Reset of Rules Aimed at For-Profits Begins
Trump administration to announce plans to suspend borrower defense and renegotiate gainful employment, two Obama administration rules aimed at reining in for-profit colleges.
The U.S. Department of Education on Thursday will announce plans to hit pause on two of the Obama administration’s primary rules aimed at reining in for-profit colleges.
Department officials told Inside Higher Ed they will block a rule, set to take effect next month, that clarifies how student borrowers can have their loans forgiven if they were defrauded or misled by their college.
The Trump administration will announce a do-over of the rule-making process that produced that regulation, known as borrower defense to repayment, as well as the gainful-employment rule, which holds vocational programs accountable when they produce graduates with burdensome student loan debt.
While parts of gainful employment had already gone into effect, borrower defense was scheduled to become active on July 1. As that deadline approached, rumors had buzzed about the department’s plans for the regulations while politicians and advocacy groups weighed in with a flurry of letters.
Republican lawmakers have long been critical of both sets of regulations and made clear their intentions to roll them back after the election. Although gainful employment affects nondegree programs at many community colleges and borrower defense applies to all higher education institutions, the for-profit sector pushed back hard against both regulations. Consumer advocates view both rules as essential to protecting students against misconduct by colleges and have urged the administration not to walk them back.
The administration will issue a stay of borrower defense under Section 705 of the Administrative Procedure Act, which an Education Department official said allows federal agencies to halt the effective date of a rule pending judicial review. An association of California for-profit colleges is suing to block the rule. The official said the department is delaying implementation of the rule based on the lack of resolution of that case. (On Tuesday, Democratic attorneys general for eight states and the District of Columbia sought to intervene in the lawsuit to defend the rule.)
The Trump administration previously has cited that section of the Administrative Procedure Act to delay enforcement of other federal rules, including one from the EPA.
The department will pursue an overhaul of the regulations by appointing separate rule-making committees to renegotiate the borrower-defense as well as the gainful-employment rules.
Education Secretary Betsy DeVos said fraud is unacceptable but that previous rule-making efforts missed an opportunity to get the regulations right.
“The result is a muddled process that’s unfair to students and schools and puts taxpayers on the hook for significant costs,” she said. “It’s time to take a step back and make sure these rules achieve their purpose: helping harmed students. It’s time for a regulatory reset. It is the department’s aim, and this administration’s commitment, to protect students from predatory practices while also providing clear, fair and balanced rules for colleges and universities to follow.”
The Do-Over Process
The rule-making process, which requires federal agencies to seek public input via hearings and to appoint a committee of experts and stakeholders, can stretch out for months. The new round of rule making will begin with public hearings next month in Washington and Dallas. Department officials, speaking on background, said it’s too early to say what solutions negotiators will reach with respect to either rule. Higher education groups, for example, have criticized financial responsibility requirements in the borrower-defense rule as being onerous. And for-profits have argued that the gainful-employment regulations should apply to all institutions, regardless of tax status.
Officials said the department won’t identify specific objectives for the new rule-making process, however. Instead, negotiators will be free to take what approach they consider prudent to reach consensus on the rules, the officials said.
But negotiated rule making gives the secretary considerable influence in shaping the eventual outcome. DeVos will appoint the negotiators of each committee and their recommendations will ultimately be nonbinding, allowing the department to make the final call. The Obama administration, for example, released final versions of the two rules after each negotiated rule-making process failed to reach a consensus.
After early speculation this year that Republicans in Congress would attempt to eliminate borrower defense via the Congressional Review Act, lawmakers never took action involving the rule and it became apparent that they would defer to the administration on the issue. Republicans also didn’t include budget riders to defund gainful employment in the May spending deal that will fund Congress through the rest of the fiscal year.
The Obama administration crafted both sets of regulations in response to developments within the for-profit sector. The collapse of the for-profit chain Corinthian Colleges in 2015, which followed department sanctions, led to a flood of applications for loan discharge via borrower defense, a little-cited statute that took on renewed relevance after federal student loan debt ballooned in recent years. The existing statutory language was vague, however, and was based to a large extent on state law.
