U.S. Department of Education Launches Effort to Better Help Defrauded Students Seeking Debt Relief

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U.S. Department of Education Launches Effort to Better Help Defrauded Students Seeking Debt Relief

New regulatory effort will aim to create a system that makes sure that colleges–not taxpayers–are on the hook for wrongdoing
August 19, 2015

After announcing action earlier this summer to help students who were harmed by Corinthian Colleges Inc., today the U.S. Department of Education announced its next steps to develop regulations to clarify and streamline loan forgiveness in the future for those who have a defense to repayment of their federal Direct student loan.

As outlined in a Federal Register notice, which will formally publish tomorrow, starting next month, the Department will begin a negotiated rulemaking process whereby the Department will seek not only to clarify how Direct loan borrowers who believe they were defrauded by their institutions can seek relief, but also to strengthen provisions to hold colleges accountable for their wrongdoing that results in loan discharges. This new regulatory effort builds on the Obama Administration's commitment to protect taxpayers' and students' investments and ensure that all Direct Loan borrowers can engage in a process that is efficient, transparent and fair.

"The process we are beginning today aims to create a clearer, more comprehensive system to assist students who believe they were defrauded by their college," said U.S. Education Secretary Arne Duncan. "And we think it is critical that this solution also does right by American taxpayers. That's what they deserve."

Current provisions in federal law and regulations called "defense to repayment" or "borrower defense" allow borrowers to seek loan forgiveness of their Direct Loans if their college's acts give rise to a cause of action. These provisions have rarely been used in the past, but the wind down of Corinthian Colleges has demonstrated the need to make improvements to help students seeking debt relief. Now, the Department is taking unprecedented action to create a more straightforward, comprehensive process that is fair to students who believe they are victims of fraud and while also holding colleges accountable to taxpayers.

The Department will work with the higher education community on the proposed regulations, beginning with listening to stakeholders. To do so, the Department will host two public hearings in September in the District of Columbia and California, and establish a negotiated rulemaking committee. Specifically, the Department plans to work with the committee to clarify:

  • the procedures to be used for a borrower to establish a defense to repayment;
  • the criteria that the Department will use to identify acts or omissions of an institution that constitute defenses to repayment of Federal Direct Loans to the Secretary;
  • the standards and procedures that the Department will use to determine the liability of the institution participating in the Federal Direct Loan Program for amounts based on borrower defenses; and
  • the effect of borrower defenses on institutional capability assessments.

In addition, the Department is also inviting the members of the higher education community and interested parties to suggest additional topics that should be considered for action by the negotiating committee. For further information on today's announcement, including the public hearing sites, dates and locations, visit here.

This regulatory process will not impact the ongoing debt relief efforts the Department outlined in June. Until these regulations are developed and put into effect, borrower defense claims will continue to be reviewed through existing processes and through those developed by the Special Master. Borrowers who believe they have valid claims for defenses to repayment can visit www.studentaid.ed.gov/Corinthian or call a special toll-free borrower defense hotline at (855) 279-6207 for more information.