Dept of Education Proposes Regulations Against Predatory Institutions

(Photo: Susan Wlash, AP)

(Photo: Susan Wlash, AP)

The Department of Education has proposed regulations to protect student borrowers and taxpayers from predatory practices. The new round of regulations strengthens already-existing regulations that grant students loan forgiveness if they can prove that they had been defrauded.

“We won’t sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag,” said U.S. Secretary of Education John B. King Jr. “All students who are defrauded deserve an efficient, transparent, and fair path to the relief they are owed, and the schools should be held responsible for their actions.”

The new regulations will streamline relief for student borrowers who have been wronged by predatory practices, and they set up triggers that will require institutions to put up funds if they engage in misconduct or demonstrate signs of financial insecurity. Additionally, require schools whose students have poor loan outcomes to provide clear, plain-language warnings to prospective students about their loan policies.

The Education Department is also prohibiting schools from using mandatory pre-dispute arbitration clauses and class action waivers that deny students their time in court if they are wronged. Now, schools will no longer to use their enrollment agreements or clauses in other documents to force students to give up their right to pursue relief as a group or to impose a gag rule on wronged students.

“These regulations would prevent institutions from using these clauses as a shield to skirt accountability to their students, to the Department and to taxpayers,” said U.S. Under Secretary of Education Ted Mitchell. “By allowing students to bring lawsuits against a school for alleged wrongdoing, the regulations remove the veil of secrecy, create increased transparency, and give borrowers full access to legal redress.”

Last September, the Education Department began negotiating how Direct Loan borrowers could seek relief if they have evidence or a sense that they had been wronged. The final session of developing the regulations was held in March, but the committee tasked with outing the rules could not reach consensus on the draft of the proposal. The Department announced that the rules will be published in the Federal Register on June 16th, and the Department will publish the final regulation in November.

According to the statement, the new regulations build on years of work undertaken by the Obama administration to protect students and taxpayers from fraudulent or failing institutions. Other efforts have included the Gainful Employment regulations that need student aid eligibility for career colleges, established tougher regulations on misleading claims and advertisements, and created a new Enforcement Unit to protect students from unscrupulous institutions.

These new regulations are the latest effort to build on what the press release calls the Obama administration’s “commitment to protect taxpayers and students’ investments and ensure that all Direct Loan borrowers can engage in a process that is efficient, transparent, and fair when applying for loan discharge based on the misconduct of the institution.”

For interested readers, the full press release detailing the new regulations is available online.