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UNITED STATES DEPARTMENT OF EDUCATION

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OFFICE OF POSTSECONDARY EDUCATION

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PUBLIC HEARING

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THURSDAY

SEPTEMBER 10, 2015

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The public hearing convened in the Eighth Floor Conference Center, 1990 K Street, N.W., Washington, D.C., 20006 at 9:00 a.m., Lynn Mahaffie, Facilitator, presiding.

PRESENT

LYNN MAHAFFIE, Facilitator, Office of 

Postsecondary Education

JEFF APPEL, Deputy Under Secretary, Office of 

the Under Secretary 

JOHN DIPAOLO, ESQ., Deputy General Counsel, 

Office of General Counsel

FRED MARINUCCI, JD, Deputy Assistant General 

Counsel for Postsecondary Education 

ALSO PRESENT

PAMELA BANKS, Consumers Union

ELIZABETH BAYLOR, Center for American Progress

MICHAEL FIRESTONE, ESQ., Office of the 

Massachusetts Attorney General 

JASON GLICK, ESQ., New York Legal Assistance 

Group

ALEXIS GOLDSTEIN

CHARLOTTE HANCOCK, Higher Ed, Not Debt

AMY HARFELD, Children's Advocacy Institute 

DANIEL JONES

JESSICA KING

KAREN MCCARTHY, National Association of Student 

Financial Aid Administrators 

JEAN MCDONALD RASH, Higher Education Loan 

Coalition

JESSICA MORALES, Generation Progress

WALTER OCHINKO, Veterans Education Success 

ALYSSA PICARD, American Federation of Teachers

DAN REIGHARD

LAUREN SAUNDERS, National Consumer Law Center

REID SETZER, Young Invincibles

MAGGIE THOMPSON, Higher Ed, Not Debt

P-R-O-C-E-E-D-I-N-G-S

9:01 a.m.

MS. MAHAFFIE:  Good morning.  My name is Lynn Mahaffie.  I'm Deputy Assistant Secretary for Policy, Planning and Innovation in the Office of Postsecondary Education, and I want to welcome you here to this public hearing and thank you for your interest in this important topic.

Today I'm going to begin by introducing our Deputy Under Secretary, Jeff Appel, who will provide some opening remarks.  And then I will provide some information about the logistics of how this hearing will work today.  And then we'll open it up to you.  We're looking forward to hearing from you.

As I mentioned, Jeff is our Deputy Under Secretary who oversees postsecondary student aid policy initiatives.

Jeff joined the Department in 2011 as a Senior Policy Advisor for higher education and student financial aid in the Office of Planning, Evaluation and Policy Development.

From 2007 to 2011, Jeff worked for Congressman George Miller, where he led numerous postsecondary initiatives, including several major pieces of legislation.

Jeff also worked as Assistant Director at the General Accountability Office, responsible for managing much of GAO's research concerning student aid and other postsecondary issues.

Jeff holds a bachelor's degree in Finance from the University of Arizona, and a Masters in Applied Economics from Johns Hopkins University.

MR. APPEL:  Thank you, Lynn.  Good morning, everyone; I'm pleased to welcome you to this public hearing.

This is the first of two hearings that we are convening to gather input and preparation for negotiated rulemaking regarding borrower defense to repayment of a federal student loan.

We also seek suggestions for additional issues that should be considered for regulatory action by the negotiating committee.

College remains the best investment students can make in their future, and students deserve a fair and honest deal.

While many colleges play a critical role in helping students succeed in their educational and training pursuits, some of America's colleges are failing to provide the education and training promised to advance students' careers.

Rather than providing students with the opportunity for a solid education that leads to a good job, some of these institutions have left students with lots of debt and few job prospects due to the institution's acts or omissions, putting both students and taxpayers at risk.

President Obama's administration is committed to changing that through actions to hold institutions accountable for their actions and to ensure Americans are protected from unscrupulous colleges that deny students meaningful educational opportunities and leave taxpayers holding the bag.

Current federal law and regulations provide a defense to repayment, or borrower's defense, that allows borrowers to seek loan forgiveness if their school's actions give rise to a cause of action per state law.

This provision has rarely been used in the past.  However, we have seen an increase in borrower defense claims and believe the regulations need to be further refined.

Over the past six years the Department of Education has taken unprecedented actions to establish proper regulations to prevent misleading claims by career colleges.

We have issued gainful employment regulations, which help to ensure that students at career colleges don't end up with debt they cannot repay.  We've also cracked down on bad actors through investigations and enforcement.

