Proposed Borrower Defense Rule Shortchanges Defrauded Students, Ends Accountability for For-Profit Colleges

    

For Immediate Release

July 25, 2018 

Proposed Borrower Defense Rule Shortchanges Defrauded Students, Ends Accountability for For-Profit Colleges

WASHINGTON, D.C. – Today, the U.S. Department of Education released a draft proposal to overhaul the Obama Administration’s Borrower Defense to Repaymentrule. The revision would alter how students secure loan forgiveness when institutions fail to deliver promised requisite skills and knowledge. Under the new proposal, student borrowers would qualify for corrective action only when they could document institutional misrepresentations related to the program of study. Further, borrowers would be required to prove that institutional misrepresentations were made with knowledge, intent or a reckless disregard for the truth. The draft also further insulates bad institutional actors from accountability—making it harder for defrauded students to gain relief and taxpayers to recoup the losses caused by the abusive behavior. 

If finalized, the rule will take effect July 2019. 

In response, Ashley Harrington, a Policy Counsel with the Center for Responsible Lending Counsel released the following statement: 

“This proposed draft reads more like a roadmap for institutions seeking to abuse students and avoid accountability and transparency rather than a plan to protect students and taxpayers. It ignores the pleas of more than 100,000 students, consumers, and taxpayers, as well as 31 state attorneys general who directly urged Secretary DeVos to stop shielding institutions and private companies.

“Under this rule, the Department goes further than any proposal discussed at negotiated rulemaking, proposing that relief be limited to borrowers in default in addition to very limited access to relief. A better solution to this growing financial burden would be preventing as many defaults as possible and holding institutions to a higher standard. Millions of consumers and billions of taxpayer dollars are at stake. Early and effective intervention would spare borrowers the multiple ramifications of loan default, particularly to their credit scores and resulting higher costs for future credit.

“The previous Borrower Defense rule was created to protect students and taxpayers from deceptive practices like that of ITT Tech and Corinthian Colleges that abruptly closed their doors after widespread abuses put them on the brink of bankruptcy and jeopardized the futures of thousands of students. This proposal shortchanges borrowers and will only inflate the growing $1.5 billion student loan debt crisis.”

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For additional information or to schedule a media interview, contact Charlene Crowell: charlene.crowell@responsiblelending.org.

DeVos to Protect Loan Predators, Not Students

From Bloomberg:

Former Deputy Treasury Secretary Sarah Bloom Raskin worked on student loan policy during the latter years of the Obama administration, in part over concern that borrowers’ struggles were affecting the management of U.S. debt. DeVos’s decision to reverse some of her work “with no coherent explanation or substitute” effectively means that the Trump administration is placing the welfare of loan contractors above those of student debtors, she said.

In a statement Tuesday, Illinois Attorney General Lisa Madigan, who is suing Navient, agreed: “The Department of Education has decided it does not need to protect student loan borrowers.”

Obama Awards Contract to Student Loan Predators Who Swindled 60,000 Veteran Families

Sallie Mae has a long, dirty history (here, here, here, here, here, here, and here) of preying on those dependent upon student loans for a college education.  Recently, the dirty bastards spun off a company, which according to Forbes, is really the old, rotten version of Sallie Mae that we have come to hate:

The new company which is being spun out – Navient – is equivalent to the old Sallie Mae. It will continue to service the existing loans in the Sallie Mae portfolio, as well as service new loans via contracts with the Department of Education. It will also focus on servicing private student loans, as well as asset recovery (or getting students to pay something, or handle wage garnishments or other ways to recover old loans). 

In May of this year, Sallie and its new spin-off had to pay $139 million for stealing money from veterans.

Now Team Obama has decided to double down with its business philosophy of "why fix something that is already broken" with more money to keep the billionaires happy.

You can read the whole sordid story here at HuffPo:

The Obama administration plans to reward Navient Corp, the student loan specialist formerly owned by Sallie Mae, with new business some three months after federal prosecutors accused the company of intentionally cheating troops on their federal student loans, according to three sources familiar with the administration's plans.

The move is likely to stoke comparisons to recent multi-billion-dollar settlements reached between big banks and federal authorities over financial crisis-era misdeeds. Banks agreed to pay sizable sums, but public interest groups have criticized the settlements because the banks suffered few business consequences and their executives escaped criminal and civil charges.

"It's very disappointing," said Jason Collette, national organizer for Alliance For A Just Society, a network of state-based advocacy groups. "Until a company loses its federal contracts or a senior executive is punished, these fines are just the cost of doing business." . . .

Feds Making More on Student Loans Annually Than Ford Motor Co.

