Attorney General Kamala D. Harris Calls on the Department of Education to Revise Regulations to Protect Students Defrauded by Corinthian Colleges

SAN FRANCISCO - Attorney General Kamala D. Harris today issued the following statement calling on the United States Department of Education (ED) to do more to protect students defrauded by Corinthian Colleges and other for-profit colleges.  Last week, ED held the second of three negotiated rulemaking sessions to determine how student borrowers can get relief from federal student loans when these loans were used at a school that abused and deceived the students.  Attorney General Harris’s office participated in the session as one of two representatives for state attorneys general and called repeatedly for greater protections for students.

“Too many students defrauded by for-profit colleges remain buried under mountains of student debt,” said Attorney General Harris.  “I call on the Department of Education to revise their proposed regulations to ensure meaningful debt relief is available to any student misled by a predatory college."

In the wake of the recent, public collapse of Corinthian Colleges, a joint investigation by ED and Attorney General Harris’s office found that job placement rates were widely misrepresented to enrolled and prospective Corinthian students.  Thousands of the school’s students have asked ED to discharge their federal loans because they were deceived by Corinthian’s inflated job placement rates. 

This issue is not limited to Corinthian Colleges. Other for-profit institutions have used similar dishonest tactics against their students, and it is expected that many more students will need to utilize this defense. 

Federal law, including ED’s regulations, gives students the right to have their loans discharged when their colleges have engaged in certain kinds of unlawful conduct—this right is referred to as a “defense to repayment.”  Yet current federal regulations provide little guidance on who may be eligible, how they should apply, or how ED will evaluate those applications.  Recently, Attorney General Harris’s office and other agencies have uncovered an extensive pattern of misconduct among many for-profit colleges, particularly regarding deceptive recruitment tactics.  As a result of the sharp increase in the number of student borrowers asserting their rights, ED initiated a “negotiated rulemaking” process for interested parties to provide input on new regulations governing defenses to repayment when a school has abused and deceived them.  As part of the process, ED convened a committee made up of stakeholders—including state attorneys general, students, student advocacy groups, public schools, for-profit schools, and accreditors, among others—to voice their positions on what the new rules should say.  Congress imposes this negotiated-rulemaking requirement whenever ED seeks to issue new regulations about student assistance for higher education.

At the committee’s first meeting in January, Attorney General Harris’s office, along with other state attorneys general and student advocacy groups, stressed the need for meaningful, robust, and streamlined loan-discharge procedures for students who have been victimized by their school.  At a subsequent meeting earlier this month, however, ED unveiled proposed language that contradicts the intent of previous discussions by narrowing, limiting, and delaying student relief in the following ways: 

1. ED’s proposal unreasonably limits the categories of school misconduct that would give rise to a defense to repayment.  The proposal limits students’ rights to circumstances where the colleges either breached a contract or engaged in “substantial misrepresentations,” ignoring other categories of rampant school misconduct that violate state law. 
2. ED’s proposal includes a two-year statute of limitations for borrowers to assert a defense to repayment.  This is patently unfair given that there is no corresponding statute of limitations for debt collectors in going after students for federal student loans. 
3. ED’s proposal does not provide any procedure to grant broad, automatic relief to borrowers, even when it is clear that a predatory school has systematically abused and deceived large numbers of students through widespread practices.  In these clear-cut cases, there is no practical reason to deny relief or to put an additional burden on students to again prove their case. 
4. In cases where the school has not already closed down, ED proposes that the decision to grant a discharge be made by pitting the student against the school in an adversary process, effectively requiring the student to hire a lawyer and allowing the school to interfere with the student's right to obtain relief on a government loan.  Any fair process should be sufficiently simple and straightforward so that a student can navigate it successfully without legal representation.

Attorney General Harris continues to call for changes to the new regulations.  Fair and effective defense-to-repayment procedures (1) must look to state law as a basis to assert a defense; (2) must not be limited by any time period; (3) must provide procedures for automatic, global relief to students where it is clear that they are the victims of rampant school misconduct; and (4) must not permit the school to make the process burdensome and expensive.