Education Secretary Arne Duncan has directed our team to ensure that students who have been defrauded by their college, or whose schools have closed down, receive every penny of the debt relief to which they are entitled as efficiently and as early as possible.

The need has grown pressing in recent months because of the wind down and ultimate collapse of Corinthian Colleges, Incorporated, which you may know by the brand names Heald, WyoTech and Everest, following enforcement actions by this administration and scrutiny by other enforcement entities.

Earlier this year, we announced a series of steps to support students who attended Corinthian schools. 

We are now extending our commitment to ensuring accountability and to continue working aggressively toward reforms that ensure that schools are held responsible for their actions.

We are committed to ensuring that every student has access to an education that will put them on solid footing for a career, and we will hold schools accountable for illegal practices that undercut their students and taxpayers.

If our students have been harmed by fraudulent practices, we are fully committed to making sure that they receive every penny of relief they are entitled to under law.

After considering the public comments submitted and listening to the hearing testimony today and at the session in San Francisco next week, the Department will draft a list of topics to be considered by one or more rulemaking committees.

The negotiators will be asked to work to reach consensus on which acts, or omissions of an institution of higher education, a borrower may assert as a defense to repayment of a loan made under the Federal Direct Loan Program and the consequences of such borrower defenses for borrowers, institutions and the Secretary.

We will also consider the suggestions received for additional issues that should be considered for regulatory action by the negotiating committee.

We anticipate that any committee established after the public hearings will begin negotiations in January 2016, and a Federal Register Notice seeking nominations for negotiators will be issued in advance of that date.

Again, thank you for dedicating your time and expertise to this very important process.

We appreciate your willingness to share your perspectives and know we will be better informed and have a more robust conversation as a result of today's participation.  Thanks.

MS. MAHAFFIE:  Thank you, Jeff.

I also want to introduce John Dipaolo, who is our Deputy General Counsel who will be here sitting at the table with us this morning.  And one of his colleagues will be here this afternoon.

As to the logistics for this hearing, many of you have already signed up for times to speak, and we will be calling your names as you have signed up.

We have many time slots left today.  So, if you have not signed up and would like to speak, please go see Amy or Aaron at the front desk where you came in, and they will be happy to give you a time.

I'm going to limit speakers to five minutes for this initial round.  If you get to the end of your five minutes, I will ask you to wrap it up.  And if you could wrap it up in 20 seconds or so, that would be great.

If there is time available after everybody who wants to speak has spoken, we will be glad to have you come up for a second round.  And it looks like there will be time for that.  So, if you have remarks beyond five minutes, there should be time for that.

I just want to remind everybody that this hearing will be transcribed, and the transcription will be posted to our website in the next few weeks.

There may also be people in the audience who are videotaping or audio taping.  This is a public hearing, so that is fine.

We also welcome your written comments.  If you have comments here today that you would like to submit, you can hand them to me or to Aaron and Amy at the front desk.  You can also post comments to regulations.gov.

We have three scheduled breaks.  One this morning from 10:30 to 10:40.  We will take a lunch break from 12:00 to 1:00 and a break in the afternoon from 2:30 to 2:40.  If we don't have speakers, these breaks might become longer.

In terms of lunch, there are many restaurants in the area.  If you get off at the I Street level in this building, there is a deli that also serves pizza and a sushi place.  One block away, there is an eatery in the International Square Building.

There's coffee at the deli in this building, or Starbucks on K Street in this block if you need coffee.

For restrooms, you go through the doors out at this end of the room to my right, and there's signage.

If you use the restrooms, we ask you to please be considerate of our colleagues in another office who are working back there, if you could not use your cell phones back there and try to be considerate that they're working.

You're welcome to use cell phones in the lobby here or in the elevator lobby.  Also, the kitchen back there belongs to our colleagues, and it's not a public space.

If you need any assistance, please talk to Amy or Aaron at the front desk.  And when we call you up to speak, if you could begin by sharing your name and if you're here representing an organization, that would be very helpful.

And we will start today with Lauren Saunders from the National Consumer Law Center.

MS. SAUNDERS:  Good morning.  Thank you for holding this hearing and for inviting me to testify.

My name is Lauren Saunders.  I am Associate Director of the National Consumer Law Center, and I am here testifying today on behalf of our low-income clients.

NCLC is a nonprofit organization dedicated to consumer justice and economic security for low-income and other disadvantaged individuals.

We seek to identify policy solutions, to promote access to education and lessen student debt burdens.

