defense Rule.

Betsy DeVos Told Congress The Obama Administration “Had No Process In Place For Reviewing Any Claims” Filed Under The Borrower Defense Rule…

Betsy DeVos Claimed The Obama Administration “Had No Process In Place For Reviewing Any Claims” Filed Under The Borrower Defense Rule, And “Lacked The Ability To Even Accurately Track Them.” “In fact, the prior administration was encouraging claims to be filed knowing full well it lacked the ability to even accurately track them. It had no process in place for reviewing any claims. And it knew the department couldn’t quickly and legally give blanket forgiveness of all loans. So when they left office they left tens of thousands of claims behind.” [“Examining the Education Department’s Implementation of Borrower Defense,” House Committee on Education and Labor, 12/12/19]

REALITY: The Obama Administration Had Established “Policies And Procedures” For Borrower Defense As Well As A “Dedicated Team To Process Claims” And Successfully Discharged 12,000 Loans Made To Defrauded Corinthian Students.

…Yet The Obama Administration Had “A Dedicated Team To Process Claims”— Even Reviewing And Discharging Loans Of 12,000 Defrauded Corinthian Students…

The Obama Administration “Put In Place A Dedicated Team To Process Claims, As Well As A Stronger, Fairer Standard For Future Students And New Rules To Hold Colleges Accountable,” According To James Kvaal, A Former White House And Department Of Education Official. “‘When it came to identifying defrauded borrowers, we inherited a baroque set of rules and no established process at all,’ said James Kvaal, who served in a variety of senior leadership roles at the Department of Education and the White House under President Obama. ‘Before we left office we put in place a dedicated team to process claims, as well as a stronger, fairer standard for future students and new rules to hold colleges accountable for the costs of their fraud.’” [Stephen Burd, “Borrower’s Remorse,” Washington Monthly, September/October 2017]

  • James Kvaal Was Deputy Director of Domestic Policy for the White House Domestic Policy Council From February 2013 To March 2016. [LinkedIn for James Kvaal, accessed 12/12/19]

“Between July And The End Of October 2016,” After The Office Of Federal Student Aid Began “Reviewing Claims,” It Discharged Loans Of 12,000 Borrower Defrauded Corinthian Students. “The pace picked up after the department’s Federal Student Aid (FSA) office took over the job of reviewing claims. Between July and the end of October 2016, FSA provided an additional 12,000 discharges, primarily to borrowers who had attended Corinthian’s Everest and Wyotech campuses. FSA also improved the department’s outreach efforts by working with state attorneys general and experimenting with social media to find people who might be eligible for discharges.” [Stephen Burd, “Borrower’s Remorse,” Washington Monthly, September/October 2017]

Even A Critical Report On The Obama Administration’s Handling Of Borrower Defense Claims Acknowledged That FSA Established “Policies And Procedures Related To The Intake And Discharge Of Borrower Defense Claims In 2015.” “We found that FSA established policies and procedures related to the intake and discharge of borrower defense claims in 2015 and refined the claims intake policies and procedures throughout our review period. FSA also established policies and procedures related to reviewing borrower defense claims in April 2016 and introduced new policies and procedures throughout our review period.” [US Department of Education office of the Inspector General, “Federal Student Aid’s Borrower Defense to Repayment Loan Discharge Process,” ED.gov, 12/08/17]

REALITY: Betsy DeVos’ Own Department Said It Would “Process Claims As Prescribed” In The Original Obama-Era Rule When A Court Ruled She Could No Longer Delay Processing Claims.

…And Betsy DeVos’ Own Department Said It Would “Utilize The Process For Gathering Information From Students And Institutions And Process Claims As Prescribed” In The Obama Administration’s Original 2016 Rule And Its Pre-Trump Amendments…

After A Court Ruled That The Obama Administration’s Borrower Defense Rule Should No Longer Be Delayed, Betsy DeVos’ Own Department Of Education Said It Would “Utilize The Process For Gathering Information From Students And Institutions And Process Claims As Prescribed In The 2016 Rule” And 2017 Amendments Made The Day Before Trump Was Inaugurated. “Addressed without much detail or fanfare in the announcement, ED indicated that it will utilize the process for gathering information from students and institutions and process claims as prescribed in the 2016 rule and the January 19, 2017 procedural amendments that added the BDTR process to Subpart G (Fine, Limitation, Suspension and Termination Proceedings).” [Katherine Lee Carey, “Blog: At Long Last…ED Issues Guidance Regarding Implementation of the 2016 Borrower Defense to Repayment Rules,” JD Supra, 04/02/19]

  • “Following a court ruling in September 2018 making the delayed Obama-era Borrower Defense to Repayment regulations immediately effective, the Department of Education has been promising guidance to institutions so they (and potentially affected past and present students) could understand ED’s expectations for compliance. After six months, that guidance was finally issued on March 15 via an electronic announcement available at ifap.ed.gov.” [Katherine Lee Carey, “Blog: At Long Last…ED Issues Guidance Regarding Implementation of the 2016 Borrower Defense to Repayment Rules,” JD Supra, 04/02/19]

The For-Profit College Industry Has Repeatedly Claimed In Corporate Filings That The Borrower Defense Rule Could Impose “Risks” And “Restrictions” On Their Business.

