Career Education Colleges and Universities Submits Comments on Proposed Defense to Repayment Regulation

Washington, DC – August 1, 2016 – Today, Career Education Colleges and Universities (CECU), the voice of the nation’s postsecondary career education schools, called upon the U.S. Department of Education to withdraw its proposed Defense to Repayment regulation and instead work collaboratively with all stakeholders to create a more clear and fair process.

The Comment begins by noting that, “[e]very stakeholder in higher education has a sincere interest in operating under a fair and comprehensive set of rules that protects students and their chosen educational institutions, prevents fraud, and imposes appropriate penalties on institutions that abuse their public trust.  For its part, the Department of Education is obligated by its enabling legislation to address these issues in a manner that treats all higher education institutions equally and fairly. This is a daunting task.  It requires careful study and sober consideration of the likely impact of any new rules on the ability of the resulting system to function effectively for the benefit of students.  The concern is not with the goals of the rulemaking, but with its unintended consequences.  We should be careful not to do more harm than good in our desire to implement even the most well-intentioned system.  Many of the ideas encompassed within the NPRM have merit, but together they create a dangerous system that omits safeguards necessary for worthy schools, penalizes institutions before misconduct is shown and creates serious risks to the viability of institutions across the postsecondary sector – non-profit, public and proprietary alike.  With this in mind, we offer constructive comments to clarify and improve the Proposed Rule.  In doing so, we also identify portions of the Proposed Rule that are inappropriate, counterproductive, or in certain instances simply exceed the scope of the Department’s authority under its enabling statutes.” 
 
In its over 50 pages of detailed concerns, including numerous constructive suggestions for improvement, CECU wrote “[t]here is no doubt that an institution shown to be responsible for intentionally misleading students should be penalized, including taking responsibility for the debt the student incurred.  But rather than craft a precise and fair system, the premise of the Proposed Rule seems to be that, to ensure punishment of bad actors we should dramatically lower the standard to prove misconduct, assess penalties when there is only a possibility that bad conduct might later be shown, and accept a system of prosecution, adjudication, and punishment that consolidates authority and nearly unbridled discretion in the Department to an unprecedented degree.”
 
The comments addressed four separate issues:

1. Borrower Defense Standards and Procedures;
2. The New Financial Measures and Letter of Credit Triggers;
3. Sector-Specific Repayments Rates; and
   
4. The Arbitration Clause Provisions.

 
CECU proposes that a much more clear and fair process for borrower defense claims is necessary.  That system should, at a minimum, do the following things:

1. articulate with specificity the accepted bases for filing claims, including clear standards for when and how students can file group claims;
2. establish an appropriate time limit for claims (this should be up to 3 years after graduation); create an independent office within the Department to accept and manage the resolution of such claims and, if an ED official acts as advocate for the students, establish safeguards to limit that official’s role and discretion;
3. establish the process by which an independent administrative judge is appointed to hear such cases; and
4. clarify the rights of all parties in the adjudication and remedy process.

 
The association called on the Department to establish a set of regulations based upon reasoned study.  “The lack of any clear process for filing, hearing and adjudicating claims puts at risk the very protection of students the rule seeks to achieve.  As the Department has admitted, the proposed procedures are undefined, to be established at a future time; it is therefore impossible to comment meaningfully on their efficacy and reasonableness.  The very premise of an NPRM is to elicit informed comments on the operation of a proposed rule.  That is impossible if critical aspects of the proposed rule are shrouded in uncertainty.”
 
Key passages of the comment include:

• “The Proposed Rule places every postsecondary institution that affords its students access to the federal student aid programs—public, non-profit, and for-profit—at substantial risk.  The rule would impose potentially fatal financial and operational penalties on institutions based only on allegations of misbehavior, on regulatory circumstances that do not fairly indicate a lack of financial responsibility, or even on unintended errors in record-keeping involving federal student aid programs under Title IV of the Higher Education Act.” [page 1]
• “As an initial matter, there is an astonishing lack of analysis–studies, projections, or data–to support and justify a regulation of this scope and potential impact.  What is described as an ‘Impact Analysis’ in the Notice of Proposed Rulemaking (‘NPRM’) is most notable for its lack of hard data and an absence of critical and available data that demonstrates the negative impact certain aspects of the Proposed Rule would have on students and higher education institutions of all types.”   [page 2]
• “The Department’s projections for the net cost of loan forgiveness in the first ten years under the Proposed Rule range from a low of $646 million to a high of $41.3 billion.  The breadth of these figures is staggering.  The high estimate is more than 65 times more than the low estimate. The notion that this describes a thorough analysis defies credulity, and it supports the conclusion that the Department is so motivated to impose aggressive new rules quickly that it is willing to do so even without a clear idea of their likely financial impact on the treasury, let alone on students or schools.”  [page 3]
• The regulation “contradicts ED’s stated goal of protecting all students since it would not cover approximately 900,000 students enrolled at more than 200 non-profit and public institutions that have equally low repayment rates.” [page 7]
• “The Proposed Rule falls far short of assuring that schools will be afforded a full and fair opportunity to present their own evidence or rebut other evidence.  A glaring problem is that the Department acts as both advocate of the student borrowers and judge, with no clear separation between the officials acting in these roles.  We agree with the goal of providing relief to students who were victimized by fraudulent or similar conduct. But ED also must allow schools fairly to defend themselves, especially when the claims can be based on any form of breach (as discussed above), ED will form groups of students and act as their advocate, and ED can turn to the schools for collection as soon as the claims are approved. This is why the rule must provide for an administrative judge—a neutral, unbiased decision-maker who is walled off from the advocate—to resolve all borrower defense claims and determine whether ED may collect liabilities from institutions.”  [page 14]
• “A consequence of the Proposed Rule is the encouragement it affords unscrupulous debt relief companies that troll for borrowers.  Already, there has arisen a ‘cottage industry’ of companies that prey upon student borrowers with ‘often shady offerings’ to assist students with ‘debt forgiveness.’ These companies use targeted—and generally deceptive—advertising on websites and social media platforms to entice borrowers who attended a specific school to purchase debt services. Some plaintiffs’ attorneys are using these sites as well, and they are data-mining names of students on social media to encourage them to file misleading and unlawful actions against their schools for debt relief.”  [page 21]

 
CECU concludes its Comment by stating, “[w]e strongly endorse the Department’s goal to protect students and afford them debt relief when they are the victims of fraudulent or intentionally misleading conduct by the institutions they attend.  At the same time, we urge the Department to resist the temptation to rush a complex regulation through the rulemaking process in an effort to solve the student debt problem without fully understanding the impact of its aggressive new mandates.”