With cuts to public universities and students in debt to the tune of a trillion dollars, the Feds are raking in $34,000,000,000 each year on loans that students are working two jobs to repay.  Now that obscenity could get worse if loan rates are allowed to double in July.  From the NYTimes:

. . . .On Tuesday, the day before the White House plans to send its budget to Congress, student advocacy groups are releasing an issue brief charging that the federal government should not be profiting from student loans, while more and more students bear a crushing debt burden.

The brief, citing a February report from the Congressional Budget Office, said the federal government makes 36 cents in profit on every student-loan dollar it puts out, and estimates that over all, student loans will bring in $34 billion next year.

“Higher education loans are meant to subsidize the cost of higher education, not profit from them, especially at a time when students are facing record debt,” said Ethan Senack, the higher education advocate at the United States Public Interest Research Group, which is issuing the brief with the United States Student Association and Young Invincibles, an organization for people 18 to 34.

“The revenue from student loans should be used to keep education affordable, and should never be used to pay down the deficit or for other federal programs,” Mr. Senack said.

While it has long been known that the government makes money on student loans, the numbers in the issue brief are surprising, said Terry Hartle, senior vice president of the American Council on Education.

“If the numbers are accurate, the government will make more money on student loans than Ford makes on automobiles,” he said. “Using student loans to create a profit center is not what anybody intended.”

Student loan borrowers graduate with an average debt of $27,000, and the scheduled interest rate increase on subsidized Stafford loans would cost almost 10 million borrowers about $1,000 more over the life of their loan, for each year of college.

According to the C.B.O. report, the government will get 12.5 cents in revenue next year for every dollar lent through subsidized Staffords, 33.3 cents per dollar in unsubsidized Staffords, 54.8 cents on each dollar of graduate school loans, and 49 cents per dollar of parent loans, for a total of $34 billion a year.

Borrowers of subsidized Stafford loans make up more than a third of those using federal student aid. More than two-thirds of those borrowers are from families with an annual income under $50,000. Last April, in his re-election campaign, President Obama made a central issue of stopping the Stafford interest rate increase. A few days later, Mitt Romney expressed a similar view.

Now that the lower rate is about to expire, there is general agreement that it should not double. But a solution is unclear. . . .

For-Profit or "Investor Funded," It's the Same Diploma Mills

While the Washington Post is on life support financially, and even more so now that the for-profit diploma mill, Kaplan U. has been implicated in the loan repayment scandal, WaPo has the audacity to offer Robert Silberman, the dissembling CEO of Strayer University, a big op-ed space to make the case for the college profiteer cause.  "For-profit" has become such a toxic label that Silberman, whose own diploma mill is in the low 20s in repayment rates of federally-insured studetnt loans, has come up with a substitute for "for-profit."  How about "investor funded educational institutions?"  Does that make these crooked scammers sound any more respectable, even though their exploitation of the poor remains their ticket to fabulous wealth while offering worthless degrees?  Didn't think so.  A taste from WaPo:

. . . .Taxpaying, investor-funded universities can provide underserved students with high-quality education and prepare them for personal and professional success. Recently, some policymakers and commentators have questioned the value of investor-funded educational institutions. They claim that such institutions are systemically incapable of meeting their academic missions. In fact, regionally accredited, investor-funded universities that offer bachelor's and master's degrees are already a critical part of our nation's higher education fabric. . . .

For Profit Diploma Mills Draining Federal Student Loan Kitty

Some of the for-profit bottom feeders who prey on the poor and even the homeless to recruit bodies for their worthless degrees have been outed.  We must wonder what it will take to cut these money sinks off from the federal student loans that are making for profit college CEOs deliriously wealthy.

From the Chronicle of Higher Ed:

These 20 institutions could be found in violation of a new federal rule on student-loan defaults if it took full effect today instead of in 2014, as planned. The colleges could escape risk by lowering their default rates before then. Colleges in violation can lose eligibility for federal student aid. For-profit institutions appear disproportionately affected by the new rule. Only three colleges named below are not for-profit: Benedict, Jarvis Christian, and Texas Colleges. An institution would violate the rule if for three consecutive years, 30 percent or more of its borrowers defaulted within three years of their scheduled start of repayment, or if the institution's default rate exceeded 40 percent in the most recent three-year period.