In 2016, Apollo Education Group, A For-Profit Education Company, Claimed That Proposed Borrower Defense Regulations “Could Result In Significant Potential Risks For Our Business” As “Student Loan Discharge” Due To Enforcement Could Bring “Potential Adverse Consequences.”

In A 2016 SEC Filing, Apollo Education Claimed That Proposed Borrower Defense Regulations “Could Result In Significant Potential Risks For Our Business” As “Student Loan Discharge” Due To Enforcement Could Bring “Potential Adverse Consequences.” “The proposed [borrower defense] regulations, if adopted, could result in significant potential risks for our business, since the precise standards for student loan discharge may be unclear or subject to interpretation in a manner that is adverse to us and not fully known or predictable in advance, and certain of the potential adverse consequences could arise from the mere commencement of enforcement actions by state or federal government entities, or the filing of student claims for debt relief, even if these actions and claims ultimately are found to lack merit.” [Apollo Education Group, Inc. 2016 Form 10-K, U.S. Securities and Exchange Commission, 10/20/16]

In 2019, Bridgepoint Education, A For-Profit Education Company, Claimed That “The Reinstatement” Of The 2016 Borrower Defense Rule Could Impose “Significant Restrictions On Us And Our Ability To Operate.”

In A 2019 SEC Filing, Bridgepoint Education Claimed That “The Reinstatement Of The 2016 Regulations Regarding Borrower Defense” Could Impose “Significant Restrictions On Us And Our Ability To Operate.” “The reinstatement of the 2016 regulations regarding borrower defense to repayment expand the circumstances in which students may assert a defense to repayment against an institution and provide that certain conditions or events could trigger, automatically or in some cases at the Department’s discretion, a requirement that an institution post a letter of credit or other security that could result in the imposition of significant restrictions on us and our ability to operate.” [Bridgepoint Education, Inc. 2018 Form 10-K, U.S. Securities and Exchange Commission, 03/12/19]

In 2019, Laureate Education, A For-Profit Education Company, Claimed That If It Had To Repay ED For “Successful” Borrower Defense Claims, It Could Have An Impact On Their “Business, Financial Conditions And Results Of Operations.”

In A 2019 SEC Filing, Laureate Education Claimed That If It Was “Required To Repay The DOE For Any Successful” Borrower Defense Claims, “It Could Materially Affect Our Business, Financial Conditions And Results Of Operations.” “We cannot state with any certainty the impact that complying with the 2016 DTR regulations might have on our business. If we are required to repay the DOE for any successful DTR claims by students who attended our U.S. Institutions, or if we are required to obtain additional letters of credit or increase our current letter of credit, it could materially affect our business, financial conditions and results of operations.” [Laureate Education Inc. Form 10-K, U.S. Securities and Exchange Commission, 02/28/19]

In December 2019, DeVos Announced That ED Would Begin Determining The Amount Of Loan Relief Defrauded Borrowers Would Receive Based On How Their Incomes Compare To Those Of Students Who Participated In Comparable Programs – Rather Than Providing Full Relief To All Defrauded Students.

In December 2019, DeVos Announced A New Method To Process Borrower Defense Claims That Would Give “Partial Loan Forgiveness” Based On How A Student’s “‘Estimated Earnings’ Differed From” The Earnings Of Students Who Attended Comparable Programs. 

On December 10, 2019, Betsy DeVos Announced “A New Strategy” To Process Borrower Defense Claims That Would Give “Partial Loan Forgiveness” Based On “How Much A Defrauded Student’s ‘Estimated Earnings’ Differed From Those Of Students Who Attended Similar Programs.” “The Trump administration on Tuesday rolled out a new strategy for how it will address the backlog of more than 200,000 pending claims for loan forgiveness by borrowers, unveiling a new formula that will provide many defrauded students with only partial loan forgiveness. The new policy […] will calculate the amount of debt relief based on how much a defrauded student’s ‘estimated earnings’ differed from those of students who attended similar programs across the country.” [Michael Stratford, “DeVos unveils new partial relief policy for defrauded borrower,” Politico Pro, 12/10/19]

DeVos’ Policy “Is A Departure” From That Of The “Obama Administration, Which Provided Full Relief To All Borrowers” Determined To Have Been Defrauded. 

DeVos’ Policy “Is A Departure” From That Of The “Obama Administration, Which Provided Full Relief To All Borrowers” Determined To Have Been Defrauded.” “[The Education Department] calculates loan forgiveness based on how much a defrauded student’s ‘estimated earnings’ differed from those of students who attended similar programs across the country. The policy is a departure from the practice of the Obama administration, which provided full relief to all borrowers that the Education Department determined were defrauded.” [Michael Stratford, “DeVos orders partial loan relief for many duped student borrowers,” Politico Pro, 12/06/19]

DeVos’ New Policy Could Financially Benefit For-Profit Colleges Who May Be Able To Return Less Money To The Government To Cover Loan Discharges As Many Borrowers Will Only Receive “Partial Loan Forgiveness.”

