On July 31, 2018, the U.S. Department of Education published a Notice of Proposed Rulemaking describing its new policy for borrower defense and student debt. In the following letter, submitted in response to the department’s request for comment, senior fellow and senior policy advisor Jen Mishory takes DeVos and her department to task for their unsupported, baseless proposal to dismantle a number of important protections for student borrowers, including their intention to add process hurdles and create barriers to accessing loan discharge—relief that is provided by the Higher Education Act—that will effectively block billions of dollars worth of debt cancellation for defrauded borrowers.
You can also read comments on the notice by TCF senior fellow Robert Shireman, senior policy associate Tariq Habash, and contributor Sean Marvin.
Dear Secretary DeVos:
I am submitting this comments in response to the department’s proposed regulation on borrower defense claims and related issues, which contains a series of misguided proposals to change current policy that are backed by no evidence and often rationalized by arbitrary or incorrect assertions. The department offers no substantiated justification for its intended changes in policy including, but not limited to, its proposed changes to: make the loan discharge process more difficult for borrowers; make the standard for determining whether loan relief should be granted nearly impossible to meet; increase the evidentiary burden of proof for borrowers to obtain relief in the case of affirmative claims; limit the ability to bring a claim to those in default; or remove protections that eliminate mandatory pre-dispute arbitration agreements and class action waivers from college enrollment contracts.
Given the unreasonably short thirty-day timeframe provided for this comment period, however, this letter focuses on just two of those areas: 1) the unsubstantiated assertion that schools would, or even could, withhold transcripts from borrowers who receive loan discharges, and that such a possibility warrants a change in policy away from group borrower defense claims and automatic closed school discharges; and 2) the proposed policy change to eliminate loan discharge options for students offered a teach-out when their school closes, a proposal that directly contradicts the statutory text and congressional record behind the creation of the closed school discharge provision.
Because neither of these policy changes are backed by evidence or basic reason, I urge the department to drop these arbitrary and irrational proposed changes.
1. Group processes: the department of education’s denial of group processes for borrower defense claims and closed school discharges is based on false or unsubstantiated claims.
The department makes a range of unsubstantiated claims to justify changes away from group discharge processes in borrower defense claims and closed school situations, but in particular relies heavily on a flawed, purported fear that unknowing borrowers would lose the ability to obtain an official copy of their transcript if they received a discharge.
Specifically, the department states that “because an institution can refuse to provide an official transcript for a borrower whose loan has been forgiven, group discharges could render some borrowers unable to verify their credentials or work in the field for which they trained and have enjoyed employment.” When considering automatic closed school discharges, the department states that because “an institution might withhold official transcripts from students who receive a defense to repayment loan discharge” and that an “‘opt out’ mechanism could result in borrowers who unknowingly lose the ability to verify the credentials they earned using the subsequently discharged loans … it is imperative that individual borrowers apply for a closed school loan discharge rather than receiving it automatically.” It then requires students applying for discharge to acknowledge the “right” of schools to deny them access to their transcripts.
This justification to end both the policies of group borrower defense claim processing and automatic closed school discharges, and to require the written acknowledgement when filing a borrower defense claim, is unsubstantiated by any evidence and based on flawed reasoning because a) the case law demonstrates that withholding transcripts is unconstitutional at public colleges; b) such withholding would violate state law property rights; c) the change is unsubstantiated by any evidence of customary practice; and d) the department neglects to consider less arbitrary actions to ameliorate stated (though flawed) concerns.
A. The equal protection clause prevents public colleges from denying borrowers access to academic transcripts.
The equal protection clause of the Constitution requires that state actors treating people differently show, at minimum, some rational basis for doing so. In the two cases that have considered this protection as it relates to transcript withholding, Handsome v. Rutgers and Lee v. Board of Higher Education in City of New York, both courts ruled that public colleges have no rational basis for treating borrowers who have had their loans discharged differently from other borrowers or students by withholding their transcripts. The department’s reliance on transcript withholding as a reason to end group processes and to include a student acknowledgement of the possibility of withholding is thus irrelevant and inaccurate at public colleges.
B. At least some state laws dictate that borrowers have a property interest in transcripts that limit a schools ability to withhold that property.
While the federal government determines whether to discharge a loan, the federal government does not have control over transcript release outside of FERPA requirements. Instead, the contract between students and schools govern transcript release. In In re Kuehn, the Seventh Circuit found that in giving “weight to custom that amounts to an implicit term of the educational contract, and following the reasoning in Hirsch, we conclude that Kuehn has a state-law right to receive a certified copy of her transcript.” Given the likelihood that state-based property rights would limit the ability of schools to withhold transcripts in many, and possibly most, states, the department of education faces a high burden to show that there is any sort of existing custom for schools to withhold transcripts that would warrant a radical shift in policies regarding loan discharge.
