Student debt, which now totals more than $1.3 trillion, is a debilitating hardship for millions of students and families. While presidential candidates will surely debate the issue all summer long, many people may not realize that a key battle over how and when student loans can be legally canceled is already underway.
On Monday, the Department of Education released a proposed rule providing a pathway to debt cancellation for students who were defrauded by a for-profit college. Unfortunately, the proposal, which is not yet final, will make it difficult for student debtors to get relief, even when the law is on the side of students.
Student loans are especially burdensome for for-profit college students, a disproportionate number of whom come from low-income backgrounds and are the first in their families to attend college. For-profit schools lure students with a high-pressure sales pitch to get them to enroll in sham degree programs. Then they load them up with debts they can never repay. For-profit schools enroll only 10 percent of all students but account for 40 percent of defaults.
Students from for-profit colleges have been leading a campaign for debt relief for well over a year using a rarely used law called Defense to Repayment which requires the Department of Education to cancel loans held by students who were defrauded by their school.
With help from the Debt Collective (a nonprofit where I work as co-director), thousands of students from for-profit colleges around the country joined the “Defense to Repayment” campaign and began disputing their loans until the Department of Education was forced to act. The agency promised to write a new regulation outlining how it would implement the law. For months, students have been waiting for a final ruling.
On Monday, the department issued a proposal that takes some steps in the right direction, including forbidding schools from requiring students to sign an arbitration clause before they enroll. These clauses have made it impossible for defrauded borrowers to file class-action suits against schools that defrauded them through predatory tactics, including aggressively recruiting students and advertising inflated job-placement statistics.
But the department’s proposal falls short in several key areas. For example, instead of allowing all for-profit college students to discharge their debt in full, the agency wants to limit discharges for students who got “some value” from their degrees. In other words, the department will make a determination on an individual basis as to how much of a refund to offer students. Who is in a position to determine which students benefited from degrees earned at discredited schools? The fact is that borrowers lost more than money; they gave up time from jobs and spent many hours away from their families. They can never recover those losses. It makes no sense for a federal regulator to decide that some students deserve only partial relief.
Students who were subjected to predatory tactics prior to 2010 may also be left holding the bag. Many of those borrowers have loans from the discontinued Federal Family Education Loan program, federal loans that are issued by private companies. The department has proposed that those borrowers go through the process of consolidating into direct loans, which the department issues directly, to be eligible for relief. Since borrowers did not choose their loan type, this is a totally arbitrary rule that would require up to 40 percent of current debtors to jump through extra hoops to get their debt canceled.
Future students may also find themselves facing arbitrary obstacles. The department’s proposal states that students enrolled starting in 2017 will be granted debt relief only in cases where school officials explicitly lied to them. But students who were pressured into signing paperwork they didn’t understand also deserve debt relief.
By far the most disappointing part of Monday’s proposal is that, while the department is willing to grant relief to groups of students, it is the only entity that has the power to designate groups. By making itself the ultimate authority, the department takes a position that is, essentially, “trust us.”
The truth is that the department cannot be trusted to do the right thing. The agency has a track record of forcing students to repay loans even when the law says those loans are unenforceable.
Starting in the 1980s, for example, the department funneled hundreds of millions of dollars to dozens of beauty schools run by Wilfred American Educational Corp. Ten years later, the schools were found to have improperly certified students as eligible for loans. The schools shut down, and the students’ loans should have been erased. But the students were never notified of their right to a discharge, thus allowing their wages to be garnished and their tax refunds to be seized. In 2014, a lawsuit alleged that the department had violated the law. The department has been fighting the case every step of the way.
The Wilfred case is not the only example of the department making it harder for students to have their debts canceled. At the end of last year, the agency settled two cases against EDMC, the for-profit college operator that owns Art Institute, Argosy, Brown Mackie and others.
In the first case, the department, along with the Department of Justice, settled a case alleging that the schools had lied about job placement rates. Since the settlement did not require the school to admit wrongdoing, former EDMC students will have a much more difficult time proving fraud so they can get their loans canceled. The department also settled with EMDC in a case accusing school officials of using aggressive recruitment tactics to lure students into sham degree programs. The settlement, which required EDMC to pay a small fine, did not include a penny of federal loan cancellation for EDMC students.
The department’s latest proposal promising to provide a path to relief for defrauded borrowers must be read in light of this shameful history. There is simply no evidence that the agency charged with protecting students from predatory lenders intends to do its job this time.
What is the solution? The best hope for student debtors — those who attended colleges of all kinds — is to continue to organize and to refuse to be silent. The proposal is not final, so students should keep up pressure on the department before the final rule is released later this year, to go into effect in 2017.
The fact that the Department of Education was pressured to draft a new regulation when it had resisted doing so for decades is a testament to the power of organized debtors. The department’s latest proposal has opened the door, and, with collective action, many more students might one day walk through it.
This article originally appeared in Politico.