Over the years, NCLC and our legal aid partners have seen many clients whose dreams have been shattered by fraudulent, for-profit higher education corporations.

These companies have used deceptive recruitment practices to earn billions in profits from federal aid programs, leaving our clients with crushing debt burdens.

Many of our clients -- probably most of our clients -- do not qualify for federal student loan relief under current Federal regulations.

As a result, they face a lifetime of student loan debt collection, including wage garnishments, Social Security offsets and tax refund seizures.  These debt burdens all too often prevent them from getting a fresh start in life.

It does not have to be this way.  The Department has clear authority under the Higher Education Act to provide comprehensive debt relief to harmed borrowers.

While we commend the Department for proposing to create a defense to repayment process, through which some direct loan borrowers may seek relief, the process will leave out too many harmed borrowers.

We, therefore, strongly urge the Department to address three matters in the upcoming rulemaking agenda.

First, many thousands of borrowers harmed by deceptive, for-profit schools obtained loans under the Federal Family Education Loan Program, which was not phased out until 2010.

As with direct loans, the Department and other loan holders have a mandatory obligation -- under both the Federal regulations and the terms of the student loan contracts -- to cancel the loans of federal borrowers who establish illegal, for-profit school practices.

This rulemaking should establish a defense to repayment process for all Title IV borrowers, not just direct loan borrowers.

To do anything less will ignore the plight of the many FFEL loan borrowers who were defrauded by their schools, but have no avenue to debt relief.

Second, the defense to repayment claims process can be cumbersome and inhibit some students from applying.

The Department should create a fair and efficient process that provides some cohorts of borrowers with automatic relief, particularly in cases where there are state or federal findings of widespread wrongdoing.

Third, defense to repayment was never intended to be the only way for harmed borrowers to get relief.

The Higher Education Act requires the Department to cancel the loans of borrowers whose schools falsely certify their eligibility for federal financial aid.

These discharges were intended to provide relief to students who have been injured by school fraud and to discourage illegal and abusive school practices.

Despite the expansive language of the Act, the Department has narrowly defined and limited borrower eligibility by regulation.  It has imposed evidentiary burdens that are impossible for most borrowers to meet.  

In addition, the false certification discharge regulations have not been updated for many years and do not accommodate modern financial aid processes or current eligibility laws.

As a result, very few borrowers harmed by school fraud are able to obtain the loan discharges for which they qualify.

For example, before 2012 borrowers who lacked a high school diploma could attend school if their colleges submitted proof of ability to benefit.  And yet, students who attended schools that did not administer that test had been asked to submit proof that they don't have of proving that the schools failed to administer those tests beyond of, course, their own affidavits.

Post-2012, when that test was no longer available, borrowers whose schools falsely certified that the student had a high school diploma had been unable to use the false certification process.

In order to ensure that all borrowers who are harmed by school fraud are able to obtain loan cancellations, we urge the Department to update and revise the false certification discharge regulations to complement the defense to repayment process.

Borrowers who qualify for statutory discharges should not be forced into a potentially complex defense to repayment process.

These and other recommendations are detailed in the comments we will submit next week.

Thank you for this opportunity to comment on the upcoming rulemaking agenda on behalf of NCLC's low-income clients.

MR. APPEL:  Thank you.

MS. MAHAFFIE:  Thank you.

(Applause.)

MS. MAHAFFIE:  Jessica King.

MS. KING:  Hello.  Good morning, everybody.  My name is Jessica King.  I represent the thousands of Corinthian students that were defrauded and taken advantage of, and I thank you all for this brief time.

I'm a graduate of Everest-Newport News, Virginia.  My decision to attend Everest was based on a future fulfilled with hopes and plans for my children and myself.

Everest lied to me from the minute I walked through the door, with promises of job placement, free tuition because I was a low-income mom and a single parent, and mostly a quality education.  It was all a lie.

I graduated in '08 with honors from a nine-month medical assistance program.  I've never received a job in my field, and now I'm straddled with over $32,000 in student loans, according to my credit report.

I only signed for one $1,200 loan.  I was told by administration as long as I kept my grades up and attendance up, my tuition would be free.

I never received a so-called penny for educational grants, housing, child care; everything went to Everest.

I have been completely robbed of my future, my hopes and my dreams.  I cannot return to a real college, because they maxed out my grants.  I cannot buy a home, finance a car or even begin to think about helping my children through college.

As a child, you are taught to trust in educators and the educational system.  For-profit colleges are breaking the sacred trust.