DeVos’ New Policy Would Provide Many Borrowers With Just “Partial Loan Forgiveness” And “ Full Loan Forgiveness Only When A Borrower” Earned “The Very Lowest” When “Compared To Those At Similar Programs.”

DeVos’ New Policy Would Provide Many Defrauded Students With Only “Partial Loan Forgiveness” And “Full Loan Forgiveness Only When A Borrower” Earned “The Very Lowest — The Bottom 2.5 Percent — Compared To Those At Similar Programs Across The Country.” “DeVos in recent weeks directed the Education Department to carry out a new policy that will provide partial loan forgiveness to many borrowers whom the agency determines were duped or cheated by their colleges, according to an internal memo obtained by POLITICO. […] Under the policy, the department will provide full loan forgiveness only when a borrower attended a program where graduates ended up earning the very lowest — the bottom 2.5 percent — compared to those at similar programs across the country. Those programs have such low median earnings that the memo refers to them as ‘outliers.’” [Michael Stratford, “DeVos orders partial loan relief for many duped student borrowers,” Politico Pro, 12/06/19]

Under Both The Obama And Trump Borrower Defense Rules, ED Can Seek To Have Schools Cover The Cost For Loan Discharge And The Government Only “Shoulders The Cost” When They Cannot “Recoup” The Funds From A School.

The Federal Government Only “Shoulders The Cost Of Loan Discharge” When It Cannot “Recoup Funds From The Institutions Themselves.” “The DeVos regulations will save the federal government about $11 billion over 10 years, the department estimates (the federal government shoulders the cost of loan discharge if it cannot recoup funds from the institutions themselves). Consumer advocates argue those savings are created by rigging the system against borrowers.” [Andrew Kreighbaum, “Raising the Bar for Loan Forgiveness,” Inside Higher Ed, 09/03/19]

  • The Obama Administration Had Updated The Regulation To “Shift More Of The Cost Of Forgiveness Onto Schools.” “The Obama administration updated the regulation to shift more of the cost of forgiveness onto schools, after the closure of for-profit giant Corinthian College ushered in a flood of claims.” [Danielle Douglas-Gabriel, “The courts cleared the way for DeVos to grant student debt relief. So why are 180,000 people still waiting for an answer?The Washington Post, 06/26/19]
  • Even Under Betsy DeVos’ Rule, The Department Of Education May Seek Repayment From Schools Found To Have Made “Misrepresentation[s]” Resulting In Successful Borrower Defense Claims. “ED may initiate a proceeding to require the school whose misrepresentation resulted in the borrower’s successful borrower defense to repayment to pay discharged amounts to ED, but will not do so later than 5 years after the discharge decision.” [“Breaking Down Borrower Defense Regs: ED Introduces Another Borrower Defense Framework,” National Association of Student Financial Aid Administrators, 09/10/19]

DeVos’ New Policy Overrules The Recommendation Of Her Own Department, Which Determined That Students Defrauded By Some For-Profit Colleges Deserve “Full Relief From Their Debts.”

ED’s Own Borrower Defense Unit Determined That Students Defrauded By Some “Now-Defunct, For-Profit Colleges” Should Receive “No Less Than Full Relief From Their Student Debts.”

The Borrower Defense Unit At ED Determined That Students Defrauded By “Now-Defunct, For-Profit Colleges, Including Corinthian Colleges And ITT Technical Institute” Should Receive “No Less Than Full Relief From Their Student Debts.” “[Student loan] borrowers — more than 200,000 of them — say some for-profit colleges lied to them about their job prospects and the transferability of credits. They argue they were defrauded and that the Education Department should erase their federal student loan debt under a rule called ‘borrower defense.’ […] Now, internal Education Department memos obtained by NPR show that career staff in the department’s Borrower Defense Unit came down firmly on the side of defrauded borrowers. The memos show this unit reviewed thousands of borrower complaints against now-defunct, for-profit colleges, including Corinthian Colleges and ITT Technical Institute. Just weeks before DeVos was sworn in as secretary, the unit recommended to the department’s political leadership that these borrowers deserve no less than full relief from their student debts.” [Cory Turner, “Betsy DeVos Overruled Education Dept. Findings On Defrauded Student Borrowers,” NPR, 12/11/19]

However, In Announcing Her New Policy, DeVos Has Overridden The Recommendations Of Career Staff At Her Department.

DeVos Overrode “The Recommendations Of Department Staff” In Announcing Her “New Plan To Calculate How Much” Debt Relief “Defrauded Students” Deserve. “The education secretary has the authority to override the recommendations of department staff, and DeVos has done just that. On Tuesday, the department unveiled a new plan to calculate how much defrauded students benefited from their educations and thus how much, if any, debt relief they deserve.” [Cory Turner, “Betsy DeVos Overruled Education Dept. Findings On Defrauded Student Borrowers,” NPR, 12/11/19]

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