In response to Corinthian, the department sought to lay out a clear standard for students seeking loan discharge, which also held colleges accountable for fraud. In addition, the complex rule seeks to identify financially vulnerable colleges and to protect taxpayers and students in the event of their collapse. But many colleges complained that the language dealing with misrepresentations was too vague and that the regulations could have severe consequences even for colleges that did not intend to mislead students.
Under DeVos, the department’s efforts to stake out a strategy on the Obama regulations — perhaps the biggest immediate issue in higher ed facing the new administration — were likely hampered by the still low staffing levels for political hires. But the July 1 effective date for borrower defense provided a hard deadline for the DeVos team to sort out its approach.
Observers Weigh In on Rules
Others outside the department have weighed in during recent weeks. Democratic Senators Elizabeth Warren, Patty Murray, Sherrod Brown and Dick Durbin wrote to DeVos last week asking her to confirm that she would implement and enforce the borrower-defense regulation.
“Delaying the borrower-defense rule would be a monumental dereliction of the duty you have to protect students and taxpayers, and would increase the risk of repeating the recent history of students left holding the bag while executives at collapsing institutions made away with millions in profits,” the senators wrote.
It was the second letter senators had sent DeVos on borrower defense since last month. In March, a group of Senate Democrats also wrote objecting to the delay of several deadlines for programs measured by the gainful-employment rule.
However, some higher ed groups wrote to DeVos to renew calls to reconsider the rules. The United Negro College Fund and the National Association for Equal Opportunity in Higher Education told DeVos in a letter this week that borrower defense would have a detrimental impact on their member institutions. The two groups together represent more than 185 historically black colleges and predominantly black institutions.
Michael Lomax, UNCF’s CEO and president, joined Lezli Baskerville, NAFEO’s CEO and president, in writing that the financial responsibility and disclosure requirements for private colleges would put onerous burdens on HBCUs to pledge collateral or to secure new letters of credit in response to the rule’s definitions of “triggering” events.
“A new regulatory process is needed to significantly narrow the scope of this regulation, limit institutional liabilities for unwarranted claims, provide greater certainty for both students and institutions, and ensure due process for HBCUs and PBIs, as well as other institutions that are serving their students well,” they wrote.
A department official cited that letter as an illustration of the kinds of institutional concerns that a new negotiated rule-making process would address.
The Institute for College Access and Success wrote in a blog post Tuesday that the results of the gainful-employment rule demonstrate some career education programs “are consistently leaving students worse off — drowning in debt they cannot repay — while many other programs are not.”
But the department believes a clear review of what constitutes gainful employment is necessary, officials said. The definition of the term hasn’t been revisited in decades, they said, leading to regulatory overreach. Career Education Colleges and Universities, the largest for-profit trade group, twice sued to block the Obama gainful-employment rule and successfully stopped an initial version from going into effect.
The department also plans to include in the borrower-defense rule-making process a reconsideration of guidelines for guarantee agencies’ debt-collection practices. In March, the department withdrew 2015 guidelines from the Obama administration barring those guarantee agencies from charging high fees to borrowers who quickly begin repaying their student loans after defaulting.
In announcing the changes to the borrower-defense rule today, the department also will restate its commitment to discharging loan debt held by students who were promised relief via borrower defense. And staff will continue to review pending applications for loan discharges. Congressional lawmakers and Democratic attorneys general have repeatedly sought updates in recent weeks on the department’s progress — or lack thereof — in getting the loans of those borrowers discharged.
“Nearly 16,000 borrower-defense claims are currently being processed by the department, and as I have committed all along, promises made to students under the current rule will be promises kept,” DeVos said. “We are working with servicers to get these loans discharged as expeditiously as possible. Some borrowers should expect to obtain discharges within the next several weeks.”