How can this be legal?  How can this happen in a country where we pride ourselves on higher education?

The Department has previously made it clear in a 1995 Federal Register Notice, all Federal loans are eligible for discharge under the defense to repayment, not just Direct loans.

I've never had an option on what type of loans I took out.  Yet, since my loans are FFEL loans, I have been denied administrative forbearance, and this upcoming rulemaking appears to be focused only on Direct loans.  This is arbitrary, and this is unfair. 

In addition, I'm asking you to have more than just one student representative and one alternate on this upcoming negotiated rulemaking committee.

There should be at least three representatives and three alternate students like me with FFEL loans, some students with Direct loans, and some students with both.

In the past there have been five different types of higher education representatives, yet only one student.  This is completely unbalanced and unfair.

There should be at least as many student representatives as institutional representatives.

Everest and other for-profit colleges have had hundreds of lawsuits.  There have been countless violations by the Department of Education, which included predatory lending, false job placement statistics, deceptive marketing tactics and security as well.

When is enough going to be enough?  Please help me understand how the Department of Education has let this go on for so long.

Is it because of greed?  Because that's the only reason I can think of.  Not only do I blame Corinthian for ruining my educational dreams, but I blame the Department of Education for not stepping up and holding scam schools accountable and shutting them down years ago.  Thank you, guys.

MS. MAHAFFIE:  Thank you.

MR. APPEL:  Thank you.

(Applause.)

MS. MAHAFFIE:  Alexis Goldstein.

MS. GOLDSTEIN:  Good morning.  My name is Alexis Goldstein; I'm here representing myself, but I have worked with dozens and dozens of former students of for-profit colleges including Corinthian, Art Institute and ITT Tech.  So, my work with those former students informs my comments today.  Thank you for the opportunity.

In my mind, for-profit institutions have simply been proven an abject failure, and I fail to see why we continue to give federal loan money to these institutions.

I think that the model has demonstrated that it's irreparably broken, and the Department should just stop funding these institutions outright.

But barring that, with this neg reg the Department has a big opportunity to ensure that students who have been impoverished -- and they have been impoverished by the business of education -- have a chance to start over.

They won't get their time back, but at least they can get their credit scores repaired, have mortgages, move on with their lives.

But to ensure this happens, as has been mentioned by the prior two speakers, all loan types must be included in the rulemaking agenda.

I remind the Department that all federal loans are eligible for discharge under the defense to repayment.  So, the neg reg should include FFEL, Perkins, consolidation loans, as well as Direct loans.

The students do not make a choice of FFEL over Direct.  And so, it seems to me arbitrary and cruel to leave out students that do not have Direct loans in this process and in this rulemaking agenda.

In addition, the student representation on the committee should be increased.

In last year's neg reg to reform Pay As You Earn, there were five different representatives from institutes of higher ed, including for-profit, nonprofit, two-year, four-year and one from a minority serving institution.

And so it strikes me that how as directly impacted as students will be by this neg reg, there should be five student representatives from those same buckets -- minority-serving, two-year, four-year, nonprofit, for-profit.

In addition, I don't think that there should be a for-profit representative in this neg reg.  I think that this industry has demonstrated that they cannot be trusted with federal student loan money, and I don't see why we should allow the fox into the henhouse in the neg reg itself.

The agenda must also include accessibility and access concerns.  Back in June, the Department created a fillable PDF attestation form for Heald students who could complete a Fast Track, but this form was only accessible through Adobe Acrobat.  You couldn't use it in any other PDF software; you couldn't access it on a smartphone, and this remained broken for three months.  And this is unacceptable for a department that prides itself on technology and innovation.

In my experience working with former Corinthian students, the vast majority of them do not have access to printers, they do not have access to computers, and the only way they can access the Internet is through their smartphone.

And so this meant that a huge number of Heald students who wanted to fill out the fillable PDF attestation simply couldn't until the form was finally fixed, I believe, last month.

So, the agenda must include ways to ensure that all borrowers now in perpetuity can easily access the applications, and that means making sure that they always work on smartphones right from day one.

The agenda must also include built-in borrower notifications.  The Department itself recognizes that notifying borrowers when they are eligible for debt discharges is important, which has been evidenced by the Special Master's recent report that lauded the notification provided to over 50,000 Heald borrowers. But, in actuality, that notification was compelled by the Bankruptcy Court. 

That forced measure should in future be hard-wired into the regulation itself, not mandated by a court of law.  So, effective notification requirements must be on the Committee's agenda.

