Proposal to Tighten Standards for Borrowers Seeking Loan Relief

The Trump administration is considering a significantly stricter standard for federal student loan fraud claims. According to Inside Higher Ed, the U.S. Education Department will propose a plan next week that would require borrowers to demonstrate that their institution intended to mislead them before they can have their loans discharged.

The department is in the midst of an overhaul of borrower-defense regulations through a negotiated rulemaking process launched after Education Secretary Betsy DeVos blocked the 2016 Obama administration rule from taking effect. Department officials will offer the proposal at the second round of meetings between negotiators from a wide range of interest groups.

Under the draft plan, borrowers applying for loan forgiveness would face a higher burden of proof and have to individually present evidence that their institution's deception was intentional. The proposed language would require that a borrower demonstrate clear and convincing evidence that their college acted with an intent to deceive or misrepresent in claims about job placement rates, licensure passage rates, transferability of credits, enrollment requirements or other facts involving the institution and its graduates. The department proposal would also allow successful claims when a borrower shows their college acted with a "reckless disregard for the truth" or when the borrower has won a judgment against the college in a court or through an arbitrator.

Borrowers would have to file claims "within three years of the date the borrower discovered, or reasonably should have discovered, the misrepresentation" under the draft proposal. The Obama-era policy provided borrowers a six-year period to file some types of claims and no deadline for others.

After a surge of borrower-defense claims following the collapse of Corinthian Colleges, the Obama administration crafted a new rule that provided a federal standard for loan relief and clarified how borrowers could pursue their claims. The language being contemplated by the department would maintain a federal standard but make it exceedingly difficult for students to clear that bar, Inside Higher Ed reported.

Jennifer Wang, the Washington office director for the Institute for College Access and Success, said the intent standard would be an unattainable requirement for borrowers to meet.

"It's going to make getting relief either impossible or very close to impossible for the vast majority of borrowers," she said.


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Inside Higher Ed