STATEMENT: CAP Experts: Borrower Defense Proposal Will Help Protect Students and Taxpayers from Fraud in Higher Education

Washington, D.C. — The U.S. Department of Education today issued its proposed “defense to repayment” or “borrower defense” rule. Carmel Martin, Executive Vice President for Policy at the Center for American Progress, issued the following statement:

This proposed rule contains important provisions that will help ensure that predatory institutions, not taxpayers, are held accountable when a school fails. The proposed rule puts in place tools that the department can use to ensure the financial responsibility of a school so that fraud or financial instability are caught early.

For-profit colleges have also frequently utilized forced arbitration clauses to restrict students’ ability to take meaningful legal action. Given the history of abuses in this sector, the proposals’ ban of such clauses is an essential protection for students and taxpayers alike, ensuring that schools can be held accountable for harmful actions. A number of federal agencies are increasingly recognizing the harm posed by mandatory arbitration, and the Department of Education should be commended for taking action on such clauses.

Maggie Thompson, Executive Director of Generation Progress, served as a negotiator during the department’s rulemaking process. Thompson added:

When a college or career program commits fraud, their students deserve an automatic and full discharge of their federal loans—and the fraudulent school, not taxpayers, should be on the hook to repay the federal dollars wasted. Predatory for-profit colleges have profited enormously from taking advantage of students for far too long. The collapse of Corinthian Colleges showed that it was past time for the Department of Education to act to protect students and taxpayers.

The proposed borrower defense rule that the Department of Education announced today is an important step forward to give defrauded students a path to some relief. The proposed rule gives individual borrowers a path to debt relief and also contains provisions for groups of borrowers to obtain automatic relief—at the secretary of education’s discretion—in cases where a school is found to have committed widespread fraud or misrepresentation.

For more information on this topic or to speak with an expert, contact Allison Preiss at apreiss@americanprogress.org or 202.478.6331.

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