With a new presidential administration comes new priorities, and for the Trump government’s Department of Education that means revising recently instituted rules that were ostensibly designed to benefit student-loan debtors. If these rules are repealed, then debtors will need to explore either bankruptcy or non-bankruptcy options to resolve their financial problems. According to The New York Times, the Education Department is convening committees to look at two regulations that mainly target for-profit colleges, the “borrower defense” rule and the “gainful employment” rule. Here is what it has in mind.
The “borrower defense” rule permits student debtors to administratively discharge their student loans (that is, outside of bankruptcy) if they can show that their schools defrauded them. Although the rule has existed since 1995, it languished in obscurity until a large group of former students from Corinthian Colleges rediscovered it in 2015-16. The Department of Education updated the rule in late 2016 to clarify it. The revised rule set the evidentiary burden student debtors needed to meet to obtain the administrative discharge, and it also permitted the Secretary of Education to grant automatic discharges to identifiable groups of student debtors in certain circumstances.
The new administration has chosen to postpone the effective date of the beefed-up borrower-defense rule because of lawsuits filed by for-profit colleges over those rules. According to the NYT, opponents of the department’s actions argue that it can’t unilaterally suspend negotiated rules.
How the delay of the rule affects student-loan debtors: Everyone who might be eligible to file a borrower-defense claim will be unable to do so (at least under the Obama administration’s rule) as of July 1. That means they will need to find alternatives for handling their debts.
The “gainful employment” rule targets for-profit colleges by conditioning their federal-student-loan access on their graduates’ employment outcomes. As with the “borrower defense” rule, the Department of Education is convening a committee to revise it. The for-profit college industry has vigorously resisted the “gainful employment” rule, arguing that it unfairly targets its schools and places difficult burdens on them to track and report on their graduates.
How changing the rule would affect student-loan debtors: Here the effects are indirect to debtors. The “gainful employment” rule would prevent for-profit universities from burdening student debtors with debt for degrees that do not open any doors for them. Although the rule is complicated, it has not curbed many for-profit colleges thus far. If the department changes the rule, though, then many more vulnerable students may take out loans that they otherwise would not have.
The New York Times article is here, and the Department of Education’s press release on its new committees to change the rules is here.
Lurking behind the Department of Education’s actions are not so much an unwillingness to protect borrowers so much as a lean towards the for-profit college industry. Nevertheless, if substantial student loans are causing you financial difficulties, then talking to an experienced New York bankruptcy lawyer can help you assess your options. A chapter 7 bankruptcy can free up income for student loans, and chapter 13 can provide student debtors with advantages as well.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
