November 29, 2023

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Diving overview:

  • A trade association representing more than 70 for-profit higher education institutions in Texas said it will file a lawsuit Tuesday to try to stop new rules governing a federal program that forgives loans for borrowers whose colleges misled them.
  • Career Colleges & Schools of Texas said new regulations for the U.S. Department of Education’s borrower defense of the repayment program risk creating a “crippling liability” for its members and other colleges in the state. The revamped borrower protection program, set to take effect July 1, creates a process that “all but ensures” borrowers’ requests will be approved, even as it cuts back on procedures needed to protect colleges against inaccurate loan payments, the group said.
  • The group says the new borrower defense regulations should be set aside because they violate the U.S. Constitution and federal law that governs how agencies set new regulations.

Diving Statistics:

Legal challenges were widely expected since the Biden administration released final rules for the borrower defense program last year.

Borrower defense has come under the spotlight in recent years amid concerns about college hiring practices and intense pressure on for-profit colleges. The program has been mired in regulatory back-and-forth for the past decade as various presidential administrations rewrote its rules.

New regulations from the Biden administration include provisions for the Department of Education to recover the cost of forgiven loans from colleges. They also list several reasons why a debtor’s defense application may be granted: if the college misrepresented or omitted facts, breached contracts, or engaged in “aggressive and deceptive recruitment.”

And the rules call for using a “preponderance of the evidence” standard to determine whether a claim merits relief, which means asking whether a violation is more likely than not to have occurred.

Education Minister Miguel Cardona said when the new rules were published that accountability was needed and “in recent decades, too many students have found themselves worse off because they went to college”.

Advocates also discussed establishing new borrower protection rules that would allow the Department of Education to consider group claims rather than evaluate individual student applications.

Student advocates say class action lawsuits protect those who don’t know the intricacies of the various federal student loan forgiveness programs. But critics representing for-profit colleges balked at the new regulation, arguing that Congress did not authorize a program that would evaluate thousands of borrower defense claims at once. They also criticized provisions that would allow prosecutors and legal aid organizations to form debtors’ defense groups.

Career Colleges & Schools of Texas is taking a similar tack with its lawsuit, which it said it is filing in the U.S. District Court for the Northern District of Texas.

“The BDR rule’s ‘group’ consideration process will substantially increase the risk of erroneous dismissal and allow countless frivolous claims to be awarded simply based on a ‘grouping’ of one or more legitimate claims,” ​​the press release said. “Instead of creating a process that is fair and equitable to both schools and borrowers, the Department issued the BDR thumb rule to maximize the number of approved claims and ultimately support the administration’s loan forgiveness agenda.”

Career Colleges & Schools of Texas is a regional partner of Career Education Colleges and Universities, or CECU, a national lobbying group representing for-profit institutions. CECU supports the lawsuit.

“CECU has led the sector’s response to these illegal regulations because they irrationally expand the potential acts and omissions by schools that lead to borrower defenses against loan defaults, while eliminating the procedural protections needed to protect schools from loan defaults and presumptions of liability. CECU President and CEO Jason Altmire said in a statement.

Borrower defenses have already been the subject of intense legal battles in the past few months, showing just how strained the relationship between universities, students, regulators and lenders can be.

Several colleges fought to stop Sweet v. Cardona borrower defense settlement between thousands of people with student loans and the Department of Education. This settlement will automatically wipe out student loans for approximately 200,000 borrowers who participated 151 universities and they say that these institutions have misled them. It also sets a timeline for the department to review tens of thousands of other claims.

The borrowers sued in 2019, alleging that the Department of Education did not act on their requests for loan forgiveness. A federal judge has largely allowed the settlement to move forward, despite several colleges protesting that it harms their reputations. U.S. District Judge William Alsup reasoned in part that the settlement was between the Department of Education and the students, that it would eliminate a large backlog of claims, and that it did not constitute a finding of wrongdoing that could be used to offset the costs of severance from colleges.

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