The U.S. Department of Education agreed to hand over department records late Thursday to Rep. Bobby Scott (D-Va), the Democratic chairman of the U.S. House education committee, just hours before Scott was set to subpoena Education Secretary Betsy DeVos for the records.
The information relates to the Education Department’s unwillingness to fully forgive the federal student loans of borrowers who say they were defrauded by for-profit colleges, including the now-defunct Corinthian Colleges.
“We’ve been asking for information since last year,” Scott told NPR on Thursday, before the department promised the documents. “We expect answers.”
According to the most recent federal data, as of June 2019, more than 210,000 borrowers were waiting to have their claims processed under a 1995 rule known as “borrower defense.” The department’s decision is just the latest development in an ongoing dispute between DeVos and Scott about this previously little-used provision.
The education equivalent of a lemon
Perhaps the best way to understand borrower defense, says James Kvaal, who worked on the rule in the Obama administration and now heads The Institute for College Access & Success, is with a metaphor about a shady practice once employed by some used-car dealers.
“They would sell junky cars and go out of business,” Kvaal explains. “And buyers were left with a car that didn’t run, and still owing loans to the bank.”
The same thing happened to students who went into debt to buy the college-degree equivalent of a lemon, Kvaal says, and it’s an old idea in consumer protection law that, when a seller commits fraud, lenders should also be on the hook. In the case of former for-profit college students who argue they were defrauded, that lender is the U.S. government.
“If a student takes out a federal loan and that loan is connected with fraud, deceptive statements, illegal conduct,” Kvaal says, “then the student has a right to get that loan forgiven.”
The borrower defense rule has been on the books since 1995, but it was rarely used until a few years ago. That’s after numerous state attorneys general, as well as the federal government, investigated Corinthian Colleges for deceiving students about their job prospects and future earnings. The company ultimately filed for bankruptcy. At the time, former for-profit students also began organizing and demanded that the Obama administration apply the little-used rule to help tens of thousands of borrowers who had been defrauded.
Borrowers like Alicia Davis, who in 2006, enrolled at Florida Metropolitan University, which was owned by Corinthian. “The lady pretty much sold me a lie,” she recalls.
Davis says a school representative made several irresistible promises: “My credits would transfer if I wanted to get a master’s degree at another college. They told me you’re gonna get a job with a specific salary during this time. They provided me with an image of how their college is that didn’t exist.”
Davis attended for one year. Disillusioned and indebted, she took out new loans to start over at a community college. She later earned a bachelor’s and a master’s degree and has refused to pay down those original loans, now totaling more than $35,000.
“They’re defaulted and delinquent because I told them, I was like, ‘I’m not paying them because this is a scam,'” Davis says.
She also filed a borrower defense claim in 2015. Now, she’s one of those 210,000 borrowers waiting for their claims to be resolved. That’s because, after DeVos took over the Education Department, she moved to delay implementing the borrower defense rule. According to department records, it didn’t approve a single new claim between June 2018 and June 2019.
“With extreme displeasure”
Betsy DeVos has argued that borrower defense is too lenient. In a 2017 speech, she said, “While students should have protections from predatory practices, schools and taxpayers should also be treated fairly as well. Under the previous rules, all one had to do was raise his or her hands to be entitled to so-called free money.”
When DeVos had to sign off on thousands of claims that had already been approved by the Obama administration, she added three words below her signature: “with extreme displeasure.”
The Education Department tried to use student income data to make a new argument: That borrowers who claim to have been defrauded, but end up earning a wage similar to students at non-Corinthian programs, don’t deserve full loan forgiveness.
Alicia Davis, who lives in Orlando, says she has landed good jobs in her desired field — crime and intelligence analysis — but she insists that should have no bearing on whether she was defrauded or deserves to have her debts discharged. She’s now part of a class-action lawsuit, filed earlier this year, to push the department to move forward on these outstanding borrower defense claims.
“Our clients aren’t asking the government for a handout or a bailout. They’re asking the government to follow the existing law,” says Toby Merrill, director of the Project on Predatory Student Lending at Harvard Law School. The group filed the lawsuit that includes Alicia Davis.
In May 2018, Magistrate Judge Sallie Kim, of the U.S. District Court in San Francisco, stopped the department’s use of income data, saying it violated students’ privacy. She also ordered DeVos to stop collecting on the debts of certain Corinthian students. But in October, Kim fined DeVos $100,000 for contempt of court after it was revealed the department had not stopped collections for some 16,000 borrowers. The department apologized, calling the collections a mistake and said it was quickly moving to issue refunds.
“Although these actions were not done with ill intent, students and parents were affected and we take full responsibility for that,” said Mark Brown, the head of the department’s student loan office, Federal Student Aid.
‘They won’t take ‘Yes’ for an answer”
With this fight over borrower defense still working its way through the courts, it’s unclear when the department will process those 200,000-plus outstanding claims, and how it will determine debt relief. Which is why Rep. Bobby Scott had threatened to subpoena department documents — and potentially testimony from DeVos herself — to shed light on the department’s thinking.
According to one committee aide, “the Department informed the Committee that it will provide the requested documents only after the Chairman had already signed the subpoena and the Department was made aware a subpoena was imminent.”
Scott argues it is unfair for defrauded borrowers to have to wait so long, in many cases several years, for loan forgiveness.
“When you have an overhang of 20, 30, 40 thousand dollars in debt, there are things you can’t do — like buy a house,” Scott says. “And if they’re entitled to discharge, those claims ought to be processed.”
For its part, the Education Department insists it has been forthcoming with the House education committee’s demands. While it repeatedly rebuffed Scott’s requests for DeVos to testify, the department instead offered Brown, a retired Air Force major general tapped to head the student loan office in March.
“General Brown is our foremost expert on borrower defense. While the Secretary is willing to testify, we know that the most productive way forward is for General Brown to testify,” Education Department Press Secretary Angela Morabito told NPR on Wednesday. “We’re working really hard to comply with lawful oversight activities, and they won’t take ‘Yes’ for an answer.”
Morabito noted in an email on Thursday to reporters that the department had gone to “great lengths” to provide Congress with the information it had requested. Scott’s office provided NPR with a detailed timeline, beginning in 2018, that shows Scott’s staff reached out to the department dozens of times, repeatedly requesting the information the department finally pledged to hand over, after threat of subpoena.
The department revised the rule earlier this year for future borrower defense claims, which student advocates say would make it incredibly difficult for new borrowers to prove they were defrauded. Under the revised rule, “a school engaging in misrepresentation alone will not be sufficient for a successful claim.”
Instead, borrowers will need to “demonstrate that institutions made misrepresentations with knowledge of its false, misleading, or deceptive nature or with reckless disregard.” In short, each borrower will need to prove not only that they were given incorrect information about a school’s performance — but that a school intentionally lied to them.
“Nobody has access to evidence of college recruiters’ state of mind,” says attorney Toby Merrill, “and, by adding that requirement, the department precludes anyone from meeting this new standard.”