Institution*	Location	Number of borrowers starting repayment in 2007	Number of borrowers who defaulted within three years	Default rate, 2007	Default rate, 2006	Default rate, 2005
Three years with default rate of 30 percent or more:
Arizona Automotive Institute	Phoenix, Ariz.	552	214	39%	36%	33%
Aviation Institute of Maintenance	Kansas City, Mo.	124	46	37%	47%	31%
Benedict College	Columbia, S.C.	1,103	374	34%	33%	34%
Camelot College	Baton Rouge, La.	249	84	34%	51%	35%
Centura College-Richmond	Richmond, Va.	345	112	32%	33%	33%
College of Office Technology	Chicago, Ill.	644	305	47%	39%	38%
Everest College at San Bernardino	San Bernardino, Calif.	765	284	37%	33%	32%
Everest Institute at Rochester	Rochester, N.Y.	1,638	610	37%	35%	34%
Huntington Junior College	Huntington, W.V.	483	199	41%	38%	33%
Jarvis Christian College	Hawkins, Tex.	224	89	40%	40%	37%
Tesst College of Technology	Baltimore, Md.	1,098	462	42%	42%	34%
Texas College	Tyler, Tex.	365	149	41%	41%	36%
Westwood College-DuPage	Woodridge, Ill.	885	269	30%	31%	34%
WyoTech at Long Beach	Long Beach, Calif.	2,224	719	32%	35%	31%
Default rate of more than 40 percent in most recent year:
Advanced College	South Gate, Calif.	92	37	40%
Angley College	Deland, Fla.	115	51	44%
Centura Institute	Orlando, Fla.	57	23	40%
College America at Flagstaff	Flagstaff, Ariz.	240	111	46%
Lamson College	Tempe, Ariz.	330	145	44%
Lincoln Technical Institute	Philadelphia, Pa.	544	230	42%
Additional colleges have recorded high rates for two consecutive years and so may be at risk of violating the rule if they cannot lower their default rates.
		Degree-granting institutions		All postsecondary institutions
Number of institutions with a default rate of 30% or more in 2007 and 2006		41		100
Number that are for-profit		34		93
* Degree-granting institutions only
Note: The federal rule allows for appeals on various grounds, allowing some colleges with high rates to avoid losing eligibility for federal dollars. Colleges with fewer than 30 borrowers in one year are subject to separate provisions under the rule and so are not included in this analysis.
Source: U.S. Education Department data
Chronicle analysis by Jeffrey Brainard

The Dem Senators that Sallie Mae and Nelnet Bought

The leeches in the for-profit student loan biz have been busy buying votes to kill the reform to save billions in loan origination fees that pay for CEO jets, rather than poor kids' educations. From Facing South:

Who are the 6 Democratic senators poised to kill student loan reform?

Graduating from college is a great feeling. Not so great: being saddled with $23,200 in student loans, the average debt owed by graduates of the class of 2008, according to the Project on Student Debt.

Reforming the for-profit student loan system, which allows finance giants like Virginia-based Sallie Mae to make virtually risk-free returns thanks to government subsidies, was a top priority of President Obama. His idea, supported by most Democrats, was to take out the middle-man: Instead of subsidizing private lenders, the feds would completely take over origination of student loans.

The result: The Student Aid and Fiscal Responsibility Act, which the Office of Management and Budget estimated would save over $80 billion over 10 years (critics point out the number is inflated, because it didn't include money lost from defaults; but that's neither here nor there, because the government currently absorbs private losses anyway). Savings would be plowed back into Pell Grants -- much easier on students on the long-term -- and other higher education initiatives.

But as The New York Times writes today, this week six senate Democrats have threatened to derail the Act, writing in a letter to senate majority leader Harry Reid that "provisions of contemplated student lending reform that could put jobs at risk."

The letter was signed by Democratic Senators Thomas R. Carper (DE), Blanche Lincoln (AR), Ben Nelson (NE), Bill Nelson (FL), Mark Warner (VA) and Jim Webb (VA).

The senators' back-stepping, which likely scuttles the possibility of passing the Act with the filibuster-proof appropriations bill, comes after over a year of aggressive lobbying by heavyweights in the corporate loan industry. Sallie Mae alone spent $3.48 million on lobbying last year leading an all-out assault by industry reps claiming up to 35,000 jobs would be lost.

But proponents of reform have steadily hacked away at the bank's claims. First, it turns out the total jobs in student loans is closer to 30,000. But most importantly, the part of the industry the bill affects -- loan origination -- employs the fewest workers. According to Ben Miller at The Quick and the Ed (via Jane Hamsher):

Loan origination in its most basic form is the process of obtaining the money for student loans and transferring those funds to borrowers or to their institutions. This is a very inexpensive activity. According to information from the U.S. Department of Education, its complete cost of originating a Direct Loan last year was around $5.50. That figure includes around $1.50 in administrative and other expenses.

