This week, a group of 19 state attorneys general sued the Department of Education and its secretary, Betsy DeVos, for delaying a rule meant to protect student loan borrowers.
Comprising the plaintiffs are Democratic attorneys general from 18 states and the District of Columbia. Among them is Maura Healey of Massachusetts.
“Betsy DeVos and the billion-dollar for-profit school industry want to cancel student protections,” she tweeted on July 6. “With 18 fellow AG’s, I’m fighting back.”
Here’s a breakdown of the news — and how it could affect you.
Why did these states sue the Department of Education?
It all has to do with for-profit colleges, whose students hold a disproportionate share of student loan debt. These institutions have also been accused of making false claims about job-placement rates and other statistics.
The pressure became so intense for one such institution, Corinthian Colleges, that it abruptly filed for bankruptcy in 2015, leaving many students wondering what would happen to their loans.
In an attempt to protect students from the predatory practices of Corinthian and similar schools, the Obama administration introduced two regulations: gainful employment (GE) and borrower defense to repayment (BDR).
A few weeks ago, however, Secretary DeVos announced it was time for a “regulatory reset,” during which her department would reassess both regulations.
Although gainful employment will remain in place while being reworked (more details below), the BDR rule, which was set to go into effect on July 1, 2017, was put on hold indefinitely.
The decision to delay BDR prompted the lawsuit by 19 state attorneys general, who said, “the Department effectively canceled a duly promulgated regulation without soliciting, receiving, or responding to any comment from any stakeholder or member of the public, and without engaging in a public deliberative process.”
In their suit, the state attorneys general ask a U.S. District Court to declare DeVos’ delay unlawful and order the Department of Education to implement BDR “promptly.”
Education press secretary Liz Hill, in a statement emailed to Student Loan Hero, called the suit “ideologically driven,” and said that “the state attorneys general are saying to regulate first, and ask the legal questions later.”
What was behind Betsy DeVos’ initial decision?
When it came to reassessing GE and BDR in the first place, here’s what DeVos said:
“Fraud, especially fraud committed by a school, is simply unacceptable. Unfortunately, last year’s rulemaking effort missed an opportunity to get it right. The result is a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.”
The Department of Education also cited a pending lawsuit from a group of for-profit institutions, which Hill said makes “serious and credible charges” that they “cannot simply dismiss.”
The state attorneys general lawsuit, however, called the pending litigation “a mere pretext” for creating a new rule “that will remove or dilute student rights and protections.”
Which DOE regulations were affected?
If you’re curious about which regulations were affected by Devos’ original announcement — and how they might change — keep reading.
This rule, which came into effect on July 1, 2015, will remain active while it’s being reworked. Its purpose is to punish colleges whose graduates are unable to find “gainful employment” after graduation.
If a school’s typical graduate has loan payments exceeding 20 percent of their discretionary income or 8 percent of their total salary, it might lose federal aid. That’s a big deal since federal aid comprises nearly 90 percent of revenue at for-profit colleges.
In January 2017, the Department of Education announced that more than 800 programs had “failed” the new standards and were at risk of losing federal funding. Ninety-eight percent of those programs were offered by for-profit institutions.
If you’d like to see if your school’s on the list, you can search this directory of the failing programs.
Borrower defense to repayment
The borrower defense to repayment rule affects borrowers more directly. It would’ve allowed students who were defrauded to seek forgiveness on student loans. It was set to go into effect on July 1, 2017, but is now on hold indefinitely.
Although there are regulations in place for getting student loans discharged in cases of fraud or misrepresentation, they’re complicated. The new regulations would’ve greatly simplified and streamlined the process.
Borrowers, for example, would’ve been able to seek forgiveness in groups and get their loans canceled all at once — rather than submitting individual petitions.
Under current regulations, student loan borrowers must sometimes wait years before their applications are approved. As of January 2017, more than 68,000 applications were still pending further review.
Here’s what student borrowers think of the BDR delay
Student Loan Hero surveyed 1,000 people from July 6 through 8 and found nearly one-third (32.7 percent) of respondents said they agree or strongly agree with the BDR regulation: Students should not have to repay student loans if a college is found using illegal or deceptive tactics to attract or enroll students.
Furthermore, despite knowing the student loans expected to be forgiven total more than $646 million, 36.6 percent of all respondents said they would still support the BDR rule if it were implemented.
What can student borrowers do?
It’s unclear what will happen in the future. We do know that the borrower defense to repayment rule won’t roll out as planned and both rules will be reviewed by Devos-appointed rulemaking committees.
Regardless of what happens, you can still take steps to improve your situation, if you are affected by high student debt:
- Contact your student loan ombudsman to discuss your options
- If your school made fraudulent claims or violated state laws, start the BDR process
- Look at student loan forgiveness programs
- Consider refinancing your student loans to potentially lower payments
If you haven’t applied to school yet, think carefully before attending a for-profit college. Given the latest news, you may have fewer protections if you are duped by a for-profit institution.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|