June 14, 2016

Reed, Whitehouse Applaud Proposed Student Borrower Defense Regulations

Senators have been fighting for stronger borrower protections and a crackdown on predatory practices

Washington, D.C. – The U.S. Department of Education has announced proposed regulations to protect post-secondary student borrowers from predatory practices, help the victims of such practices gain relief, and increase transparency in student lending.  Senators Jack Reed and Sheldon Whitehouse, who called on the Department to issue a strong “borrower defense to repayment” rule in April, cheered the new proposed regulations.

“This proposal is a positive step toward improving transparency, protecting students from predatory schools, and ensuring they get the debt relief they are entitled to when an institution misleads or defrauds them.  But we need to strengthen accountability for all institutions that participate in the federal student aid programs so that students and taxpayers can be confident that their investment in higher education is a safe one,” said Senator Reed.

“Too many student borrowers are subject to unfair and harmful practices that stick them with crippling student debt and not much of an education to show for it,” said Whitehouse, a member of the Senate Health, Education, Labor, and Pensions Committee.  “These new protections will help victims of predatory practices to get out from under their debt.  They will help protect future borrowers from falling into the same traps by making lending more transparent and straightforward.  And they will give borrowers their day in court to hold institutions accountable for using underhanded practices and breaking the rules.  I applaud the Department of Education for heeding our calls and taking action on behalf of our students.” 

The proposed regulations would streamline relief for student borrowers who have been wronged and create a process for group-wide loan discharges when whole groups of students have been subject to the misconduct.  They also establish triggers that would require institutions to put up funds if they engage in misconduct or exhibit signs of financial risk.

Additionally, the proposed regulations require financially risky schools and proprietary schools in which students have poor loan outcomes to provide clear, plain-language warnings to prospective and current students, and to the public.  The rules also make it simpler for eligible students to discharge federal loans if their school closes while they are enrolled or soon after they withdraw.

Finally, to protect student borrowers and prevent schools from shirking responsibility for the injury they cause, the proposed regulations would prohibit the use of so-called mandatory pre-dispute arbitration clauses and class action waivers that deny students their day in court if they are wronged.  Under these regulations, schools would no longer be able to use their enrollment agreements, or other pre-dispute arbitration agreements or clauses in other documents, in order to force students to go it alone by signing away their right to pursue relief as a group, or to impose gag rules that silence students from speaking out.

“We won’t sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag,” said Secretary of Education John B. King, Jr. “All students who are defrauded deserve an efficient, transparent, and fair path to the relief they are owed, and the schools should be held responsible for their actions.” 

The proposed rule publishes in the Federal Register on June 16, and the public comment period ends August 1.  The Department will publish a final regulation by November 1.


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