Following up on my previous post, Law Students May Use Department Of Education's New Fraud Defense To Loan Repayment Aimed At For-Profit Colleges To Discharge Law School Loans: Inside Higher Ed, Proposed Federal Student Debt Forgiveness Rules Aimed At For-Profit Colleges Worry Some Nonprofit Colleges:
For-profit colleges and their advocates are aggressively fighting the Obama administration’s proposed rule for federal loan forgiveness, arguing that the regulation is subjective and overly broad, and will “crush” the sector while costing taxpayers many billions of dollars.
Yet for-profits aren’t the only ones fretting about the rule, which is slated to go into effect next year if enacted. Many nonprofit colleges also face financial and reputational challenges due to the scope of the so-called borrower-defense-to-repayment proposal, said lawyers and several traditional higher education groups.
While traditional colleges' vulnerability largely has flown under the radar, the rule's broad definition of what constitutes a misrepresentation in marketing to students and its new requirements for the financial stability of institutions in particular could pose risks.
“It’s a dramatic expansion,” said Stan Freeman, a lawyer with the D.C.-based firm Powers Pyles Sutter & Verville. “This should be a concern to all postsecondary education, not just for-profits.”
The U.S. Department of Education crafted the 530-page regulation mostly in response to the collapse of Corinthian Colleges. ... Department officials said the regulation was aimed primarily at for-profits, where they said most of the fraud, misrepresentation and financial risks exist. ... Yet nonprofit colleges also are covered by most of the rule. And both the National Association of College and University Business Officers and the National Association of Independent Colleges and Universities said their member institutions could be sanctioned under the proposed regulation. ...
Graduate schools could be vulnerable in particular, according to a recent article by BuzzFeed. So could historically black colleges and universities. ...
Colleges would be on the hook financially if their former students' claims were to succeed. That’s because the department could require colleges to pay off borrowers' loan balances. ...
Experts are split on whether the new rule will snag only egregious misrepresentations by colleges, or if it might also catch careless mistakes. ... [F]or-profits and several lawyers, as well as a couple of traditional higher education associations, said the proposed misrepresentation and financial responsibility language is broad, and even “onerous” or “draconian.”
A key complaint centers on the department’s view of what constitutes a substantial misrepresentation. As Cooley, a law firm that represents colleges, including nonprofits, explained in a written notice to its clients, the feds have proposed to “enormously broaden” that definition by eliminating the need to prove any intent by the college to deceive students. The nature of what could be construed as a false, erroneous or misleading statement “is so broad as to challenge reasonable interpretation,” said the firm, which could benefit from concern about proposed federal regulations.
Possible problem areas, some said, could include fudged admissions numbers colleges have submitted to boost their rankings in U.S. News & World Report or on other lists. These scandals have involved both graduate and undergraduate programs at selective institutions, and could be grounds for borrower defense claims.
Many nonprofit colleges also brag about the job-placement rates of their graduates, some claiming rates as high as 99 percent on billboards and their websites. If institutions' advertisements on job placement fail to include methodology or disclaimers, they could trip on the new standard for misrepresentation, experts said.