Student-loan borrowers 'shouldn't have to act as a labor economist' to prove a college misled them on job prospects and loaded them up with debt, Biden's Education Department says

• Biden's Education Department unveiled proposals to reform student debt relief for those defrauded.
• It plans to broaden the types of school misconduct that make students eligible for debt relief.
• Other proposals included reforms to PSLF, and plans to prevent interest capitalization. 

President Joe Biden's Education Department has a range of ideas for easing access to student-loan relief — and a major proposal centers on borrowers who were misled by their colleges to believe their post-graduation salaries would help them repay their debt.

What's called "borrower defense to repayment" is a process that allows student-loan borrowers who believe they were defrauded by a for-profit school to file a claim detailing their experiences, and if approved, the department will wipe out the debt they acquired from attending that school. But currently, there are strict standards in place for actually proving types of fraud. The department proposed a number of ways to simplify the process.

Last week, the department unveiled its list of regulatory proposals for the upcoming year, which included ideas to reform student-loan forgiveness programs and prevent interest capitalization. When it comes to borrower defense, the 2019 regulation required borrowers to prove they could not get a job post-graduation for reasons beside economic recessions, or the borrower would have to provide documentation of the quality of their job search and inability to find employment.

"The Department does not believe it is reasonable for a borrower to have to act as a labor economist to show they were harmed by an institution's misrepresentations," the Education Department's preamble on its regulatory proposals stated.

As the preamble noted, the regulation currently in place could potentially hurt borrowers if they managed to find employment even after being defrauded by a school because they would be at risk of having their borrower defense claim denied. The Education Department has already taken a number of steps to provide relief to defrauded borrowers, most recently approving the biggest group borrower defense claim to date for all remaining borrowers defrauded by Corinthian College, a major for-profit chain.

These regulations intend to take the relief a step further by establishing a broader standard for the types of misconduct that would qualify for loan relief:

1. Substantial misrepresentations. Rather than having a borrower show the school misrepresented information with knowledge it was false and misleading, the proposals will allow the borrower to articulate any misrepresentations, like job prospects or credit transfers, that they relied on when taking out a student loan.
2. Substantial omission of fact. The department proposes making the omission of any relevant information a college provides to the borrower a separate standard from any misrepresentations to signify that omitting facts can have the same misleading effects on borrowers.
3. Breach 0f contract. The 2019 regulations removed breaches of contract as a factor that could lead to approved borrower defense claims, as the department is now proposing to reinstate it in instances when the school fails to fulfill contractual promises for certain programs.
4. Aggressive recruitment. This would be a new category for identifying misconduct that addresses tactics schools use when recruiting borrowers. Oftentimes, schools found of fraud target vulnerable students, usually those who are first-generation or come from a low-income background, and urge them to enroll despite having the capacity to do so.
5. Judgments against institutions. The department proposes to retain a 2016 provision that takes into account legal judgments against institutions as a basis for misconduct that could lead to approval of a borrower defense claim.

Other key changes the department proposes to the program include a streamlined process for relief that applies to all claims made as of July 1, 2023, reconsideration of claims for borrowers who were not approved for full debt relief, and a clear timeline for individual and group borrower defense claims.

These proposed changes are expected to enter a 30-day public comment period, after which the department aims to finalize the rules by November with implementation by July of next year. Meanwhile, Biden is expected to make an announcement on broad student-loan forgiveness for federal borrowers in July or August, before student-loan payments are set to resume after August 31.