Disapprove Student Loan Forgiveness Rule - H.J.Res.76

Disapprove Education Department's Borrower Defense to Repayment Rule . The resolution disapproves rules issued in September 2019 by the Education Department regarding "borrower defense" to student loan repayment, under which students with federal student loans may have a portion of those loans forgiven if they were defrauded by their college or university. The new rules would block students defrauded by for-profit schools prior to mid-2017 — including those from Corinthian and other for-profit colleges that closed down beginning in 2014 — from obtaining student debt relief under the standards of a 2016 Obama administration rule, and it sets new standards for such debt forgiveness for student loans disbursed after July 1, 2020. Democrats say the Trump administration rules are unfair to defrauded students of Corinthian and other closed for-profit colleges and would establish burdensome barriers for getting student loan debt relief in future cases of college fraud. Republicans say the new rule is balanced and fair and focuses on individual circumstances, rather than blanket forgiveness that may not be warranted, particularly since taxpayers are bearing the burden of such loan forgiveness.

BACKGROUND: The Congressional Review Act of 1996 (CRA; PL 104-121) established a process through which Congress can overturn regulations issued by federal agencies by enacting a joint resolution of disapproval.

    Under the act, if a resolution of disapproval is introduced within 60 days of when an agency issues a final rule and submits it to Congress (exclusive of adjournment periods of more than three days), the disapproval resolution may be considered under expedited procedures — including the prohibition of filibusters in the Senate, thereby allowing adoption by simple majority vote. If a disapproval resolution is enacted, it prevents the rule from going into effect and the agency is prohibited from ever issuing any substantially similar rule unless Congress specifically authorizes it.

    Prior to 2017, only one disapproval resolution had ever been enacted, in 2001. But using certain new-year "carry over" authority under the CRA, congressional Republicans in 2017 targeted a series of rules and regulations issued by the Obama administration in 2016. This measure represents the first resolution of disapproval brought to the House floor by Democrats since gaining the majority for the 116th Congress.

Student Loan Forgiveness

    Enacted in 1995, the borrower defense to repayment law allows borrowers of federal student loans to seek loan forgiveness if an institution of higher education misled them or engaged in other illegal practices.

    Until 2015, this type of loan forgiveness had only been used only a few times. But its use exploded after the Obama administration dramatically increased oversight and accountability of for-profit colleges — which were frequently recruiting and enrolling students, supported by federal student loans, with promises that their education there would lead to future jobs. Often, however, those colleges provided a degree or certificate with little value while leaving the student saddled with large student loan debt. (Students at for-profit colleges at the time represented about 11% of the population of all higher education students, but 44% of defaults of federal student loans.)

    In 2014 Corinthian Colleges Inc. lost eligibility for federal student loans when the government found it had committed fraud by lying about its job placement rates — forcing Corinthian to sell or close its schools and leaving thousands of students with college credits they could not transfer and degrees that were often considered virtually useless. Other for-profit colleges and programs, such as ITT Technical Institute, also closed, many after the Obama administration in 2015 developed a rule requiring for-profit programs and certificate programs at other institutions to prepare students for "gainful employment in a recognized occupation" in order to be eligible for federal student aid.

    Those closures left tens of thousands of Corinthian and other students with thousands of dollars of student loan debt, prompting students to seek debt forgiveness through the borrower defense process.

    In response, the Obama administration sought to update the Education Department's regulations that govern such debt forgiveness, including by establishing a federal standard for determining fraud or misrepresentation by colleges. Previously, borrower defense claims were based primarily on violations of state law. Among its provisions, the Obama rule automatically forgave the federal loans of students whose colleges had closed, it sought to make the schools financially responsible for the loans, and it banned schools from using mandatory arbitration in settling claims. It applied these rules to all colleges and institutions of higher education that are eligible for federal student aid, not just for-profit colleges.

    The Obama Education Department issued its final rule in 2016 and by the end of October 2016 had approved more than 15,000 claims for loan forgiveness; it said it expected to address all pending claims by the spring of 2017. However, legal challenges from for-profit schools prevented the borrower defense rule from becoming fully effective until Oct. 2018.

Trump Administration Actions

    Upon becoming secretary of Education under the new Trump administration in February 2017, Betsy DeVos announced her intention to rewrite the Obama administration borrower defense rules, saying the Obama rules provided "blanket" relief without a full review of the facts and evidence for individual cases. She also argued that students at such colleges, even those whose schools had closed, had gained something from their educational experience and should therefore not expect to have 100% of their student loans forgiven.

