Law schools and small liberal arts colleges could be in the firing line, and face serious financial consequences, if new borrower defense rules are introduced by the Department of Education, one legal expert has claimed.
Former students unable to secure well-paying jobs could team up with plaintiff lawyers to take advantage of the new rules, attorney Roel C. Campos said. Campos, of New York-based Hughes, Hubbard and Reed, advises and defends corporate management teams and boards. He is a former commissioner with the Securities and Exchange Commission.
His worry about the new Department of Education rules is that former students from law school or small liberal arts colleges will take advantage of the expanded definition of misrepresentation.
The new rules effectively eliminate the need to prove intent to deceive students by the college, said Campos.
"It is easy to foresee a situation in which enterprising aggressive plaintiffs and class action lawyers will see an opportunity to assemble a group of law school or small liberal arts college graduates who have found it hard to find a well-paying job,” Campos told the Higher Education Tribune.
They could “spin it as a consequence of the institution’s alleged overstatement or misstatement about placement rates or post-graduation employment stats/salary,” said Campos. "or alleged inadequate quality of instruction rather than on the realities of the labor market for newly minted lawyers or art history majors."
The reality for law schools today is that the law profession “has changed so dramatically that fewer law firms or even government agencies hire new law school graduates,” Campos said. "In fact, only a few prestigious law schools can accurately claim that their graduates will find substantial job opportunities as newly minted law graduates. The same is likely true for most professional schools."
Campos believes the nature of what could be construed as a false, erroneous or misleading statement is extremely broad and “reasonableness in its interpretation may be difficult to determine by a hearing court.”
He identifies a number of areas where there could be problems, including “fudged admission numbers” previously used in marketing materials.These could be grounds for borrower defense claims in many traditional schools and graduate schools, Campos said.
Further, under the proposed rules, the attorney said, the department will be able to consolidate similar claims from students into a group, or even grant a group discharge for an alleged misrepresentation or breach of contract without having individual student claims.
“An overzealous government lawyer could cause great harm to non- profits and traditional colleges,” he added.
The department estimates the new defense-to-repayment regulation could result in the discharge of up to $42 billion in loans over the next decade. This is a tempting target for plaintiff lawyers seeking large fee awards, Campos said.
Colleges also 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, Campos said.