C. The department provides no evidence to support its assertion that transcript withholding is a harm for which the department should change its relevant policy.
The department provides no evidence that schools do or would withhold transcripts from students who receive full discharge. It states that the proposed regulations also would remind borrowers “that if the borrower receives a 100 percent discharge for the loan, the institution has the right to withhold an official transcript for the borrower, as has always been the case in instances in which the borrower has been awarded student loan discharge through false certification, closed school or defense to repayment discharge.”
But there is no evidence offered to justify that this is a right that schools either hold or pursue in practice—likely due to the case law described earlier in this letter. While some schools do state a practice of withholding transcripts when debts are owed to the school, there is no evidence that withholding transcripts in the case of discharge from loan obligations owed to the federal government, long after the school has received payment from a student—as opposed to withholding transcripts when a balance is owed to the school—is common practice. In fact, the department itself has a very helpful website available to students who have attended a closed school, and for each school provides a detailed fact sheet about how the school is making their transcript available. In none of these cases do the schools state an intention to withhold a transcript if a loan is discharged.
Specifically, in the case of Corinthian Colleges, the most applicable example as it relates to group discharge and closed schools, access to student records and transcripts was determined by a process created by the creditors trust and wholly unrelated to any discharges. Any student pursuing their records were told simply to send a written request to the student trust “to attempt to locate and preserve all Student Records related to you.” Similarly, ITT Tech set up a process with the company Parchment to make transcript requests available online to students. Nowhere in these documents is borrower discharge considered.
D. Even if schools had the ability to withhold transcripts after discharge and doing so were common practice, providing students with an opt-out option of group process would alleviate the concern that students might unwittingly lose access to a transcript.
If the department were to present evidence that students were in danger of losing access to their transcripts, it provides no real analysis and no evidence that an opt-out of group processes would not adequately protect students from such a scenario.
The 2016 regulation includes a provision that allows students to opt out of the group discharge process. The department considered including an opt-out provision in the automatic closed school discharge process but did not do so, because they concluded that very few students would use it. In either scenario, an opt-out provision would allow any student overly concerned about the loss of a transcript to forgo loan discharge, while retaining the benefits of the group process that the 2016 regulations sought to provide after reviewing the evidence in the process’s favor.
The department presents baseless assertions to substantiate its reasons for a policy change away from the group processes articulated in the 2016 regulation. The department should instead retain those group processes laid out therein.
2. Closed school discharges: the proposed policy to require students to take a teach-out when offered the option is contrary to the statutory text, congressional intent behind the provision, and prior department of education precedent.
Changing policy to require a student to accept a teach-out means that borrowers may be forced to enroll in a program of varied quality and accessibility instead of receiving the loan discharge they are guaranteed by the statute. The department should eliminate this policy change and provide loan discharges to students when their school closes.
A. A plain-language reading of the Higher Education Act requires access to loan discharge, access which the department proposes to eliminate.
In 1992, Congress amended the Higher Education Act to provide loan discharges for students in the event their school closed, a provision that they later applied to direct loans. Specifically, Congress wrote:
If a borrower who received, on or after January 1, 1986, a loan made, insured, or guaranteed under this part and the student borrower, or the student on whose behalf a parent borrowed, is unable to complete the program in which such student is enrolled due to the closure of the institution or if such student’s eligibility to borrow under this part was falsely certified by the eligible institution or was falsely certified as a result of a crime of identity theft, or if the institution failed to make a refund of loan proceeds which the institution owed to such student’s lender, then the Secretary shall discharge the borrower’s liability on the loan (including interest and collection fees) by repaying the amount owed on the loan … [Emphasis added].
Nowhere in this section of the HEA does Congress contemplate or reference a teach-out option if the school closes; in fact, the unrelated creation of teach-outs is in an entirely different section of the statute. Nor does the statute direct the department of education to consider future enrollment in other similar programs as mitigating the need for loan discharge.
The prior policy giving students a choice to pursue another, similar program through a teach-out or transfer was at least a defensible regulation, given that students could still access the discharge afforded to them by the statute if they chose to do so. But requiring a student to enroll in a teach-out flies in the face of the statutory requirement that the secretary shall discharge loans if a student cannot complete the program in which they currently are enrolled.
B. Congress intended that students who attended a now-closed school would receive a loan discharge, and did not intend to condition receipt of that discharge on separate teach-out participation.
