Battle lines form over new borrower defense to repayment rules

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Earlier this year, the U.S. Department of Education notified DeVry University that it plans to recoup more than $23 million from the institution to claw back money spent on federal loan discharges for some of its former students. 

Around 650 students who previously attended the for-profit university filed claims against the institution under the borrower defense to repayment regulation, which allows students to have their loans discharged if their institutions defrauded them. The rules also let the Education Department recoup these costs from colleges. 

DeVry sued the Education Department shortly afterward. The university argued that the agency’s attempt to recoup funds is unlawful because the department adjudicated the applications as a single group rather than looking at the individual details of each case.  

DeVry isn’t likely to be the last one to take this argument to court.

That’s because the Biden administration has finalized new regulations going into effect next year that will make it easier for the Education Department to discharge debt for large groups of students misled by their colleges, instead of conducting individualized reviews of student claims. 

Some higher education experts consider these new regulations legally vulnerable, while others argue the Education Department’s proposals are squarely in line with the law. Either way, the new borrower defense regulations will likely be a lightning rod for legal battles. 

Is individual review possible?

The borrower defense rules have undergone massive change in the past decade. The once little-known regulations rose to prominence after the sudden closure of for-profit chain Corinthian Colleges in 2015 left thousands of students saddled with debt and no degrees to show for it. 

Since then, each presidential administration has proposed its own version of borrower defense rules, creating a confusing web of regulations for the Education Department, colleges and students to navigate. The newest regulations, which take effect in July, restore the Education Department’s ability to consider claims as a group rather than reviewing individual applications. The Trump administration had barred group borrower defense claims in its version of the rules. 

The department can either form a group itself, or it can choose to create one based on requests from state attorneys general or nonprofit legal assistance organizations. Borrowers may have their loans discharged if their colleges made substantial misrepresentations, breached contracts, used aggressive and deceptive recruiting, or engaged in other fraudulent activity.

Group discharges are an important way for borrowers to receive relief because many of them don’t know about the borrower defense process, said Kyle Southern, an associate vice president for higher education quality at The Institute for College Access & Success, a student research and advocacy organization. 

“By having this kind of group process, we can make all the borrowers whole who are entitled to the relief under federal law, without putting the burden on each individual defrauded borrower to pursue an individual BD claim,” Southern said. “As we’ve seen over recent years, those claims can wait for years and years.” 

A backlog of borrower defense claims has reached staggering numbers. As of November, the Education Department had about 443,000 pending applications, yet only 33 employees were working to adjudicate those claims, according to court documents.

Many of them may soon receive relief — the agency recently agreed to settle a lawsuit brought on behalf of borrowers, Sweet v. Cardona, by automatically clearing $6 billion worth of student loans for roughly 200,000 borrowers who filed claims. The borrowers who brought the lawsuit alleged the Education Department had delayed deciding their cases.

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