The fight over student loan forgiveness has consumed most of the attention of the higher education policy world, and as a result, other policies are receiving much less attention than they should. One such neglected topic is borrower defense to repayment, which is a method of waiving repayment requirements for student loan borrowers who were misled by their college.
Borrower defense, as it is often called, was the topic of a recent Government Accountability Office (GAO) report. The report provides a useful summary of the law and regulatory changes over the years:
- Established by law in 1993, with regulations to implement released in 1995. Debt was waived based on each state’s standards of misconduct.
- 2016: New regulations abandoned the state standards and replaced it with a federal standard. To have debt waived, the college’s misconduct had to meet four criteria: misrepresentation, substantial (non-trivial misrepresentations), reliance (students relied on the misrepresentation), and detriment (students were harmed).
- 2019: New regulations allowed for claims based on misrepresentation and harm.
- 2022: New regulations loosened requirements and allowed for mass waivers, including automatic waivers.
In theory, these regulations should have given us some indication of how borrower defense has operated over the years. In reality, they are virtually meaningless due to a host of court cases. The 2016 regulations were postponed by the Trump administration until a judge ordered them to take effect in 2018. Courts have paused the 2022 regulations while their legality is determined. And most of the recent action that has taken place has occurred under a completely separate court settlement.
The settlement is a clear case of sue and settle, where progressive lawyers sue and then settle with a progressive administration that agrees to implement the progressive wish list without having to go through the normal regulatory process. This settlement is known as the Sweet v. Cardona Settlement, and it reads like a progressive wish list.
Outside of the settlement, the Department generally conducted investigations into each borrower’s defense claim individually, though when colleges had many claims, the investigations could rely on information found in previous cases—documented in the Common Findings Memo for that college. As a result, claims from about seven colleges were generally approved since past cases had demonstrated sufficient misconduct. The Sweet settlement turbocharged this list of colleges, expanding it by more than 20 times to include 151 colleges whose borrowers would have their debt automatically waived. Some of the 151 colleges objected to being put on this list, because it strongly implies that they have been found guilty of misconduct.
For claims from borrowers who didn’t attend those 151 colleges, the process is also nearly automatic because the Department is required to treat any claim on a borrower defense application as true without requiring any proof or conducting any investigation at all. As the report dryly notes, “Under the settlement, when reviewing these applications, Education must not require evidence outside of a written application, require proof of reliance, or apply any statute of limitations. Education must determine whether the application states a claim that, if presumed to be true, would assert a valid basis for borrower defense under the applicable regulation.” In other words, if a borrower states a college is guilty, the college is guilty. There is literally nothing that a college could do to prove its innocence.
There are two main lessons from all this.
First, there is no bipartisan agreement on what borrower defense should look like. Conservatives keep trying to treat it as a remedy for misconduct by colleges, which requires proof of misconduct by colleges, while progressives keep trying to treat it as a backdoor tool for student loan forgiveness and will accept just about any allegation of misconduct, especially claims against for-profit colleges. This will result in an unstable regulatory ping-pong every time a new administration takes office.
Second, the current process is completely unworkable even if there was a bipartisan compromise. I regard the Sweet settlement as a travesty. Yet, the judge who approved it, Judge Alsup, is a good judge who really wrestles with the facts of a case (e.g., rumor has it that he learned how to write code so that he could better understand a copyright case involving code). One of the reasons he likely approved the settlement was that without it, the claims backlog would have taken 25 years to clear. To reiterate, the standard student loan is paid back in 10 years, yet the borrower defense backlog was 25 years.
Given that borrower defense is both unstable, shifting dramatically with each new administration, and unworkable, the most reasonable path forward is to shut it down and rely on standard fraud court cases to provide protection for students and punishment for misconduct by colleges.
Image by Rogswell — Main Headquarters, Government Accountability Office — Flickr
This article was originally published at www.mindingthecampus.org
