Guest Post: Ed Dept Should Take Opportunity to Help Borrowers Protect Themselves Against Unscrupulous Schools

[Editor’s Note: The U.S. Department of Education recently asked higher education stakeholders to suggest “issues that should be considered for action” during the agency’s upcoming negotiated rule-making sessions. Today at Higher Ed Watch, consumer lawyer Deanne Loonin calls on the Department to focus the sessions in part on providing relief to student loan borrowers who have fallen victim to schools that have engaged in fraudulent practices. The post is adapted from comments that Loonin submitted to the Department and from an earlier blog post she wrote for us on this subject.]

By Deanne Loonin

The Department of Education has taken numerous actions over the past few years to restore integrity to the financial aid system. These changes should help prevent future students from attending schools that provide them with nothing but insurmountable debt. However, our experience at the Student Loan Borrower Assistance Project unfortunately has shown that there will always be some schools that try to take advantage of borrowers. In addition, there are countless borrowers who have already been harmed by abusive practices and are subject to the government’s draconian collection powers.

The problems are particularly prevalent in the for-profit higher education sector where all too often schools prey on vulnerable students’ dreams of betterment through education. As a result, the financial assistance that was intended to help these students does little more than bury them in debt. The efforts to date to rein in abuse have done nothing to provide relief for those harmed by these practices. This should be the focus of this round of rulemaking.

The Education Department should take this opportunity to rewrite the rules governing existing programs that allow some borrowers who have been victims of unscrupulous schools to have their federal student loans discharged by the government. Congress created these programs in the early 1990s in response to widespread allegations of fraud and abuse in the proprietary school sector. The three school-related discharges are closed school, false certification, and unpaid refunds. Unfortunately, none of these programs provides general remedies for borrowers who attended schools that engaged in fraudulent practices. In other words, a school may routinely pay admissions officers by commission in violation of the incentive compensation rules, fail to provide educational materials or qualified teachers, and admit unqualified students on a regular basis. None of these violations is a ground for cancellation. Instead, each cancellation offers relief for a narrow set of circumstances.

The Higher Education Act, for example, provides for discharges in cases where students were falsely certified for enrollment by eligible institutions. However, in drafting regulations to carry out this provision, the Education Department arbitrarily narrowed this remedy to apply mainly to students who were admitted to a school (and signed up for federal financial aid) even though they lacked a high school diploma or its equivalent, and hadn’t passed a properly administered government approved “ability to benefit (ATB) test,” as required by law. As a result, students who are admitted on false pretenses but have a high school diploma or G.E.D. are generally not eligible for the discharge.

Here are some steps the Education Department can take to strengthen the False Certification Discharge program:

• Broaden Relief to Conform to Statutory Authority

The Department should use this opportunity to revise its rules on the False Certification discharge to conform to the broader relief provided for in the statute. Borrowers should be eligible for relief in any case in which a school falsely certifies eligibility, including not only in the ATB context, but also, for example, if the school improperly or falsely certifies a student’s satisfactory academic progress, which is a necessary requirement for student eligibility. Borrowers should also be eligible for relief in cases where the school falsely certifies that the program in which they are enrolled is an “eligible program,” such as if it does not meet the Department’s credit hour regulations or violates the incentive compensation ban.

Borrowers should also be eligible for relief if schools enroll them in programs from which they legitimately can not benefit. For example, the regulations should clarify that borrowers should be eligible for relief if they are not proficient in English, but are enrolled in courses given in English or that lead to an employment field that requires English proficiency. Borrowers should also be eligible for relief in cases where a program lacks accreditation so that graduates are ineligible to take licensing or other professional association or state employment exams in the field.

• Address Problems with the Burden of Proof

Currently, many borrowers who should qualify for the discharge run into a wall trying to prove fraud. That’s because the Department often requires proof of federal or state investigatory findings of fraud against the schools in question. The problem is that many borrowers cannot provide proof of federal or state investigations of particular schools because enforcement has been so lax in this area that no such investigations exist. The Department unfairly relies on a 1995 Dear Colleague letter that states an absence of findings of improper payoffs raises an inference that no improper practices were reported because none were taking place.

The regulations should clarify that the Department should look not only for evidence of findings from oversight agencies, but examine other evidence as well including student complaints. The regulations should specify that as long as a borrower’s sworn statement establishing his or her eligibility for a false certification discharge is credible, and the Department doesn’t find any evidence contradicting the information provided, then it must grant the discharge. In other words, once presumptive eligibility is established based on the borrower’s application, the burden should shift to the Department to disprove the borrower’s eligibility.

• Require Evaluation for Group Discharges

The Department must be required to grant group discharges in cases where the Department determines that a school committed pervasive and serious violations of false certification provisions. For instance, if the Department determines that determines that a school was systematically falsely certifying ability-to-benefit tests during a certain period of time, the Department should grant group discharges to all ATB students enrolled at that institution at that time period. In these cases, it shouldn’t be up to individual borrowers to figure out they are eligible for the loan cancellation.

These are just the few of the steps the Education Department can take in the upcoming rulemaking process to help those who have been victimized by unscrupulous schools get relief and move on with their lives.