The agenda must also prioritize automatic group discharges.  Currently, only a little over 80 percent of Heald students were given this fast track that I mentioned, despite the fact that the misrepresentations the Department found at Heald were well documented and systemic across the entire Corinthian chain.

Yet, the Heald borrowers who have applied for this so-called simple fast track debt cancellation still haven't seen any relief, nor have they been given any kind of timeline for when the relief is coming.

And I was told that by a Heald student who had applied for the discharge and it was, you know, reported in the Special Master report as well.

In addition, do we really believe that the remaining 12 percent of Heald students and the remaining Corinthian students who attended under the same Corinthian corporate umbrella really escaped harm, given that Corinthian is essentially now synonymous with fraud?

In addition, I would point the Department to its own August 2014 letter to Everest Institute, which was made up of Cross Lanes, Eagan and Decatur, which outline misrepresentations, a 90/10 rule violation and a practice where employees of Everest-Decatur were asked to sign declarations that the school never asked them to do anything illegal or that they found unethical.

And the Department said that they interviewed employees who said that if they refused to sign that declaration, they were terminated.

And those who did sign the declaration saying that they had never been asked to do illegal behavior were given a bonus, and I fail to understand why the students of those three schools do not also have a fast track debt cancellation process.

In order to ensure that schools like this are not avoided going forward, the Committee's agenda must consider how to ensure that automatic, class-wide discharges are provided at all institutions where there have been Department investigations, State Attorneys General, federal/state regulators -- state regulatory investigations that have found similar evidence of illegal activity. 

In addition, the Committee's agenda must include creating a new category of forbearance.

Currently, when borrowers apply for defense to repayment under the Corinthian outlines, they're automatically placed in administrative forbearance, but they still accumulate interest.

I am proposing that the agenda include the creation of a new category where not only are repayments frozen, but that interest accrual is frozen as well until the Department makes a decision about their application.

And finally -- as mentioned earlier by Lauren -- I believe that false certification regulations should also be included in the agenda, but most of all I just want to ask the Department to accelerate the debt discharge process for Corinthian borrowers.

I understand that, you know, this is perhaps something that you don't have a huge amount of experience with -- although I do know that there have been people who have applied for this in the past and been wrongfully denied --- but the fact of the matter is that borrowers are facing real world consequences while the Department continues to slow walk this process. 

And one example of this is Pamela Hunt.  She cannot get a mortgage due to the high level of Corinthian debt that she holds.  And as a result, she is facing eviction because her landlord walked away from her rental property.

She's tried to get a mortgage to buy her home; it has a ramp for her wheelchair-bound child who has extreme disabilities.

She can't get a mortgage because of all this debt.  And the loan officer essentially told her if you can, you know, ensure me that this debt will be cancelled, I can give you a mortgage, but she asked the Department for a deferral letter, and the Department was not able to help her.

Her example is just one of thousands.  The Department has a big opportunity here to make things right for these borrowers victimized by these schools -- schools that the Department itself failed to effectively oversee for so long, and I sincerely hope that you take it. Thank you.

MS. MAHAFFIE:  Thank you.

(Applause.)

MS. MAHAFFIE:  Jason Glick.

MR. GLICK:  Good morning.  My name is Jason Glick, and I'm an attorney at the New York Legal Assistance Group.

I'll focus my brief comments this morning on my experiences representing low income clients who attended one predatory, for-profit school --- Sanford-Brown, or SBI.

As the Department is well aware, the New York Attorney General's Office has already found that SBI's parent company engaged in a systematic pattern of making false and deceptive representations in violation of New York law.

Among other clients, my colleagues and I represent two borrowers -- Yvette Colon and Tina Carr -- each of whom submitted written defenses to repayment in March and whose experiences I share with their permission.  Their own experiences closely match the Attorney General's overall findings.

Ms. Colon chose SBI to study cardiac ultrasound specifically because school representatives claimed -- flat out falsely --- that the school was programmatically accredited.

Ineligible to work in her field of study without a degree from an accredited institution, she now works in a very similar job as she held before attending SBI.

Ms. Carr enrolled based on SBI's representations of job placement rates of upwards of 80 percent.

In fact, SBI later disclosed to the New York Attorney General that the actual placement rate at that campus was only 26.1 percent.  And despite a 4.0 GPA, notwithstanding a period of homelessness that she experienced during her studies and undertaking a diligent job search, Ms. Carr remains underemployed in a low income retail job.