Should anyone doubt the clarity of the statutory language above, the authors of the closed school discharge provisions made their intentions clear in drafting those provisions of the Higher Education Act. In 1992, when the HEA reauthorization passed, Senator Paul Simon said on the closed school and false certification provisions:
“The bill also significantly strengthens the oversight of schools in the program by toughening accreditation and Federal certification standards, and prompting State reviews of institutions that have high defaults, complaints, audit problems, and other indicators of possible misuse of Federal funds. These changes will help to restore confidence in the student aid programs. As part of this effort, I worked with Senator Metzenbaum on some provisions to help students who have been victims of fraud and abuse at some schools. One change will cancel student loans in cases where a student was defrauded by the school or the school closed before the student finished the program.”[Emphasis added.]
The authors of the closed school discharge provision made it clear at the time that they wrote the provision that students would see their loans canceled if the school closed before the student finished the program, and did not make the cancellation contingent on whether a student had certain options post-closure.
C. Even if a mandatory teach-out requirement were in the statute, the department of education’s original reasoning for making teach-outs optional still stands, and the department offers no new evidence that warrants a new policy.
The original regulations on closed school discharges created the teach-out option for students. In doing so, when negotiators raised the concern that teach-outs often did not work well for students in practice, the department responded by making clear that the teach-out was a choice, and acknowledged that students could be “protected” from onerous teach-out conditions by declining to accept them.
The initial concern about teach-out quality stands today. Teach-out requirements created by states and accreditors vary in a number of ways, including by additional costs, geographic proximity to the student, which students can be excluded from the teach-out, record-keeping requirements, and usage of student aid. Moreover, teach-outs may only be offered at poor-quality programs. The department has presented no new evidence that would justify a new policy.
In light of the department’s inaccurate assertions, lack of evidence, and arbitrary reasoning, I urge it to reconsider the policy changes delineated in the proposed rule and retain its existing 2016 policies regarding group processes and closed school discharges. I also urge the Department to reconsider its broader changes that have the combined effect of eviscerating protections for defrauded borrowers.
Sincerely,
Jen Mishory
Senior Fellow and Senior Policy Advisor
The Century Foundation
Tags: student debt, student loans, borrower defense
DeVos Education Department Wants to Dismantle Protections for Student Borrowers
On July 31, 2018, the U.S. Department of Education published a Notice of Proposed Rulemaking describing its new policy for borrower defense and student debt. In the following letter, submitted in response to the department’s request for comment, senior fellow and senior policy advisor Jen Mishory takes DeVos and her department to task for their unsupported, baseless proposal to dismantle a number of important protections for student borrowers, including their intention to add process hurdles and create barriers to accessing loan discharge—relief that is provided by the Higher Education Act—that will effectively block billions of dollars worth of debt cancellation for defrauded borrowers.
You can also read comments on the notice by TCF senior fellow Robert Shireman, senior policy associate Tariq Habash, and contributor Sean Marvin.
Dear Secretary DeVos:
I am submitting this comments in response to the department’s proposed regulation on borrower defense claims and related issues, which contains a series of misguided proposals to change current policy that are backed by no evidence and often rationalized by arbitrary or incorrect assertions. The department offers no substantiated justification for its intended changes in policy including, but not limited to, its proposed changes to: make the loan discharge process more difficult for borrowers; make the standard for determining whether loan relief should be granted nearly impossible to meet; increase the evidentiary burden of proof for borrowers to obtain relief in the case of affirmative claims; limit the ability to bring a claim to those in default; or remove protections that eliminate mandatory pre-dispute arbitration agreements and class action waivers from college enrollment contracts.
Given the unreasonably short thirty-day timeframe provided for this comment period, however, this letter focuses on just two of those areas: 1) the unsubstantiated assertion that schools would, or even could, withhold transcripts from borrowers who receive loan discharges, and that such a possibility warrants a change in policy away from group borrower defense claims and automatic closed school discharges; and 2) the proposed policy change to eliminate loan discharge options for students offered a teach-out when their school closes, a proposal that directly contradicts the statutory text and congressional record behind the creation of the closed school discharge provision.
Because neither of these policy changes are backed by evidence or basic reason, I urge the department to drop these arbitrary and irrational proposed changes.
1. Group processes: the department of education’s denial of group processes for borrower defense claims and closed school discharges is based on false or unsubstantiated claims.
The department makes a range of unsubstantiated claims to justify changes away from group discharge processes in borrower defense claims and closed school situations,1 but in particular relies heavily on a flawed, purported fear that unknowing borrowers would lose the ability to obtain an official copy of their transcript if they received a discharge.
