Fact Checked

Dept. of Education proposes an estimated $13 billion in cuts to student loan relief: Could it affect you?

WASHINGTON, DC - MAY 24: U.S. Secretary of Education Betsy DeVos testifies during a hearing before the Labor, Health and Human Services, Education and Related Agencies Subcommittee of the House Appropriations Committee May 24, 2017 on Capitol Hill in Washington, DC. The subcommittee held a hearing on "Department of Education Budget."Photo by Alex Wong / Getty Images News / Getty ImagesImage: WASHINGTON, DC - MAY 24: U.S. Secretary of Education Betsy DeVos testifies during a hearing before the Labor, Health and Human Services, Education and Related Agencies Subcommittee of the House Appropriations Committee May 24, 2017 on Capitol Hill in Washington, DC. The subcommittee held a hearing on "Department of Education Budget."
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College grads misled or defrauded by their schools may have a more difficult time getting their federal loans forgiven under new rules proposed by the Department of Education.

U.S. Secretary of Education Betsy DeVos proposed more-stringent loan forgiveness requirements for students who claim they were defrauded by their schools — requiring that students prove that their for-profit schools knowingly misled them to take out loans or enroll at the institution or acted with a “reckless disregard for the truth.”

Not only would these new rules make it more difficult for potentially defrauded students to receive forgiveness for their federal loans, but they also propose bringing back “predispute arbitration agreements,” which would serve to strengthen the position of schools in having students settle these disputes through arbitration. This could effectively block many students from suing their schools in court.

The proposed rules are estimated to save the federal government $13 billion over the next decade, but would only affect loans first disbursed on or after July 1, 2019.

What does this mean?

This student loan forgiveness proposal is another move in the Trump administration’s attempts to roll back Obama-era regulations.

The Obama administration championed stronger student loan protections after two for-profit schools — Corinthian Colleges and ITT Technical Institute — closed after being found to have misled their students through false advertising and misleading claims.

When the schools closed, some students were left deep in debt, in some cases without a degree or job prospects to help pay it down.

In response, the Obama administration forgave hundreds of millions in student loans, and began work on regulations designed to help protect students who found themselves in similar predicaments with predatory institutions. The regulations were also meant to help enable students who took out loans to seek debt relief from the federal government.

But in 2017, Secretary DeVos blocked the Obama-era rules before they went into effect and vowed to rewrite them.

The Department of Education followed through on DeVos’ promise when it proposed its new rules this July. Under DeVos, the Department of Education proposes that a school proven to have misled its students should be on the hook for any harm to those students — absolving taxpayers from that cost.

“Postsecondary students are adults who can be reasonably expected to make informed decisions and who must take personal accountability for the decisions they make,” claims the Department of Education in its proposal.

Why should you care?

It could be students, rather than schools, that face the backlash under the proposed changes. The department’s crackdown on student loan forgiveness policies could make it more difficult to qualify for debt relief in certain situations.

Under the proposed rules, students seeking government loan forgiveness would be required to prove the school intentionally misled or deceived them, or acted with a reckless disregard for the truth, and that as a result the student suffered financial harm.

And according to The New York Times, the Department of Education would also take into consideration whether there were any other factors that may have hindered former students from securing jobs after graduation, which could mean revealing personal information like drug test results, health-related concerns and performance evaluations.

While the proposed rule could save taxpayers billions of dollars and protect upstanding colleges from frivolous lawsuits, it could also create more hurdles for students who were legitimately harmed by their schools by saddling them with a high burden of proof or rerouting them to arbitration.

What can you do?

These newly proposed rules might put students seeking loan forgiveness between a rock and a hard place beginning July 2019, but that doesn’t mean you’ll be out of options. Here are a few tips if you’re thinking about taking out a student loan.

  • Do your homework. It’s important that you choose your college carefully. Don’t fall for the school’s market pitch — do your own research. Check out independent reviews of the school. If you can, reach out to alumni and ask them about their experiences. By attending a well-respected college that you have vetted, you could increase your chances of success.
  • Check if the cost of your degree matches your earning potential. We recognize the importance of pursuing your passion. But if you’re studying for a degree in a field that doesn’t pay as well as others, consider how much debt you take on compared to how much you might be earning in your profession.
  • Let Washington know. If you don’t like the proposed rules, you can submit your comments and let the government know about your disapproval. While you’re at it, you can call your representative in Congress and let them know how you feel.

About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.