Borrower Defense to Repayment: Devos Update

The Wall Street Journal reported today that the current administration intends to roll back some of the protections put into place by the Obama administration such as the gainful employment rule. This will enable hundreds of for-profit schools to remain open that were at risk of closing. Not sure if that is such a good thing. If the employment rate is so low following graduation from some of these schools, perhaps these schools should be put down – rather than allowing their marketing machines to pull in more vulnerable students to waste years of their lives obtaining a worthless degree. But I digress.

The important thing is Ms. DeVos indicated that the Department of Education fully intends on discharging applications pursuant to the Borrower Defense to Repayment under the rules established by former President Obama. The Obama administration used the borrower defense regulation to cancel the debt burdens of former students at schools found to have committed fraud. In early 2017, the DOE had approved claims from thousands of borrowers to erase $655 million owed by former ITT and Corinthian students.

It is unknown whether Mrs. DeVos will set too high a threshold for students to prove they were defrauded and get reimbursed. However, it is good news that the current rule will be followed rather than dismantled. “Promises made to students under the current rule will be promises kept,” Mrs. DeVos.

The DOE is wading through at least 16,000 claims for reimbursement so it’s gonna take a while. For the applications we have filed for clients, we expect we will not know the outcome for 12-14 months, which is the expected review period.

Further update: the DOE just issued a press release that states “[d]ue to pending litigation challenging the BDR regulations, the Department is postponing the effective date pursuant to section 705 of the Administration Procedures Act. While negotiated rulemaking occurs, the Department will continue to process applications under the current borrower defense rules.”

Translation: while DTR applications will be reviewed (they had been placed on hold during the administration change from Obama to Trump we have learned) under the current rules, the negotiated rule making process that resulted in the 1,000 pages of DTR regulations released on November 1, 2017 are going to be re-drafted and the program could look very different when that process is completed. It took over a year for the first negotiated rule making process to finish, and it likely will take several months if not a year for the regulations to be re-drafted. It may be best for those filing DTR apps to get them in under the present rules as I would guess the tests to qualify for discharge for fraud will not get any easier, and may become more difficult to meet later.

For more information about the Borrower Defense to Repayment, please check out some prior reports on this blog or contact us at Arkovich Law. for a free consultation.