Specifically, the department states that “because an institution can refuse to provide an official transcript for a borrower whose loan has been forgiven, group discharges could render some borrowers unable to verify their credentials or work in the field for which they trained and have enjoyed employment.”2 When considering automatic closed school discharges, the department states that because “an institution might withhold official transcripts from students who receive a defense to repayment loan discharge” and that an “‘opt out’ mechanism could result in borrowers who unknowingly lose the ability to verify the credentials they earned using the subsequently discharged loans … it is imperative that individual borrowers apply for a closed school loan discharge rather than receiving it automatically.”3 It then requires students applying for discharge to acknowledge the “right” of schools to deny them access to their transcripts.4
This justification to end both the policies of group borrower defense claim processing and automatic closed school discharges, and to require the written acknowledgement when filing a borrower defense claim, is unsubstantiated by any evidence and based on flawed reasoning because a) the case law demonstrates that withholding transcripts is unconstitutional at public colleges; b) such withholding would violate state law property rights; c) the change is unsubstantiated by any evidence of customary practice; and d) the department neglects to consider less arbitrary actions to ameliorate stated (though flawed) concerns.
A. The equal protection clause prevents public colleges from denying borrowers access to academic transcripts.
The equal protection clause of the Constitution requires that state actors treating people differently show, at minimum, some rational basis for doing so.5 In the two cases that have considered this protection as it relates to transcript withholding, Handsome v. Rutgers6 and Lee v. Board of Higher Education in City of New York,7 both courts ruled that public colleges have no rational basis for treating borrowers who have had their loans discharged differently from other borrowers or students by withholding their transcripts. The department’s reliance on transcript withholding as a reason to end group processes and to include a student acknowledgement of the possibility of withholding is thus irrelevant and inaccurate at public colleges.
B. At least some state laws dictate that borrowers have a property interest in transcripts that limit a schools ability to withhold that property.
While the federal government determines whether to discharge a loan, the federal government does not have control over transcript release outside of FERPA requirements. Instead, the contract between students and schools govern transcript release. In In re Kuehn, the Seventh Circuit found that in giving “weight to custom that amounts to an implicit term of the educational contract, and following the reasoning in Hirsch, we conclude that Kuehn has a state-law right to receive a certified copy of her transcript.”8 Given the likelihood that state-based property rights would limit the ability of schools to withhold transcripts in many, and possibly most, states, the department of education faces a high burden to show that there is any sort of existing custom for schools to withhold transcripts that would warrant a radical shift in policies regarding loan discharge.
C. The department provides no evidence to support its assertion that transcript withholding is a harm for which the department should change its relevant policy.
The department provides no evidence that schools do or would withhold transcripts from students who receive full discharge. It states that the proposed regulations also would remind borrowers “that if the borrower receives a 100 percent discharge for the loan, the institution has the right to withhold an official transcript for the borrower, as has always been the case in instances in which the borrower has been awarded student loan discharge through false certification, closed school or defense to repayment discharge.”9
But there is no evidence offered to justify that this is a right that schools either hold or pursue in practice—likely due to the case law described earlier in this letter. While some schools do state a practice of withholding transcripts when debts are owed to the school, there is no evidence that withholding transcripts in the case of discharge from loan obligations owed to the federal government, long after the school has received payment from a student—as opposed to withholding transcripts when a balance is owed to the school—is common practice. In fact, the department itself has a very helpful website available to students who have attended a closed school, and for each school provides a detailed fact sheet about how the school is making their transcript available.10 In none of these cases do the schools state an intention to withhold a transcript if a loan is discharged.
Specifically, in the case of Corinthian Colleges, the most applicable example as it relates to group discharge and closed schools, access to student records and transcripts was determined by a process created by the creditors trust and wholly unrelated to any discharges.11 Any student pursuing their records were told simply to send a written request to the student trust “to attempt to locate and preserve all Student Records related to you.”12 Similarly, ITT Tech set up a process with the company Parchment to make transcript requests available online to students.13 Nowhere in these documents is borrower discharge considered.
D. Even if schools had the ability to withhold transcripts after discharge and doing so were common practice, providing students with an opt-out option of group process would alleviate the concern that students might unwittingly lose access to a transcript.
If the department were to present evidence that students were in danger of losing access to their transcripts, it provides no real analysis and no evidence that an opt-out of group processes would not adequately protect students from such a scenario.
