Attorney General Kamala D. Harris, 16 states, and the District of Columbia, Call for More Student Loan Debt Relief for Students Harmed by Predatory For-Profit Colleges

Monday, August 1, 2016
Contact: (415) 703-5837, agpressoffice@doj.ca.gov

LOS ANGELES - Attorney General Kamala D. Harris, along Attorneys General from 16 states and the District of Columbia today submitted official comments to the United States Department of Education, urging the Department to do more to create and implement fair, streamlined, and efficient processes to enable students harmed by predatory for-profit colleges to access student loan debt relief.  The Attorneys General also praised the significant strides already made by the Department of Education through its recently proposed borrower-defense regulations. 

“We must create rules that will prevent predatory for-profit schools from continuing to cheat and mislead our students and taxpayers,” said Attorney General Harris.  “Education goes hand-in-hand with the American Dream. With new and improved federal protections for students, both current and future students defrauded by for-profit companies will finally have a meaningful opportunity for federal student loan forgiveness and the chance to pursue a higher education.” 

Department regulations in place since 1995 allow borrowers to apply for discharge of federal student loans if their college violated state law in its conduct toward them, a right referred to as “defense to repayment.”  Until recent years, this right had been invoked only a handful of times. When Attorney General Harris and other law enforcement agencies exposed Corinthian Colleges, Inc. (“Corinthian”) for extensively falsifying its job-placement rates to potential and enrolled students, tens of thousands of students became eligible for full debt relief under this process.  Other for-profit institutions may have used similarly dishonest tactics in their dealings with students, so many more borrowers may need to utilize this defense in the future.

Existing regulations have proven inadequate for handling situations of extensive fraud like in the case of Corinthian.  The Department’s existing rules provide little guidance on who may be eligible, how they should apply, or how the Department will evaluate applications. 

On June 16, 2016, the Department published its new, proposed defense-to-repayment rules after a negotiated rulemaking session earlier in the year failed.  Attorney General Harris’ office, as the negotiator on behalf of attorneys general, advocated for a number of measures in the earlier sessions that have now been included in the Department’s proposed rules, including: (1) the creation of a group-discharge process that would allow the Department to grant automatic relief to wide swaths of students similarly wronged by a predatory school, like Corinthian; (2) limitations on schools’ use of binding pre-dispute arbitration agreements and class-action waivers, common devices that predatory schools employ to undermine the legal rights of students and prevent wrongdoing from coming to light; and (3) an expansion of the time frame during which defrauded students may seek full relief from the Department.  These hard-fought gains mark major steps forward in remedying the egregious mistreatment of students and holding predatory schools accountable to taxpayers, but more remains to be accomplished.

By submitting today’s comments, Attorney General Harris and the Attorneys General of Massachusetts, Illinois, Maryland, Kentucky, Connecticut,  Delaware, Hawaii, Maine, Minnesota, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, District of Columbia, and the State of Hawaii, Office of Consumer Protection now call on the Department to do more to protect students and taxpayers:

  1. Under the Department’s proposed rules, there is no formal process for a state attorney general to invoke the defense-to-repayment process when he or she has evidence a group of students was abused by a school.  As chief law enforcement officers of their respective states, state attorneys general are uniquely positioned to investigate school misconduct and bring it to the Department’s attention.  The final rules should recognize this expertise by allowing state attorney general referrals. 
  2. Under the current proposal, after establishing that his or her school violated the law, the student must then separately show that he or she is entitled to more than partial loan forgiveness.  This places an unfair and unnecessary burden on students.  The final rules should provide that once a student has demonstrated the kind of egregious conduct required to obtain debt relief in the first place, there should be a presumption that the student is entitled full relief—not the other way around.
  3. The final rules should expand the categories of school misconduct that would give rise to a defense to repayment.  Absent a litigated judgment, the current proposal limits students’ ability to seek relief from the Department to situations in which the school has either breached a contract or engaged in “substantial misrepresentations.”  This ignores other categories of rampant school misconduct that violate state law and render a student’s education worthless.  This is an unwelcome retreat from the Department’s 1995 regulations, which recognize violations of state law as a basis for defense to repayment.
  4. The Department’s proposed rules make significant strides toward eradicating mandatory pre-dispute arbitration provisions and class-action waivers in enrollment agreements.  But to give those measures the best chance of succeeding, the Department’s final rules should further clarify that schools cannot request at enrollment that students “opt out” of the bans on mandatory pre-dispute arbitration provisions and class-action waivers, and that the claims covered by these bans are broad.

The Department will publish final regulations by November 1, 2016.

In October 2013, Attorney General Kamala D. Harris led the charge against Corinthian Colleges, Inc. and its schools in California (Everest, Heald, and Wyotech colleges), seeking to put an end to abusive practices that left tens of thousands of students with useless degrees and tens of thousands of dollars in debt.

Attorney General Harris remains committed to protecting vulnerable students.  A copy of the letter is attached to the electronic version of this release at www.oag.ca.gov/news.

 

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