NYS Response to Borrower Defense to Repayment (DTR) Process Proposed Changes
New York State has submitted the following statement to the U.S. Department of Education regarding its proposed changes to the Borrower Defense to Repayment (DTR) process announced in July 2018:
- The New York State Higher Education Services Corporation (NYSHESC) submits these comments for consideration as the Department considers changes to the borrower Defense to Repayment (DTR) process. In the most recent academic year, NYSHESC provided over $1 billion in grant and scholarship aid to hundreds of thousands of students pursuing their higher education goals.
NYSHESC has tremendous concerns regarding the effect these proposed rules could have on student borrowers and the damage they could cause to the pursuit of higher education and the overall economy of the State of New York and this country. By reducing recourse for student victims of fraud, the USDOE is essentially giving unscrupulous and deceptive schools a license and further incentive to defraud borrowers.
The proposed modifications to the borrower DTR regulation based on fraudulent or deceptive misrepresentations made by the institution would have a negative impact on student borrowers. The proposed regulation would require that the borrower default, with all attendant negative ramifications for the student, on the loan before availing themselves of the defense. This requirement would place an undue burden on individual students, causing economic misery. They will damage their credit score, be potentially unable to rent or purchase housing, or the car needed to get to a job, will lose eligibility for further student aid to complete their education, and could lose a job due to losing a security clearance on credit issues. These outcomes hurt the student irreparably, and they also have a negative impact on the economy.
Essentially, the proposed regulation is asking borrowers to compromise their economic future while potentially exposing additional students to fraudulent misrepresentations, and delaying the response to the unlawful fraudulent actions preying on individuals. The proposed modification would fall most heavily on those that are dependent on Title IV aid to complete or continue their education, as well as those whose credit scores would be marred by default, including struggling veterans who could lose the security clearances essential to their post-service jobs.
In addition, the proposed regulation arguably encourages the use of class-action waivers, which would serve to protect the most unscrupulous institutions. This would place students at a significant disadvantage vis a vis an institution in attempting to demonstrate that an institution has engaged in fraud in the recruitment of students. Expecting a student to document an alleged misrepresentation when selecting the institution, conduct which may have occurred years prior to the assertion of the defense, is simply not reasonable. Similarly, a class-action waiver effectively ensures that the most economically disadvantaged will face a legal challenge skewed to the advantage of institutions; as well as deprive the Department of Education of a vehicle that would expose the most fraudulent institutions.
Further, the proposed regulation compounds the potential negative impact of this proposed regulation on students by proposing that the timeframe for filing an affirmative DTR claim be reduced to three years, if affirmative claims are allowed at all, to align with ED records retention policies. Education is a lifetime investment and it may take longer than three years for students to realize that their un- or under-employment is due to their flawed credentials.
Additionally, the proposed regulation seeks to substitute a federal standard for existing state standards. The proposed modification impacts the value of protections provided by states to students attending institutions in an individual state. Students should be able to rely upon state laws and standards of conduct when making incredibly important financial decisions related to attending these schools. The proposed regulation would separate these financial protections from school selection to the significant disadvantage of students.