For-profit colleges have immunity from borrower-defense rule

If Betsy DeVos has her way, for-profit colleges that used fraudulent claims to lure students will get off virtually unscathed (“DeVos Again Tries to Limit Loan Relief,” The New York Times, Dec. 11).  That’s because student debt will only be totally forgiven if they earned far less than other students in similar programs.

That’s outrageous.  The intent of the rule known as the “borrower defense to repayment” was to protect students who assumed debt to attend colleges that published misleading statements about future employment.  By preventing students from receiving relief, DeVos is giving the schools the equivalent of diplomatic immunity.

It should matter not one whit that some of these students are earning the median earnings of students from other programs the Education Department considers comparable.  The fact remains that the colleges engaged in fraudulent activity.  By giving them a get-out-of-jail card, DeVos will only encourage others schools to engage in similar practices, viewing the possible punishment as a cost of doing business.

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2 Replies to “For-profit colleges have immunity from borrower-defense rule”

  1. I had not read anything about this program. I knew the feds were going after the for-profit colleges that were defrauding students, but I did not know that there was a federally-financed program that repaid the student loans for students who paid tuition at the defrauding colleges. Thanks for the info.

    Not sure if the defrauded students should necessarily get all of their loan $ repaid.

    If a used-car dealer tells me a car has 10,000 miles on it when it actually has 60,000 miles on it, if I buy the car for $10,000, and if I then learn the dealer defrauded me by lying to me re the mileage, the law would probably give me two options — a) return the car to the dealer and get my $10,000 back, or b) keep the car and the dealer refunds me the $10,000 minus the FMV of a similar car with 60,000 miles on it. In other words, I could not both keep the car and get all of my $10,000 back.

    In the for-profit-college situation, it’s not possible for the students to “return” the coursework. So, the law would look to option (b) — the student keeps whatever benefit the student gained from the coursework and the college refunds the tuition minus the actual value of the fraudulently-advertised courses. Of course, it’s very hard to estimate the actual value of those fraudulently-advertised courses. The Dept of Ed’s approach would offer a rough approximation. And, in the for-profit-college situation, there is a third party involved — the lender; presumably there was a third-party lender (not the college) that gave the loan to the student who then paid the loan $ to the college. Not clear why the student should end up in a different financial position because the student borrowed the $ from a lender rather than just paying the tuition from the student’s own savings.

    Surprisingly complicated analysis.

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  2. Labor Lawyer: The problem is how to put a dollar value on fraudulently-advertised courses. But the larger issue, in my opinion, is that by letting such for-profit schools off relatively easily, the Ed Department sends the message that their practices are merely the cost of doing business.

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