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Betsy DeVos hits reset on new student loan consumer protections

July 11, 2017 at 6:15 PM EDT
The Trump administration has held up the implementation of Obama-era rules that would have allowed student borrowers to have their debt erased if they had been victims of fraud by for-profit schools. Now 18 states and the District of Columbia have responded with a lawsuit challenging the Education Department. Jeffrey Brown learns more from Anya Kamenetz of NPR.
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JUDY WOODRUFF: Since her nomination as U.S. Secretary of Education, Betsy DeVos has become one of the more polarizing figures in the Trump Cabinet, often over school choice.

But her early tenure marks a big departure from her predecessors when it comes to higher education and student loans.

And that’s the focus of our Making the Grade conversation tonight.

Jeffrey Brown has more.

JEFFREY BROWN: Late in the Obama administration, new rules were established to allow student borrowers to have their debt erased if they’d been victims of fraud by for-profit schools.

But as the new rules were set to take effect this month, the new administration called for a freeze, with Secretary DeVos saying they were created in a — quote — “muddled process that’s unfair to students and schools.”

Days ago, 18 states and the District of Columbia responded to that with a lawsuit challenging the Education Department.

The freeze is just one in a series of moves by the new administration that take a different approach to student loans from its predecessor.

Anya Kamenetz covers education for NPR, and joins us now.

So, Anya, first, remind us the extent of this problem, of students on the hook with loans to for-profit colleges and all the criticisms of predatory practices.

ANYA KAMENETZ, NPR: So, for-profit colleges at their height enrolled about one in 10 students nationwide, and they’re not just your old cosmetology school.

These are national and in many cases online programs that targeted working families. Now, without painting the entire sector with the same brush, we did see over the last decade many, many different actions against for-profit colleges, accusing them of predatory and fraudulent treatment.

And there were two large colleges that shut down in the last two years, Corinthian and ITT Tech, with collectively tens of thousands of students.

JEFFREY BROWN: All right, so I mentioned the Obama administration, they put in rules to address the problem, and they created a so-called borrower defense. Explain that.

ANYA KAMENETZ: So, borrower defense to repayment had been a law on the books for a while. And it was sort of a case-by-case ability or pathway for a borrower who had been defrauded by a college to be able to escape their loans.

And what happened was, with tens of thousands of students affected by the ITT Tech and Corinthian shutdown, there was a real need to clarify and to simplify that regulation. And so, after a very long negotiated public process, borrower defense to repayment was put in place.

And basically what it said was that students could have their repayment automated, they wouldn’t have to apply case by case. And it included a really important clause that students wouldn’t have to agree to waive their rights through arbitration, so that when — you know, many of these for-profit colleges had a rule on the books that when you applied, you said, we’re not — I’m not going to sue you and I agree to arbitration.

And that’s something that borrower defense included as well, which is pretty important here.

JEFFREY BROWN: All right, so that was supposed to go into effect on July 1. Betsy DeVos put that on hold.

What is her argument? And then, of course, the states jumped in with a lawsuit. So what’s the counterargument?

ANYA KAMENETZ: So, we should mention that, in addition to pressing pause or hitting reset on borrowed defense to repayment, which is like the remedy, Betsy DeVos also has rolled back something called gainful employment, which you might think of as the prevention.

And gainful employment also regulates for-profit colleges and other career programs based on the debt-to-income ratio of their students. So, with those two in mind, the lawsuit essentially says that it’s a violation of law for the Education Department to unilaterally strike down this rule after this very, very long and public negotiation process.

And with the reset button being hit, what we saw this week is consumer advocates and students once again taking to the podium to testify and talk about their experiences and why they believe that these two rules should stay in place.

JEFFREY BROWN: Well, just in our last minute now, I just want to expand to more generally look at the overall student loan problem.

Where do you see the major differences and the major flash points now with the new administration?

ANYA KAMENETZ: Well, I think we saw, with Obama taking office right around the financial crisis, the creation of the Consumer Financial Protection Bureau, which became a major watchdog on behalf of students, and many, many actions taken against the for-profit sector, but really also against student lenders in general.

There’s been a real atmosphere of, I would say, crackdown in regulation and consumer advocacy. And the tenor has certainly changed in terms of the announcements coming out of the DeVos administration.

She has hired former for-profit college students — sorry — she has hired former for-profit college executives to advise her, as well as putting in charge of federal student aid the CEO of a private student loan company.

She has made a lot of announcements on behalf of things that will save taxpayers money and lead to less burden on colleges and universities, including for-profit colleges.

And so a lot of her statements really made clear that she doesn’t intend to impose onerous regulatory burdens on either for-profit colleges or other types of colleges, as well as the student loan industry as well.

JEFFREY BROWN: Anya Kamenetz of NPR, thank you very much.

ANYA KAMENETZ: Thank you, Jeffrey.

JUDY WOODRUFF: And thanks to Jeff and to Anya.

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