Sallie Mae and the big loan companies would still be able to service the loans, which is where most of the money -- and jobs -- are. Nelnet, Sen. Nelson of Nebraska's biggest contributor, saw their servicing revenues go up 13% last year after getting a contract through the Department of Education.

Why are the senators doing this? The first place to look for answers is the political muscle and deep pockets of the student loan industry. Between 2005 and 2010, Nebraska-based Nelnet has shoveled $63,100 to Sen. Nelson's campaigns.

Virginia senators Warner and Webb have to worry about Sallie Mae based in Reston, which employs 8,000 workers in Reston and has shown its willingness to play political hardball. Florida is also home to several leading student loan operations in the primary and secondary markets, and Sen. Carper's Delaware is ground zero for financial services outside of New York.

The more puzzling case is Sen. Lincoln of Arkansas. Her position on the Senate Finance Committee has made her a magnet for banking and finance campaign dollars ($246,700 for the 2010 cycle). But a search of her campaign contributions show no special ties to the student lending industry.

So how is siding with big lenders driving students into debt going to help her back home in Arkansas, which ranks in the bottom 15 states nationally for number of college-age youth getting a university degree?

Sallie Mae Digs in to Protect Student Loan Gold Mines

With the federal government threatening to return to a time when the people's people actually handled the administration of the people's student loans, the leeches in the student loan biz have rolled out the big guns to protect their gold mines. From the New York Times:

. . . .To press its case, the nation’s largest student lender, Sallie Mae, has hired two prominent lobbyists, Tony Podesta, whose brother, John, led the Obama transition, and Jamie S. Gorelick, a former deputy attorney general in the Clinton administration.

For lenders, the stakes are huge. Just last week, Sallie Mae reported that despite losing $213 million in 2008, it paid its chief executive more than $4.6 million in cash and stock and its vice chairman more than $13.2 million in cash and stock, including the use of a company plane. The company, which did not receive money under the $700 billion financial system bailout and is not subject to pay restrictions, also disbursed cash bonuses of up to $600,000 to other executives.

Sallie Mae said that executive compensation was lower in 2008 than 2007 and that the stock awards were worthless in the current market.. . .

Yes, things are rough. From 2002 to 2007, Sallie paid its CEO, Al Lord, $280,000,000 in salary and then came with a platinum parachute for Lord worth $225,920,802 (details from Inside Higher Ed).

Critics of the subsidized loan system, called the Federal Family Education Loan Program, say private lenders have collected hefty fees for decades on loans that are risk-free because the government guarantees repayment up to 97 percent. With the government directly or indirectly financing virtually all federal student loans because of the financial crisis, the critics say there is no reason to continue a program that was intended to inject private capital into the education lending system.

Under the subsidized loan program, the government pays lenders like Citigroup, Bank of America and Sallie Mae, with both the subsidy and the maximum interest rate for borrowers set by Congress. Students are steered to the government’s direct program or to outside lenders, depending on their school’s preference.. . . .

President Obama Gets It Right on Student Loans: Direct Lending Is Back

To the bloated leeches of the student loan industry: Your notice to vacate the Federal Treasury has just arrived. Will John Boehner cry for Sallie Mae, again?

From the New York Times:

By SAM DILLON

WASHINGTON — President Obama’s budget proposal on education would for the first time index student-aid Pell Grant to inflation, guaranteeing low-income college students a stable grant amount, and pay for that expensive shift by eliminating $4 billion in annual subsidies to private banks who make student loans.

“The president has proposed the biggest change in the federal programs that help students finance a college education since the main higher education law was written in 1965,” said Terry Hartle, a vice president at the American Council on Education, which represents hundreds of colleges and universities.

Under the current system, college students in families with incomes low enough to qualify receive a Pell Grant, but the amount of the grant depends on how much Congress votes for the program, and in recent years that amount has not kept pace with inflation. The administration now proposes to guarantee not only that students will receive grants, but also that it will keep pace with inflation.

The current maximum grant is about $4,730, but beginning on July 1 that will rise to $5,350 as a result of the largest historical increase in the Pell program, already approved as part of the president’s economic stimulus bill. In 2010, the maximum grant is to rise to $5,550.

The budget blueprint also proposes sweeping changes in the way the federal government provides student loans. For nearly two decades, the government has run two parallel student loan programs, one based on subsidies to private lenders and another as a direct government lending program.

Under the Federal Family Education Loan Program, the government has paid a subsidy to banks and loan companies to make loans to students at a congressionally mandated interest rate. But during the turmoil in the financial markets last year, dozens of lenders withdrew from participation in the program, saying that they could not obtain capital at a cost that would make student lending profitable, forcing intervention by the Bush-era Department of Education to insure that student loans would continue to flow.