The 2016 regulation includes a provision that allows students to opt out of the group discharge process.14 The department considered including an opt-out provision in the automatic closed school discharge process but did not do so, because they concluded that very few students would use it.15 In either scenario, an opt-out provision would allow any student overly concerned about the loss of a transcript to forgo loan discharge, while retaining the benefits of the group process that the 2016 regulations sought to provide after reviewing the evidence in the process’s favor.16
The department presents baseless assertions to substantiate its reasons for a policy change away from the group processes articulated in the 2016 regulation. The department should instead retain those group processes laid out therein.
2. Closed school discharges: the proposed policy to require students to take a teach-out when offered the option is contrary to the statutory text, congressional intent behind the provision, and prior department of education precedent.
Changing policy to require a student to accept a teach-out means that borrowers may be forced to enroll in a program of varied quality and accessibility instead of receiving the loan discharge they are guaranteed by the statute. The department should eliminate this policy change and provide loan discharges to students when their school closes.
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A. A plain-language reading of the Higher Education Act requires access to loan discharge, access which the department proposes to eliminate.
In 1992, Congress amended the Higher Education Act to provide loan discharges for students in the event their school closed, a provision that they later applied to direct loans. Specifically, Congress wrote:
If a borrower who received, on or after January 1, 1986, a loan made, insured, or guaranteed under this part and the student borrower, or the student on whose behalf a parent borrowed, is unable to complete the program in which such student is enrolled due to the closure of the institution or if such student’s eligibility to borrow under this part was falsely certified by the eligible institution or was falsely certified as a result of a crime of identity theft, or if the institution failed to make a refund of loan proceeds which the institution owed to such student’s lender, then the Secretary shall discharge the borrower’s liability on the loan (including interest and collection fees) by repaying the amount owed on the loan …17 [Emphasis added].
Nowhere in this section of the HEA does Congress contemplate or reference a teach-out option if the school closes; in fact, the unrelated creation of teach-outs is in an entirely different section of the statute. Nor does the statute direct the department of education to consider future enrollment in other similar programs as mitigating the need for loan discharge.
The prior policy giving students a choice to pursue another, similar program through a teach-out or transfer was at least a defensible regulation, given that students could still access the discharge afforded to them by the statute if they chose to do so. But requiring a student to enroll in a teach-out flies in the face of the statutory requirement that the secretary shall discharge loans if a student cannot complete the program in which they currently are enrolled.
B. Congress intended that students who attended a now-closed school would receive a loan discharge, and did not intend to condition receipt of that discharge on separate teach-out participation.
Should anyone doubt the clarity of the statutory language above, the authors of the closed school discharge provisions made their intentions clear in drafting those provisions of the Higher Education Act. In 1992, when the HEA reauthorization passed, Senator Paul Simon said on the closed school and false certification provisions:
“The bill also significantly strengthens the oversight of schools in the program by toughening accreditation and Federal certification standards, and prompting State reviews of institutions that have high defaults, complaints, audit problems, and other indicators of possible misuse of Federal funds. These changes will help to restore confidence in the student aid programs. As part of this effort, I worked with Senator Metzenbaum on some provisions to help students who have been victims of fraud and abuse at some schools. One change will cancel student loans in cases where a student was defrauded by the school or the school closed before the student finished the program.”18[Emphasis added.]
The authors of the closed school discharge provision made it clear at the time that they wrote the provision that students would see their loans canceled if the school closed before the student finished the program, and did not make the cancellation contingent on whether a student had certain options post-closure.
C. Even if a mandatory teach-out requirement were in the statute, the department of education’s original reasoning for making teach-outs optional still stands, and the department offers no new evidence that warrants a new policy.
The original regulations on closed school discharges created the teach-out option for students. In doing so, when negotiators raised the concern that teach-outs often did not work well for students in practice, the department responded by making clear that the teach-out was a choice,19 and acknowledged that students could be “protected” from onerous teach-out conditions by declining to accept them.20
The initial concern about teach-out quality stands today. Teach-out requirements created by states and accreditors vary in a number of ways, including by additional costs, geographic proximity to the student, which students can be excluded from the teach-out, record-keeping requirements, and usage of student aid. Moreover, teach-outs may only be offered at poor-quality programs.21 The department has presented no new evidence that would justify a new policy.
In light of the department’s inaccurate assertions, lack of evidence, and arbitrary reasoning, I urge it to reconsider the policy changes delineated in the proposed rule and retain its existing 2016 policies regarding group processes and closed school discharges. I also urge the Department to reconsider its broader changes that have the combined effect of eviscerating protections for defrauded borrowers.
Sincerely,
Jen Mishory
Senior Fellow and Senior Policy Advisor
The Century Foundation
Notes
No. 07-3954. (2009).
Tags: student debt, student loans, borrower defense