Education Secretary Betsy DeVos. (Photo: Bloomberg)

How do you prove intent by an institution to defraud student loan borrowers? With great difficulty, if at all, according to education advocates, but that is the standard the U.S. Department of Education is proposing for borrowers seeking relief from federal student loan debt due to deceptive practices by colleges.

The proposal, which is subject to public comment for 30 days, would establish a new federal standard for the so-called borrower defense to repayment regulation, allowing debt relief only if an institution knowingly provided false, misleading or deceptive loan information to a student borrower or provided the information with “reckless disregard for the truth.”

The proposal would also allow schools to require students to enter into pre-dispute arbitration agreements or class action waivers as a condition of enrollment so long as they disclosed those requirements in an “easily accessible format” along with information on how to use “the internal dispute resolution process.”

The Education Department says the proposal will “enable students to make informed decisions prior to college enrollment, rather than to rely on financial remedies after the fact,” and to settle disputes more quickly, but many disagree.

“These changes would effectively strip students of their right to recourse if they believe that a college or university has misled them, making it next to impossible for defrauded students to get the relief they are entitled to,” says Robert Shireman, a senior fellow at The Century Foundation.

“By requiring borrowers to prove that school officials intended to deceive them — which essentially requires mind-reading skills — the proposal makes it almost impossible for defrauded borrowers to get relief.”

James Kvaal, president of The Institute for College Access & Success, said the proposal would require “desperate borrowers to intentionally default — with all its negative consequences — before even seeking relief, forcing them to gamble on an unsympathetic bureaucracy.”

The proposal applies to all higher education institutions, but for-profit colleges primarily are the institutions that have been accused of fraudulent and deceptive loan practices and whose students have received federal loan relief as a result.

A recent Century Foundation report, based on DOE data obtained through a Freedom of Information Act request, shows that the number of fraud claims by student borrowers increased 29% over the past year from almost 99,000 to nearly 128,000, and 98% of the claims were against for-profit colleges. Some for-profit colleges such as Corinthian Colleges and ITT Technical Institute, accused of fraudulent loan practices, have closed in recent years following lawsuits and investigations by federal and state authorities.

(Related: 16 States Blast DeVos Over Third Delay of For-Profit College Rules)

During the Obama administration, which strengthened the borrower defense to repayment rule and created a related gainful employment regulation to help prepare college students for jobs after graduation, hundreds of millions of dollars of student loans were forgiven due to  fraudulent loan practices by higher-ed institutions.

Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com, says the new DOE proposal seems intended “to reduce the cost of defense to repayment” for the federal government.

It’s been estimated that the DOE would save $13 billion if the new proposal is adopted. It would apply to loans disbursed on or after July 1, 2019.

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