U.S. Markets close in 5 hrs 19 mins

Democrats vote to overturn Betsy DeVos rules on student debt

Aarthi Swaminathan
Finance Writer

The House Labor and Education Committee voted on legislation Thursday that would overturn Education Secretary Betsy DeVos’ new policy on student debt discharge that goes into effect on July 1st, 2020.

The Democrats’ legislation would reinstate Obama-era rules, which provided relief for students who were defrauded by for-profit colleges and ended up bearing student loans to that school. Since assuming her position, Secretary DeVos has “openly refused to implement the Borrower Defense rule, which has left hundreds of thousands of defrauded borrowers waiting for relief,” the Democrats stated.

While it’s unlikely that Democrats’ legislation will become law — after it passes the House, it needs to pass the Senate and be signed into law by the President, which has already been dismissed by the White House — House Education and Labor Chairman Bobby Scott said it is ultimately a meaningful exercise: “It is a statement, and it gives opportunity to debate the regulation in a way that ... people don’t know about it.”

In an interview with Yahoo Finance, Scott added that “this new regulation on student loans … is so outrageous that I think it cannot go without comment,” and questioned ED’s unwillingness to act. “How long does it take to get this thing straight?” he asked. “We’ve applied as much pressure as we can — I mean, you’d think they’d function. … There’s no sense of urgency.” 

U.S. Secretary of Education Betsy DeVos testifies to the House Appropriations Labor, Health and Human Services, Education, and Related Agencies Subcommittee in March 2018. (Photo: REUTERS/Joshua Roberts)

‘Education is a national priority’

The Democrat-controlled committee has voted to reverse DeVos’ policy regarding the Obama-era Borrower Defense Rule, using the Congressional Review Act. Republicans, meanwhile, argued for the administration position.

“President Obama’s … flawed borrower defense regulations abandoned due process and limited student choice,” Rep. Virginia Foxx (R-NC) said on the House floor. “They want to actually harm the students they claim they want to help.”

Noting a major incident last year, when U.S. Magistrate Judge Sallie Kim in San Francisco held DeVos in contempt of court for violating an earlier order to stop collecting on loans from former students of a collapsed for-profit chain, Democrats stressed that DeVos “still refused to provide defrauded borrowers the relief they desperately need.”

Democrats added that instead, the department had come up with a new rule in August last year that was way more complicated and much more restrictive.

According to a report by the nonprofit Institute for College Access & Success, 53% of defrauded students’ debt was forgiven under Obama-era rules. That number fell to just 3% in DeVos’ term.

Congressional Review Act

Democrats are operating under the Congressional Review Act (CRA), which stems from a 1996 law that grants Congress extensive power to invalidate rules that federal agencies establish. If the effort is ultimately successful, it will also make it more difficult for future administrations to try the same policies again.

“The CRA is a rarely-used vehicle with its own set of rules,” Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators (NASFAA), told Yahoo Finance. Coval added that the last time it was used was in 2017 “to prevent the implementation of the Obama-era Teacher Prep regulation.” 

Getting Borrower Defense to the finish line during the middle of Trump’s term was going to be a little more challenging, Coval noted.

“Upon expected passage in the House, the resolution will head to the Senate, where it will only require a simple majority to pass,” Coval explained. “The chances of passage are less clear in the Senate, but President Trump has already indicated he would veto the resolution if it made it to his desk.”

ED Secretary Betsy DeVos at the House Education and Labor Committee in December 2019. (Photo: Alex Wong/Getty Images)

DeVos accused of making life ‘intentionally difficult’ for defrauded students

According to the House, DeVos’ rule on Borrower Defense makes it “intentionally difficult” for defrauded students to get debt relief, and also allows schools to use mandatory arbitration agreements so that students can’t get “the relief they deserve.”

Additionally, they stated that DeVos had overturned an Obama-era rule that forced schools facing allegations of widespread fraud to intentionally set aside money, so that in case of a shutdown, they’d be able to cover the cost of debt relief.

But based on their analysis of ED’s data, the schools didn’t follow the rule, and hence the maximum burden for debt relief would fall on taxpayers.

In the meantime, borrowers like Chicago native Keishana Mahone are stuck with not just the bill, but also an incomplete degree. 

Mahone, who is in her 40s, had attended the shuttered for-profit Illinois Institute of Art, hoping to study graphic design. A year in, she found out her school was closing. “When I first found out about it, I was devastated,” Mahone told Yahoo Finance in an interview. “There's really no other words to describe it … It blindsided me.” 

Looking back at the day, “the devastation that I saw at the school when they announced the closing my friends, my classmates, were literally sitting on the floor crying,” described Mahone. “[We were] really just in a state of shock, not knowing what to do, running around like chickens with their heads cut off. That was the vision of that day.”

While she had a few thousand dollars in student debt, her bigger issue was that all the credits she had taken at the Art Institute weren’t of equal value at another college. The non-transferability was disappointing, she added.  

Mahone, who is part of a lawsuit against the Education Department and Betsy DeVos filed with several others, said that at the end of the day it wasn’t about the money — it was about lost opportunities.

“This could not happen to anyone else… I'm so steadfast and trying to work against this and to fight against this is because my heart really goes out to people do this has happened to,” she said. People have “gotten completely discouraged with the the Department of Education and how things are handled. … 

… People already don't trust college, they already don't trust the educational system. They think that it's a gimmick, and that it's a scam... and when things like this happen, it kinda proves them right.”

Aarthi Swaminathan is a reporter for Yahoo Finance. Follow her on Twitter at @aarthiswami.

Read more:

Follow Yahoo Finance on TwitterFacebookInstagramFlipboardSmartNewsLinkedInYouTube, and reddit.