Student-loan relief proposal could hurt black colleges, leaders say

A proposal intended to help students who were cheated at for-profit colleges could end up hurting some historically black colleges, say the leaders of Clark Atlanta University and other HBCUs.

Public comment closed Monday on an updated “defense to repayment” or “borrower defense” regulation proposed by the U.S. Department of Education. The draft rules clarify the process for borrowers to seek to have their federal student loans forgiven if they believe a college misled them with promises about its services and future careers. The draft rules also include new financial requirements aimed mostly at for-profit schools.

But the proposed policies are too broad, and HBCUs, with smaller endowments and fewer resources, could be left vulnerable to frivolous lawsuits, said Ronald Johnson, Clark Atlanta’s president.

Students should have some recourse when dealing with unscrupulous schools, but “government has to lay out clear rules … I would not want to put our mission in jeopardy,” Johnson said.

Johnson joined a group of HBCU leaders who had sought to have the comment period extended 60 days beyond Monday's deadline to allow more discussion of the proposal's potential impact on their schools and other traditional colleges and universities.

“The proposed regulation language could undermine the financial viability of a number of academic institutions and could possibly bankrupt less-financially secured colleges and universities,” read a letter the group sent to U.S. Education Secretary John King.

The proposal was constructed mostly in response to the collapse of for-profit giant Corinthian Colleges last year, and student advocates have supported the plan, with some saying the regulations don’t go far enough.

The for-profit industry has criticized the plan, along with the HBCU leaders who say it does not do enough to clearly define financial responsibility and what constitutes “misrepresentation” by a college. Those issues could have unintended consequences, including costly lawsuits, for their schools and other nonprofit institutions.

When Corinthian filed bankruptcy and ceased operations last year, it set off a groundswell of support for students who claimed the company had defrauded them (a claim supported in numerous federal and state investigations and lawsuits against the company) and because of that, should not have to pay back their federal student loans.

The for-profit behemoth served about 72,000 students through its 107 Everest, Heald and WyoTech colleges, including about 1,200 students at four Everest college locations in metro Atlanta.

By the end of June, the U.S. Department of Education had received more than 26,600 borrower defense claims, with 87 percent of those claims from former Corinthian students. The loan-forgiveness proposal, the department said, would help define the process to determine how the claims are handled, including claims from Corinthian borrowers.

The proposal being debated replaces a loan-forgiveness rule that has existed since 1995, which federal education department officials said hasn’t been used much and needs to be updated. If enacted, the updated regulation would go into effect July 1, 2017. The education department has estimated the regulation could mean up to $43 million in federal loans forgiven over the next 10 years.

In addition to the loan-forgiveness guidelines, the regulations would require institutions to warn prospective students about poor loan-repayment rates, and financially troubled institutions to set aside money to pay for loan-forgiveness claims.

The Obama administration has touted the loan-forgiveness proposal as another tool for students to ensure they are receiving a quality education at a fair price, and a method for filing grievances and getting debt relief when they don’t.

Under its provisions, groups of students with claims against the same school could receive loan relief without having to apply individually, and schools would be banned from using arbitration clauses against students to keep them from taking legal action against the school.

“Our message is clear,” Secretary King told reporters about proposal. “The Obama administration will not sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag.”

Johnson said he supports the efforts of the Obama administration, which has taken a hard stance on the for-profit industry, which relies heavily on federal aid, but there are concerns.

“If we had huge endowments, it may not be so challenging,” he said. “but once you have a rule like this that purports to be supportive of students that comes as a result of for-profit institutions, that have in their nature ways to bilk people, you’re also applying this to (institutions) who have been around for 150 years and have done right by students.”

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