ACI’s Remarks to Department of Education on the Borrower Defense to Repayment Rule

Regarding the Notice of Proposed Rulemaking on Docket ID ED-2021-OPE-0077: Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program

The American Consumer Institute Center for Citizen Research (ACI) is a nonprofit 501(c)(3) educational and research institute with the mission to identify, analyze and project the interests of consumers in selected legislative and rulemaking proceedings in information technology, health care, insurance, energy, and other matters. ACI submits these comments to the Department of Education (Department) in response to the Public Notice released Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program in the above-referenced docket.[1]

I write to express my concerns with proposed changes to the Borrower Defense to Repayment Rule. My concerns are as follows:

I. Proposed Changes to “Substantial Misrepresentation” Could Facilitate Costly Loan Forgiveness on Almost Any Grounds

The Borrower Defense to Repayment Rule was put into place as a means of providing relief to students who were misled or defrauded by an institution of higher education. In order to make a successful borrower defense to repayment claim, a student would have to prove that they were misled or defrauded by their institution, or that the institution engaged in conduct that was in violation of state or federal law. A successful claim would result in a student receiving full or partial discharge of their student loans.

The Department proposes several changes to the Borrower Defense to Repayment Rule that turn it from a sensible, balanced consumer protection standard and into a vehicle to greenlight student loan forgiveness for anyone who seeks it, regardless of actual harm.

The current rule places the burden of proof on the borrower to show that the institution committed fraud or substantial misrepresentation. The newly proposed rule removes that requirement. The Department would also hold institutions liable for misrepresentations regardless of intent.

The current rule requires that borrowers show that they suffered financial harm because of these misrepresentations. The new rule requires that borrowers only show that they relied on the misrepresentation to obtain the loan.[2] The borrower would only be required to relay that story as part of their claim.

The Department justifies this change by explaining that the 2019 standard requiring a student to prove individualized harm is too burdensome, requiring more than what a reasonable borrower should have to do to obtain relief.[3] The Department also asserts that this concern of providing relief outweighs the taxpayer concern that students file a successful claim without any financial harm. We disagree.

The Center for Microeconomic Data at the New York Federal Reserve reports that outstanding student loan debt stood at $1.59 trillion in the second quarter of 2022[4]. Policies that make any significant portion of that massive debt easily forgivable will no doubt have a significant economic impact. In fact, we are already seeing the impact of similar policies create substantial holes in the federal budget.

A recent report by the U.S. Government Accountability Office found that loans which were expected to generate $114 billion in income for the federal government are likely to cost $197 billion as of fiscal year 2021, with $102 billion of that cost being driven by emergency relief provided to borrowers under the CARES Act.[5]

We are open to the idea that the current rules place a burden on borrowers that may make it difficult to file a BDR claim, but we reject this as a rationale to stretch the BDR rule beyond its original scope and transform it into a mechanism to grant student loan relief to anyone who asks for it, regardless of harm, and absent proof of intentional misrepresentation by an institution.

We recommend that the Department retain an approach that adheres to the original purpose of Borrower Defense to Repayment – one that provides loan relief to students who were victims of fraud or illegal activity, and that requires claimants making borrower defense to repayment claims to show evidence of intentional misrepresentation and actual harm. Measures to enact broad student loan relief should be debated by Congress, not enacted through a backdoor at the Department level.

II. Aggressive and Deceptive Recruiting Standard Penalizes Lawful Behavior

The Department proposes creating an Aggressive and Deceptive Recruiting standard that could be used to target institutions for engaging in lawful behavior if the Department views that behavior as sufficiently “aggressive.” Schools that make fundamental misrepresentations to students should be held accountable, but the Department suggests opening up borrower defense claims “even if the information presented to them was accurate and without omissions the borrower is not able to make a full and informed choice.”[6]

We are concerned that this mechanism could be used to target schools for lawful behavior, and that it will disproportionately be used to target non-traditional and career oriented institutions of higher education that rely heavily on advertising to recruit students.

The purpose of the Higher Education Act was to make education and economic empowerment possible for all Americans. ACI has studied the role that these for-profit and career colleges play in the higher education ecosystem. Our research found that proprietary and career schools provide educational and economic opportunities to students who might otherwise be left behind. Specifically, proprietary schools disproportionately serve minority and older students whose academic background might not make them a good fit for more traditional schools, providing, along with traditional offerings practical and career-focused training for students who choose to become mechanics, plumbers, or health care workers.[7] These schools have taken a lead in developing online curricula and flexible scheduling models that make education more attainable for students of all kinds. Programs like these are critical for economically empowering traditionally marginalized Americans and for filling critical jobs in our increasingly high skilled economy. By establishing ambiguous standards that could lead to schools being penalized for lawful behavior, the Department’s actions would ensure that these schools will spend most of their resources trying to remain legally compliant, and fewer resources actually educating students.

If the Department is to adopt a standard covering aggressive and deceptive advertising practices, it should more clearly define what those are, and it should certainly not govern legal behavior. We recommend the development of clear and consistently applied guidelines so that schools can focus on building innovative education models to meet each student’s unique educational needs.

We hope that you will consider our recommendations as it relates to to this proposed rulemaking, and we hope that you will thoughtfully consider them.

Respectfully,

Steve Pociask

President / CEO

American Consumer Institute

Center for Citizen Research

4350 North Fairfax Drive

Arlington, VA   22203


[1] Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program,” Department of Education, Docket ID ED-2021-OPE-0077, July 13, 2022, https://www.regulations.gov/document/ED-2021-OPE-0077-1350.

[2] https://www.americanactionforum.org/insight/the-department-of-educations-newly-proposed-regulations-increase-eligibility-for-student-loan-forgiveness/.

[3] https://www.federalregister.gov/d/2022-14631/p-157.

[4] https://www.newyorkfed.org/microeconomics/topics/student-debt.

[5] https://www.gao.gov/products/gao-22-105365.

[6] https://www.federalregister.gov/d/2022-14631/p-188.

[7] https://www.theamericanconsumer.org/wp-content/uploads/2021/10/Proprietary-Colleges-Final.pdf.

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