    The department under DeVos subsequently began processing claims under those concepts, and for students who had attended Corinthian began providing only limited relief, based on earnings of the defrauded students compared to the earnings of students who had graduated from similar programs — but the department had to stop in June 2018 after a court ruled that the department was improperly accessing certain personal data to make those determinations.

    (The court also ordered the department to stop collecting outstanding loans of Corinthian students, but the department continued efforts to collect loan payments from some students — including through wage garnishment and reductions from tax refunds — prompting the court in Oct. 2019 to find Secretary DeVos in contempt of court and to fine the Education Department $100,000. The judge in that case is currently considering additional fines after discovering that the department continued loan collection efforts against even more students who had made borrower defense claims.)

    The department in Dec. 2019 proposed a new plan to calculate how much defrauded students had gained from their educational experience, and therefore what level of debt relief they should receive. And in mid-2019 it moved to replace the Obama administration's "gainful employment" rule with a requirement that schools provide more detailed information regarding the jobs and incomes obtained by graduates by programs and degrees.

New Debt Forgiveness Rule

    In September 2019 the Education Department issued new borrower defense regulations to govern debt forgiveness. Among the changes, it presumes that borrowers are not entitled to 100% cancellation of their federal student loan debt; provides for each case to be considered individually, even if there is evidence of widespread misconduct at an institution or the school closes; and requires borrowers to show how they experienced financial harm from knowing misconduct by their schools, including by demonstrating that they actively sought employment in their field — and not just that they were deceived by their college. Students must seek relief within three years of their date of graduation or the date they withdrew from a program (thereby aligning with current three-year record-retention requirements for colleges). The rules also allow for mandatory arbitration agreements (which had been prohibited by the Obama rules).

    The department's new rules are scheduled to go into effect July 1, 2020, and would apply to federal student loans disbursed on or after that date. Loans disbursed from July 1, 2017, until July 1, 2020, would remain subject to the Obama administration's 2016 rule, while loans disbursed before July 1, 2017, would be subject to pre-2016 standards — thereby blocking Corinthian and other students whose schools closed in that period from using the Obama administration standards.

    The department has estimated its new rules would save more than $11 billion over 10 years.

Member Concerns

    Supporters of the resolution, primarily Democrats, say the new rule issued by the Education Department is unfair to students who are exploited by for-profit schools. It is particularly unfair to students of Corinthian and other for-profit schools that closed who have been expecting relief under the Obama administration rules, and whose education, careers, and financial well-being have already been damaged — including by the Trump administration, which has actively sought to collect loans in violation of court orders. They say the three-year window of time to apply for relief is far too narrow, and argue that prohibiting the granting of relief to borrowers as a group and instead requiring every student to apply for relief individually will place an undue burden on individuals who are already suffering, especially since they would be required to demonstrate exactly how they had been financially harmed. Simply put, students who are defrauded and receive worthless degrees should be made whole, not partially compensated, even if they find some other way to thrive financially. Increasing the burden on borrowers and making it difficult to receive loan relief, as the new rule does, will give for-profit colleges the green light to continue their predatory activities, they say.

    Opponents of the resolution, primarily Republicans, argue that the Trump administration's new loan forgiveness rule is balanced and fair and focuses on individual circumstances, rather than blanket forgiveness that may not be warranted — particularly since taxpayers are bearing the burden of such loan forgiveness. They say the rule more carefully defines those misleading statements that can be considered true deception and fraud by educational facilities, which will help prevent frivolous claims such as students applying for loan forgiveness because their dorm room was not as nice as the one shown to them on tour, or because a bad economy made it difficult for them to find employment after graduation. They agree that bad actors in the educational arena should be held accountable for outright lies, but argue that students at institutions of higher education are adults who must be responsible for researching and comparing different institutions. Finally, they say that basing loan forgiveness on the level of actual financial harm that has occurred to a student is wholly justified; if a school misrepresented itself but the student still manages to thrive economically and suffers no economic harm, taxpayers should not be on the hook for unnecessary loan forgiveness.

SUMMARY: This resolution disapproves the rules issued on Sept. 23, 2019, by the Education Department regarding "borrower defense" to student loan repayment, under which students with federal student loans may have a portion of those loans forgiven if they were defrauded by their college or university.

    Disapproval of the Trump administration rules would reinstate for all federal student loans the loan forgiveness rules established by the Obama administration.