Education Secretary Arnie Duncan said on Thursday that the Family Education Loan Program program had for some time been “on life support.”

The Obama administration now proposes to eliminate it.

“That program has not only needlessly cost taxpayers billions of dollars, but has also subjected students to uncertainty because of turmoil in the financial markets,” the administration’s budget proposal says.

In its place, the administration seeks to originate all new loans through its direct lending program, first established in the Clinton adminstration. . . .

Watching Spellings

From Politico's blog, The Crypt:

May 16, 2008

Miller, Kennedy ask GAO to Watch Spellings on Student Loans

Congressional Democrats, who have been skeptical in the past at whether Education Secretary Margaret Spellings has taken sufficient action to protect student loans from the credit markets' woes, have asked the Government Accountability Office to monitor the Bush administration's management of the issue.

Sen. Edward Kennedy (D-Mass) who chairs the Senate Health, Labor, Education and Pensions committee and Rep. George Miller (D-Calif.) who chairs the Education and Labor committee in the House, sent the letter to the GAO Thursday.

Miller and Kennedy co-authored the Ensuring Continued Access to Student Loans Act to make certain that students are not prevented from attending college next fall due to unavailability of private loans for tuition.

The letter requests that the GAO monitor the administration's oversight of school's transitioning from the Federal Family Education Loan Program (FFELP) into the Direct Loan Program which is federally run.

A request for comment from the Department of Education has not yet been returned.

UPDATE: Education Department spokeswoman Samara Yudof e-mails:, "[We] are working across the administration on an efficient and effective approach that can be implemented as quickly as possible to ensure that students continue to have access to Federal student aid to help pay for college."

Cuomo Nails Student Financial Services

In the vacuum created by a universal lack of oversight from Bush Co. and CEO of ED, M. Spellings, Andrew Cuomo has rushed in to fill the void. Cuomo's latest target for student loan scams: Student Financial Services of Clearwater, Florida. And, of course, the universities named below. The NY Times has this:

. . . . The company paid athletic departments at institutions for the right to print their logos and other insignia on marketing material used to sell loans to students, Mr. Cuomo’s inquiry found. A typical payment might have been $15,000, according to Mr. Cuomo’s office. In some cases, the company paid an additional fee to colleges for each loan application received, it found.

The company also used lists of students provided by universities to solicit business, and sent its sales representatives to push loans at university events, the investigation found. In an effort to build business, the inquiry found, Student Financial took university employees on golf outings and out for meals.

The universities whose names and logos the company used included Central Michigan University, St. John’s University, the University of Kansas, the University of Oregon, the University of Washington and Wake Forest University, according to Mr. Cuomo’s office. Of the 63 universities, 17 have already suspended their arrangements with Student Financial, including Florida Atlantic University, Georgetown University and the University of New Orleans.

But in some cases, an intermediary company held the right to use a university’s name, logo or other insignia, and Student Financial had its arrangement with that intermediary rather than with the university itself. This was the case at the University of Kansas, said Jim Marchiony, the university’s associate athletics director. He said the university had not received a fee based on loan volume. . . .

Senate Passes Student Aid Package

Yesterday it seemed that the corporate loan sharks would get a cut in their subsidies reduced when Ben Nelson (D) of Nelnet's home state, Nebraska, introduced an amendment to reduce the subsidy cuts by $3 billion. Good news--the amendment failed, and late last night, the bill passed. A few details from the N. Y. Times:

. . . .Like the House measure, the Senate bill eases the repayment burden for student borrowers. It limits monthly payments on direct student loans to 15 percent of a graduate’s discretionary income and offers complete loan forgiveness after 10 years to public service employees.

It raises the maximum Pell grant more than the House bill did, to $5,100 by next year and $5,400 by 2011. And it creates a category of stipends, Promise Grants, which would make up the difference between Pell grants and any family or college contributions to cover the full cost of attendance for the neediest students.

Arguing that the bill would jeopardize small and medium-size companies, lenders tried to stave off some cuts through a last-minute amendment sponsored by Senators Ben Nelson, Democrat of Nebraska, and Richard M. Burr, Republican of North Carolina, that would have cut the loss of government subsidies to lenders by about $3 billion.

Supporters maintained that the amendment would have eased the pain for lenders without sacrificing aid to needy students. But critics, backed by a report by the Congressional Budget Office, disputed that claim. The measure was defeated, 61 to 36.

Both the tone of the debate and the results of the vote reflected the decline in fortune of the student loan industry after inquiries by Congress and the office of Andrew M. Cuomo, the New York attorney general revealed improprieties in the industry. . . .