Speeches & Floor Statements

Floor Speech: Borrower Defense Rule

Posted on March 10, 2020

If your car is a lemon, you don’t sue the bank – you sue the dealer.

A college can be a lemon just like a car can be.

A college could promise a potential student a job or tell them that 50 percent of their students scored perfectly on the SATs.

A potential student might use that information to take out student loans and enroll in that college – and then if that information turns out to be false, the student may be stuck with students loans they can’t afford to repay.  

But unlike a car, if your college is a lemon, you do sue the bank – which is really the taxpayer.

Today, Democrats are forcing the Senate to vote on a Congressional Review Act that, if passed, would overturn the Trump Administration’s Borrower Defense rule.

This process allows a borrower of a federal student loan to have their loan forgiven if their institution misled them and that misrepresentation led to financial harm.

First, if your college closes, your loans are forgiven.

There are about 6000 colleges and universities and 783 closed in 2018.

For example, when Corinthian College closed, many students transferred to another college.

If they didn’t transfer, their loans were forgiven.

But if your college isn’t closing but does defraud or mislead you, then you can file a claim to have your loans forgiven by the Department of Education.

There are 42 million Americans with an outstanding federal student loan.

In 2018, there were about 106,000 borrower defense claims filed.  

In November 2016, the Obama Administration issued a rule that required a borrower to demonstrate only that they had been misled – not that they had been financially harmed.

The Trump Administration’s rule fixes that overly broad regulation, while still protecting borrowers and the taxpayer.

Here is the difference:

Under the Obama Administration, if one student filed a claim and proved that they had been defrauded, all the other students in that program had to was attest that they had been misled in a similar way before having their loans forgiven as well.

It was unnecessary for the first student or subsequent students to prove that they had been financially harmed by that misrepresentation.  

What this meant is that, if you went to a school that had misled students, your loan could be forgiven – even if you had a job making $85,000 a year.

Under the Trump Administration, each student needs to file a claim, prove that they were defrauded, and that they were financially harmed.

Secretary DeVos’ Borrower Defense rule restores the original intent of the law – that a borrower must be misled and harmed.

The new rule establishes a fair and clear process for what a borrower must demonstrate:

First, that the school misled them;

Second, that they relied on that information to enroll in school; and

Third, that they were financially harmed.

The new rule gives the borrower ample time to submit a claim and ensures the Department is basing their judgement on all available information.

The DeVos rule also protects the taxpayers who spend roughly $100 billion a year on federal student loans.

It continues to allow the Secretary to recoup funds from an institution who has defrauded or misled borrowers.

It encourages the borrower and the institution to resolve issues directly – rather than involving the federal government.

And the new rule allows the Department to evaluate the level of harm to each individual borrower filing a claim and forgives the appropriate amount.

For example, if you were told you’d make $45,000 a year when you graduated but were only making $40,000, the Department could decide to forgive part of your loans.

The Obama Administration’s rule went too far and allowed borrowers to have their loans forgiven whether or not they had actually suffered financial harm.

Secretary DeVos’ new borrower defense rule restores the original intent of the law that a borrower must be misled and harmed.

I encourage senators to vote against today’s Congressional Review Act.