TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, July 25, 2016

Department Of Education's New Fraud Defense To Loan Repayment Will Spur Spurious Lawsuits

Department of Education LogoFollowing up on my previous posts:

Law360 op-ed: No Good Reason For New Student Loan Forgiveness Rules, by Anthony T. Caso (Chapman):

You may have read news reports over the past few years that new lawyers are having more and more trouble finding a job. The recession that hit in 2008 seems to linger on, especially in the legal market. The U.S. Department of Education has a solution. It has proposed new regulations that will spawn a new industry of spurious lawsuits against colleges and universities. Everybody will have to hire lawyers — and lawyers will be the only clear winners in the battles to come.

The proposed regulations create new opportunities for college graduates (and dropouts) to avoid repaying student loans. Called “borrower defense,” existing regulations allow forgiveness of student loans when the college violates state law, committing fraud. That means that the college made a knowingly false representation of a material fact and the student reasonably relied on that representation to his or her detriment. ...

But the Department of Education does not want you to have to think that hard about your education choice. Therefore, they are replacing the old fraud standard with “substantial misrepresentation,” which they helpfully define to mean “misleading under the circumstances.” You might ask what that means. Nobody knows. The standard is left intentionally vague so that Department of Education bureaucrats can make it up as they go along. If there is no legal standard, then everybody is subject to suit.

Did the school advertise some leading professors who retired or moved to other schools before you graduated? Obviously misleading — sue them. Did the school mention some of its more famous alumni — perhaps a Hollywood star — while the only job you can get with your drama degree is as a barista at Starbuck’s? Now you can sue, claiming that the glossy puff piece from the school was misleading. ...

As a law professor, I support efforts to help find employment for law graduates. I hope, however, that they will find rewarding work helping people rather than clogging up the legal system with spurious claims about misleading college brochures that fronts the bill to students of the next generation as well as the American taxpayer.

https://taxprof.typepad.com/taxprof_blog/2016/07/department-of-educations-new-fraud-defense-to-loan-repayment-will-spur-spurious-lawsuits.html

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Comments

One wonders if Caso is so concerned about the taxpayer dollars that will be lost via loan forgiveness for his law school's graduates who cannot make their student loan payments and go on IBR, PAYE, or REPAYE. For the Class of 2015, only 62 of 132 found any sort of full-time, long-term, license-required work within ten months of graduation, the majority of which was at small law firms. About 1 in 5 grads was still unemployed at that time. Pretty shoddy outcomes for $48k in tuition and $28k in living expenses. Not exactly shocking that they don't release their NALP reports.

Per the Wall Street Journal, about half of outstanding GradPLUS loans are in one of the income-based repayment plans, and law students borrow more than anyone save medical students, whose employment and salary outcomes are far more assured. It's entirely possible that a majority of recent law school loan debt is in such an income-based repayment plan, at least if we can assume that everyone who has the median loan debt or higher and the median NALP starting salary or lower (the former is twice the latter) is on such a plan. And it is estimated that law students borrow $4 billion to $4.5 billion per year. So we have billions of dollars of taxpayer money not getting repaid in a timely fashion because of law school graduates with partial financial hardships sufficient to enter an income-based repayment plan. Where's legal academia's outrage about that?

Posted by: Unemployed Northeastern | Jul 25, 2016 2:12:15 PM