Why Betsy DeVos Will Rewrite These Student Loan Forgiveness Rules

The Trump administration announced Wednesday that it will rewrite two Obama-era rules intended to protect student loan borrowers.

The U.S. Department of Education said new committees will be formed to rewrite rules for Borrower Defense To Repaying and Gainful Employment.

Here’s what you need to know.

What Is Borrower Defense To Repaying?

Borrower Defense To Repaying allows students to have their federal student loans forgiven if a school employed illegal or deceptive practices to encourage the students to borrow debt to attend the school.

This rule was scheduled to become effective July 1, but will now be delayed.

Nearly 16,000 borrower-defense claims are currently being processed by the Education Department, and Secretary of Education Betsy DeVos assured those borrowers that their loans will be discharged as expeditiously as possible.

What Is Gainful Employment?

The gainful employment rule was created to ensure that students earned enough money after graduation to repay their student loans.

For a college to have access to federal student aid, the college must meet minimum gainful employment standards. The current formula says that on average, student loan borrowers of a degree program must not have student loan payments exceed 20% of their discretionary income or 8% of their total earnings.

Both rules were written in response to practices stemming from for-profit colleges, which included companies such as ITT Technical Institute and Corinthian Colleges (both of which shut down).

Why The Change

DeVos believes that the two rules are confusing and unfair to both students and schools. While critics view the move as a win for the for-profit college industry, DeVos says that the rule changes will still help students who are victims of fraud (although she does not detail how).

“Fraud, especially fraud committed by a school, is simply unacceptable,” DeVos said in a statement. “Unfortunately, last year’s rulemaking effort missed an opportunity to get it right. The result is a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.”

DeVos said she wants to strike a fair balance between protecting students from predatory practices and creating balanced rules to which colleges can adhere.

“It’s time to take a step back and make sure these rules achieve their purpose: helping harmed students,” DeVos said. “It’s time for a regulatory reset. It is the Department’s aim, and this Administration’s commitment, to protect students from predatory practices while also providing clear, fair and balanced rules for colleges and universities to follow.”

The American Federation Of Teachers Perspective

The American Federation of Teachers released a statement on the Education Department’s decision:

“The Trump administration’s actions today show that the White House stands with predatory for-profit schools, not the students they rip off,” said Randi Weingarten, president of the American Federation of Teachers. “About the only thing worse than ripping off students with worthless degrees from for-profit colleges is denying them help to relieve their substantial debt, and allowing the schools to continue to prey on students.”

A Different Perspective

The United Negro College Fund (UNCF) and the National Association for Equal Opportunity (NAFEO) in Higher Education wrote DeVos a letter stating that the borrower defense rule would create a detrimental impact on their member institutions.

Collectively, these two groups represent the interests of 186 historically black colleges and universities (HCBUs) and predominantly black institutions (PBIs) that serve 700,000 students.

In their letter, the UNCF and NAFEO cite the regulatory burden and vague standards associated with the Borrower Defense To Repaying rule, support suspension of any enforcement of the regulation, and called for a new rulemaking process.

What’s Next?

The rule-making process will start next months with public hearings, followed by the appointment of committees comprised of experts and other stakeholders.

How these rules change – and by how much – will be watched closely, particularly with respect to:

  • any revised definitions of fraud and deceptive practices;
  • how gainful employment metrics will be calculated;
  • how taxpayers will save money and how much; and
  • what are the litmus tests for borrowers to have their student loans forgiven or discharged, among other key points.

What do you think? Do these rule changes reduce bureaucracy and save taxpayers money, or are they a win for the for-profit college industry and erosion of student borrower protections? We want to hear from you in the comment section below.

Zack Friedman is the Founder & CEO of Make Lemonade, a personal finance website that helps you compare the best rates and save money for student loans, personal loans, mortgages and more.

 

 

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