President Trump has a choice make about overturning Obama-era student loan rule

Both chambers of Congress passed legislation to reverse a proposed policy by Education Secretary Betsy DeVos that would have changed how defrauded victims of for-profit colleges could seek debt relief.

And on Tuesday, two months after the GOP-controlled Senate rejected the proposed policy, House Speaker Nancy Pelosi sent the resolution to the President Trump’s desk.

The president now has 10 days to make a choice: Either sign the legislation and affirm that his Education Secretary made a mistake by attempting to overturn the Obama-era rule or veto the bill and risk a political fight over debt relief in the middle of a pandemic.

In January, Trump promised to veto the resolution, stating that it would “restore the partisan regulatory regime of the previous administration, which sacrificed the interests of taxpayers, students, and schools in pursuit of narrow, ideological objectives.”

Since then, amid the coronavirus pandemic, both Congress and the Education Department created policies to provide much-needed relief to the 44 million Americans holding student loan debt.

As things stand, “it’s very much an open question as to what he could do,” Beth Stein, senior adviser at the Institute for College Access and Success, told Yahoo Finance, adding that she was “excited” that the situation is moving.

“We cannot let the rights of the most hard-hit student loan borrowers … be quietly rolled back during the current national emergency,” National Consumer Law Center attorney Abby Shafroth said in a statement. “[W]e hope that the President will seize this opportunity to stand with Congress and struggling Americans against fraud, corruption, and bureaucratic red tape.”

US President Donald Trump hands out diplomas after deliverig the commencement address at a Hope for Prisoners graduation ceremony in Las Vegas, Nevada, on February 20, 2020. (Photo: JIM WATSON/AFP via Getty Images)

Borrower defense rule designed to help victims of fraud

The borrower defense rule was written into law through the Higher Education Act in the early 1990s and was meant to help victims of fraudulent schools seek relief.

Under existing law, borrowers with federal loans are eligible for loan forgiveness if a college or a university has misled them or engaged in other misconduct in violation of certain state laws. 

In 2015, after the for-profit giant Corinthian Colleges fell, many former students decided to seek relief for their student loans through the rule. The Obama administration then created special rules to address the problem, making it easier for defrauded students to get their loans cleared — with some getting automatic loan forgiveness if they qualified.

Stein, who had worked on Capitol Hill, leading a two-year investigation on behalf of Senator Tom Harkin (D-IA) into for-profit colleges between 2010 and 2012.

“Borrower defense didn’t come directly out of the investigation, but what [it] found was that several of the large for-profit colleges that were particularly engaged in really problematic practices, and that included both Corinthian and ITT,” Stein said. 

A security guard inside Everest College keeps people after the embattled for-profit Santa Ana school was shut down along with 28 others, ending classes for about 16,000 students. (PHOTO: Mindy Schauer/Digital First Media/Orange County Register/Getty Images)

Joseph White, a former ITT student who graduated in 2008 and has more than $80,000 in student loans, told Yahoo Finance that while he was initially “intrigued by the promises of high salary amounts after graduation in the six figures,” he later realized he was fed with “outright lies.”

On April 30, amid the coronavirus pandemic, White was told by the department that his federal student loans would not be discharged. 

DeVos said Obama ‘weaponized’ the borrower defense rule

DeVos defended the attempted policy change, alleging that the Obama administration had left behind a mess.

“When borrower defense arrived in 1995, it … was little used… in the 20 years from 1995 to 2015, fewer than 60 claims were filed,” she said during a previous hearing in front of the House Committee on Education and Labor. “Then the previous administration weaponized the regulation against schools it simply didn’t like. They applied the law in a discriminatory fashion. So since 2015, there has been a 5,000% increase in borrower defense claims.”

U.S. Secretary of Education Betsy DeVos listens during a cabinet meeting on May 19, 2020 in Washington, DC. (PHOTO: Alex Wong/Getty Images)

The House voted to rejected DeVos’ new rules in January, using the Congressional Review Act. In March, the Republican-controlled Senate then passed a version of the bill that would reverse DeVos’ revised rules on how her agency processes debt relief claims that were made by students who had been defrauded, mainly by for-profit colleges that were deemed predatory. 

After the Senate passed the resolution, Pelosi appears to have made the decision to hold on to the legislation before sending it to the president’s desk. Stein noted that given the resolution had the support of 10 Republican Senators, there’s “good indication that there’s not a lot of support for the Department of Education’s approach.”


Aarthi is a reporter for Yahoo Finance covering consumer finance and education. Follow her on Twitter @aarthiswami. If you attended a for-profit college and would like to share your experience, reach out to her at [email protected] 

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