Clark Atlanta president critical of proposed ‘Borrower Defense’ rules

A proposed rule from the Department of Education (DoE) that would expand lawsuits against universities accused of fraud faces serious opposition after a group of presidents at Historically Black Colleges and Universities (HBCU) said the rule would hurt many of those it purports to help.

“It would hurt any institution of higher learning, but in particular, HBCUs and other institutions that don’t have a safety net such as a large endowment or a state sitting behind it.” Ronald Johnson, president of the private, not-for-profit Clark Atlanta University, told Higher Education Tribune.

The proposed rule, dubbed “borrower defense,” was opened for comment last March, but received little feedback during the mandated period for public input. Johnson said this seemed like an "insensitivity" to the schedule by which university presidents search for such rule changes. Historically, major DoE changes are released closer to the fall.

Johnson said many, including himself and some of his colleagues, had not even heard of the proposed rule until after the comment period closed.

Under the proposal, students would receive greater rights to file for loan forgiveness against institutions if they feel “defrauded” by a school. Critics, such as Johnson, agree with the need for students to hold failing colleges accountable, but say the new rules are overly broad and open the door for frivolous lawsuits. Though Johnson said the abuse is theoretical, he said colleges like his regularly have to guard against student aid fraud, such as students who withdraw from classes following financial aid disbursement to “take the money and run.”

“We know we have some people who try to scam the system,” Johnson said.

The problem for HBCUs and other colleges, according to Johnson, is that the new rules immediately require the schools to secure lines of credit for the federal student aid funds the school gave to those students. These credit lines, he said, come even before attorneys' and others' fees are needed. While larger institutions have access to the capital to fight these suits, he said, smaller institutions could quickly find themselves in over their heads.

The new rule came in the wake of the shuttering of the for-profit Corinthian College system in Spring of 2015. The college served over 100,000 students, but was later investigated by the Obama administration for forging its graduation and job placement rate number. After refusing to turn over information about its job placement, the school entered into a deal with the government in February to sell off its remaining campuses. Of those campuses, 50 were reportedly sold to a DoE consolidator, but approximately 30 other campuses were abruptly closed in April after no buyers were found. 

“[Corinthian College] collapsed because they were not subject to what one would consider a ‘regular’ accreditating body and the Department of Education was caught flat-footed,” Johnson said. “And their response has been ‘somebody has to pay,’ instead of trying to figure out what is really going on.”

Since Corinthian, at least two other major “for-profit” colleges have announce mass closures. Pittsburgh-based Education Management Corp. said it would close 15 of its Art Institute campuses, while Schaumburg, Illinois-based Career Education Corp. said it would close 14 of its Sanford-Brown campuses.

The letter to the DoE, dated July 21, seeks to extend the comment period for the rule by 60 days. In addition to the presidents of Wiley College, the University of Memphis, Rust College and the Bennett College for Women, signatures also include a former deputy chief of staff at the DoE and Rev. Jesse Jackson.

“My sense is that, if they do as I think, where they will extend, and then [we’ll] have some sort of way to really get comments,” Johnson said. “Then whomever takes over the [DoE] would have two options: one, to can the whole idea, or two, to actually implement a program with proper safeguards and proper notice of what is allowable or what is not allowable.”

Johnson also said that part of the issue is that families with a low or negative net worth face a “high burden” in financing an education. Universities such as his work to help families overcome that burden, but the new rule threatens to undermine that mission.

“We’ve had this kind of experience before where [DoE] would come up with something, and it has no earthly connection to what it is that is really needed for us to be successful at what we’re doing,” Johnson said.