Borrower-Defense Claims Could Be Paid by Colleges

Inside Higher Ed

Meghan Brink

July 11, 2022

The Education Department has big plans to make it easier for borrowers who attended predatory colleges to apply for relief of their student debt, and to hold the institutions accountable for their wrongdoing—and possibly make them repay the costs, too.

A set of newly proposed regulations released July 6 would create a new, separated process to review borrower-defense claims, the process to adjudicate wrongdoing by a college in order to get debt relief, and to determine whether the department will recoup the costs of the debt relief from a college, which were once both considered at the same time.

According to the department, this change would shorten the length of time for borrower-defense claims to be approved and would give the department the chance to “recover the costs to taxpayers” for loan discharges.

“The CEOs and the executives of these large education for-profit education companies walk away with tens of millions of dollars in their pockets for having run what ultimately becomes a scam school,” said Cody Hounanian, executive director of the Student Debt Crisis Center. “Individuals walk away from these companies incredibly wealthy themselves, and they face almost no responsibility for the harm caused under their watch.”

Although the department has always had the ability to recoup costs from colleges in borrower-defense cases, it has never successfully done so. This is partly because when predatory colleges close their doors and file for bankruptcy, the Education Department is left responsible to forgive the debts of borrowers with approved borrower-defense claims. Additionally, there has never been a formal process for recoupment put into the regulations.

The proposed regulations create that formal process, and many expect there will be a rise in opportunities for the department to seek recoupment of the costs of borrower-defense claims, because many more borrower-defense claims are being filed against colleges that are still open.

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