New Student Loan Borrower Relief Rules Receive Mixed Reviews

Posted By Donna Fuscaldo on November 7, 2016 at 11:27 am
New Student Loan Borrower Relief Rules Receive Mixed Reviews

After months of wrangling, the U.S. Department of Education issued final regulations designed to protect student loan borrowers defrauded by a college or university. The controversial new borrower relief rules, which generated more than 10,000 responses during the comment period, are receiving mixed reviews: Some say they don’t go far enough while others think they overreach.

At the heart of the dissent over borrower relief is the rule that discharges student loan debt if the college or for-profit institution mispresented itself or defrauded the student. The rules, which replace various state laws with one federal regulation, were prompted by the closing of Corinthian Colleges, brought down because of fraud and predatory lending.

When the school closed students were left facing a complex process to get their federal loans discharged. Because of that, the White House and the Department of Education went to the drawing board to overhaul the rules. While for-profits were the impetus for them, the new rules also can impact nonprofit colleges and universities, which raises the ire of some.

Is the Department Of Education being too overreaching?

Under the new regulation, schools would lose the federal loans and thus have to pay back the government if there is a substantial misrepresentation about the program, charges, or job placement rates upon graduation. “It’s gone a little too far in that there is no due process for the schools,” says Mark Kantrowitz, publisher and vice president of strategy at “The repayment doesn’t require proof – just an accusation. The Department of Education can take money from the college without any due process.”

But Undersecretary of Education Ted Mitchell, in announcing the final rules, said the situation called for action. “To protect students from the start, the regulations seek to deter institutions from engaging in predatory behavior or otherwise exposing the government to risk,” he said. “For students who are injured by an institution’s conduct, these regulations provide a clear path to relief with all of their rights intact, and restore their right to sue.”

But Kantrowitz says the new guidelines would allow the Department of Education to “arbitrarily” decide a college violated something and therefore provide borrower relief. He points to reports a few years ago that found half of law schools haven’t adequately justified job placement numbers and 20 percent made them up. Under the new regulation, that could be enough to shut down half of the law schools in the country, he argues. “It doesn’t matter if it’s a for-profit or a traditional school,” Kantrowitz says. “It’s a big can of worms, and it’s going to cause a severe negative impact.”

Another source of contention: the potential tax burden it places on U.S. taxpayers. According to the Washington Post, loan discharges could impact the annual budget by somewhere from $199 million to $4.2 billion. To limit that, the Department of Education is broadening the conditions in which a college or university has to get a letter of credit from a bank confirming it has 10 percent or more of the federal financial aid funding on hand. Defaults on debt obligations, lawsuits from the government and enforcement actions by accreditation agencies could trigger the need for the letter, the Washington Post noted.

Consumer advocates applaud borrower relief but seek clarity

While for-profit and traditional college supporters are complaining about the new regulations, consumer advocates are applauding them, even if they don’t think it goes far enough. Elizabeth Warren, the Massachusetts senator who has long fought for the rights of student borrowers, said as much last month when she urged Secretary of Education John King Jr. to forgive the federal student loan debt of Corinthian students who face debt collection measures including seizure of tax refunds and tax credits. Warren contends the government has issued debt collection actions against more than 30,000 borrowers who should be eligible to have their loans discharged and is garnishing the wages of 4,000 more.

According to Natalia Abrams, executive director of, the new rules should be applauded because they take steps to help borrowers, particularly the provision that would restore Pell Grant eligibility for defrauded students. That’s important because there is only a limited amount of money for Pell grants and restoring it means the students could access it at another institution.

That aspect of the new regulations is being applauded by pretty much everyone, including opponents, given Pell grants go to low income students. In 2008 Congress capped Pell grant limits to 18 semesters. That was lowered to 12 semesters in 2012. “Restoring Pell eligibility and getting rid of the arbitration clause are big wins,” Abrams says. “We do need more clarity on how borrowers would get relief.”

Donna Fuscaldo
Donna Fuscaldo is a freelance journalist hailing out of Long Island, New York. She has also written for,,,, Business Insider, Dow Jones Newswires and the Wall Street Journal.

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