New student-loan rules will encourage more suits against colleges

The U.S. Department of Education has proposed new regulations that will make it easier for borrowers to avoid paying back student loans by alleging that they did not get the education they believed they were signing up for. [Anthony Caso via Caron]:

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. …

[The Department proposes to replace] 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.


  • I think I have the answer. How about a no-questions-asked money back guarantee? After 5 years, any student who wants can ask for the money they spent on tuition back (perhaps with a 10% “restocking fee.” In return, the student would have to return their degree (if they earned one) and agree that any credits they earned toward a degree would be lost. They could not use the credits in support of any other degree they received, if the credits were a prerequisite for being qualified to earn the subsequent degree. For example, if they have a J.D., they would have to give up the degree if they want their money back from their undergraduate degree. Simple. And it would essentially be paid for with the money not needed for litigation…

    • Is this in the nature of a Modest Proposal?

    • Allan, while I rarely agree with you, it is interesting to read your point of view.
      But finally, I AGREE!!!

  • Hard to see how this will work in practice. Even if one is truly deceived by a college in deciding to enroll there, it’s likely that the “true facts” will become known within a short time after enrollment. And if the student re-enrolls for later semester after knowing the true facts, under the law of most (if not all) states, there should be no grounds for relief.

    That is especially so because, as far as I know, student loans are incurred on a semester-by-semester basis. So even if one is deceived into borrowing to finance the first semester of a freshman year, it seems quite unlikely that the student will have been deceived when it comes time to sign loan documents pertaining to later semesters.

    The time to reject a bottle of wine is at the first tasting. By time you’ve re-filled your glass, it is too late to declare the wine skunked and demand a refund.

  • Can you also sue the High School Guidance Counselor and the teachers who lead you to believe that your selection of a major was a good choice?

  • I would be very angry if the Trillion Dollars in student debt, or any substantial part of it was forgiven without making one big change first: No more government backed or guaranteed student loans.

    To think went to a wonderful but non-prestigious local school, taking the public bus to and from it and living at home so I could go to a school I could afford (while working 20 hours/week and going to school full time) and not incur any debt. And I got a degree in mathematics.

    Meanwhile people are getting their $100,000 “women’s studies”. degrees, while living in a country-club atmosphere, and are expecting someone else to pay for it.

    I don’t care if they didn’t learn a thing. They lived on campus, they went to parties, they joined frats and clubs. PAY FOR IT.