On March 11, 2020, Congress passed a bipartisan resolution to preserve student loan borrower protections put in place in 2016 (often called the “borrower defense rule or rules”) and to overturn new rules from the current U.S. Department of Education (“the Department”) that would strip away those protections and make it nearly impossible for borrowers harmed by school misconduct to get relief.
But, late Friday afternoon, President Trump vetoed Congress’s bipartisan resolution. Unfortunately this means that the harmful new rules preventing student borrowers from getting relief will likely go into effect as scheduled on July 1, 2020.
The new rules, published in September 2019, were harshly criticized by student borrower advocates because they put debt relief out of reach for many students harmed by school misconduct or closures. The rules give schools the green light to use unfair and predatory recruiting practices to exploit potential students for their financial aid money.
The Education Department predicted that harmed students would receive $512.5 million less in student loan relief each year under its new rules. And, the rules allow schools to hide their misconduct by using forced arbitration clauses within enrollment contracts to keep students’ complaints of illegal conduct out of court. Congress recognized that these new rules would hurt students and taxpayers and, with bipartisan support, passed legislation pursuant to the Congressional Review Act to strike the new rules so that the more effective 2016 regulations would be left in place.
President Trump’s veto of that bipartisan legislation means that the new rules will likely go into effect July 1, impacting the future of higher education and borrowers’ rights. Most of the changes to student relief rights will only apply to new loans first disbursed on or after July 1, 2020, meaning borrowers taking on new loans will be heavily impacted by this rule. A summary of how the new rules will limit borrowers’ rights is available here. Other rules will continue to apply to federal loans borrowed prior to July 1, 2020; information about relief for these older loans based on school misconduct or closure is available on our website.
But some changes will kick in sooner and may hurt student borrowers who already have student loans. The implementation of the new rules will have two immediate consequences for borrowers who already have loans and who have been harmed by their school.
First, the new rules roll back student borrowers’ rights to have their federal student loans automatically cancelled if their school closes after July 1, 2020, but before they can complete their studies. The 2016 regulations currently in effect protect students by automatically discharging or cancelling the federal student loan debt of students who were not able to complete their program of study because their school closed, as long as they did not re-enroll in the same program at another school within 3 years. But under the new rules, students attending any school that closes after July 1, 2020, will be stuck with their loans unless they proactively seek out and apply for a closed school discharge.
The timing of this regulatory change is particularly problematic, as there may be a wave of school closures coming due to the COVID-19 crisis, and many harmed students will be left with student loan debt and no degree or job. Sadly, many students are unaware that they can apply to cancel their federal loans after their school has closed, and some only realize their eligibility for a discharge after they consult a student loan lawyer. In too many parts of the country, there is limited or no access to student loan lawyers, especially for low-income borrowers. (We have a list of student loan lawyers for low-income borrowers on our website.) As a result of the regulatory rollback, thousands of borrowers will struggle while carrying unaffordable debt that should have been automatically discharged.
Second, the new rules roll back provisions that protect students’ right to their day in court when schools commit misconduct. The forced arbitration provisions, passed as part of the 2016 borrower defense rule, require that if schools choose to participate in the federal student loan program, then they have to agree to give students access to the courts to hold the school accountable for any illegal conduct relating to their federal loans. The Department’s new regulations struck those provisions. This means that, after July 1, 2020, schools may opt to resume their use of forced arbitration clauses in contracts with students and force students into the secretive world of arbitration without facing any consequences from the Department.
The CARES Act provides limited, temporary relief for some federal student loan borrowers, but it was silent on the issues affected by the new rules. After July 1, 2020, borrowers will have a significantly more difficult time getting a just outcome when their school has harmed them.
Congress, which stood up for student borrowers in a bipartisan way in attempting to stop these new rules from going into effect, should not submit to defeat in the face of the President’s veto. Congress still can and should protect students by voting to override the veto, and by enacting legislation to further protect America’s students from the devastation of predatory school fraud and closures.