In light of our clients' experiences, I make four basic points.  First, the Department must develop a meaningful process for granting group based relief to eligible borrowers without requiring individual applications.

Second, where individual applications are necessary, the Department's procedures must be accessible and transparent. 

Third, the Department cannot delay any further in providing FFEL and other borrowers meaningful relief under the provisions applicable to those loan programs.

And finally, the Department should revise the unduly narrow false certification regulations.

So, point one, like the Attorney General of New York's Office, several other state and federal law enforcement agencies have made findings regarding specific schools' misconduct.

These agencies have already done the Department's legwork and have already indicated their eagerness to work with the Department.

The Department should proactively identify eligible borrowers and grant relief.  It's simply redundant to ask borrowers to come forth one-by-one.

Second, absent group based findings, the Department should develop accessible forms for borrowers to use.

In my experience, it is unreasonable to expect borrowers to use legal terminology to describe the harms they have suffered coextensive with all of the elements of a cause of action.

Instead, the Department's form should prompt borrowers by asking whether applicants experience the specific kinds of predatory practices that are well documented, for instance, in the Senate HELP Report and elsewhere.

Similarly, the Department should provide clear and accurate information to borrowers about their rights throughout the process.  Unfortunately, my clients have not fared so well.  

For example, despite Ms. Carr's outstanding borrower defense, which should have stopped collection, the Department caused Ms. Carr to be sent a Treasury Offset Notice this past July, which Ms. Carr explains was "devastating."

"It's like they were hitting me when I was down instead of offering any solutions.  I feel like I'm at the bottom of the barrel now just struggling to survive, and they're looking to make things worse for me rather than giving me some relief.  The process so far makes me lose confidence that the Department is on top of the rules and understands the problems, that they've actually thought about how their actions --- that they've actually thought about their actions and how they're going to affect me on a personal level.  Not only that, but the Department knew what it was doing from the beginning when they let Sanford-Brown participate in the programs."

Third, it's simply unconscionable for the Department to further delay relief to FFEL and other borrowers.

The New York Attorney General's findings apply equally to Ms. Carr and Ms. Colon.  They suffered similar harm in the same time period, but one has FFEL loans and the other Direct.  To treat them differently is absurd.

When I explained to Ms. Colon the limited scope of the Department's recent rulemaking notice and after she reviewed relevant background documents, she responded to me, "When I look at the history of the regulations, I don't understand why the Department doesn't see what I see.  Borrowers like me have had these rights since at least 1992.  We can't wait any longer for the Department to take action.  Our rights should have been resolved long ago.  It adds insult to injury that our rights aren't even on the agenda.  Between the schools and the Department, there is an endless cycle of nobody taking responsibility."

And finally, the Department should take the opportunities to clarify that the false certification statute also extends beyond its current scope in the regulations, for instance, to false certification a borrower's ability to benefit when the school lacked programmatic accreditation necessary for graduates to obtain licenses to work in their field of study, such as in Ms. Colon's case.  Thank you for the opportunity to submit these comments this morning.

MS. MAHAFFIE:  Thank you.

Elizabeth Baylor.

MS. BAYLOR:  Thank you for inviting me or having me present today. I'm Elizabeth Baylor; I'm Director of Postsecondary Education at Center for American Progress.  

Today, I'm going to describe three elements that I believe will improve the repayment --- the defense to repayment negotiated rulemaking.

First is expanding eligibility to relief for all student loan borrowers, not just those who have Direct loans.

Consider ways to protect students and taxpayers up front rather than expecting to recover dollars on the back end when a collapse happens.

And finally, making sure that the process is borrower friendly and does not require hurdles that are hard for students to overcome.

First, expanding loan eligibility should --- all loans should be included, including FFEL loans and Perkins loans.

The federal aid programs are backed by the United States Government equally, and they have nearly identical terms.  So, there's no reason to draw distinctions between them.

Moreover, whether a student has Direct loans or FFEL loans is really a function of when they enrolled in a school.  And so, the possibility of fraud has nothing really to do with the loan program.

And also, determining these defense to repayment regulations is sort of a unique opportunity to sort of --- to clean up the abuses that happened with the boom of enrollment that was associated with the economic downturn, and I think it's time to include all loans.

One of the things that's really important is that the enrollment hit its peak in 2008 and 2009 --- 2008-09 and 2009-10 school years, which coincided with the last two years of FFEL loans.

And finally, there's precedence for this authority.  In 1995, when the Department first initiated this topic, they included FFEL loans at the outset.

The second topic is holding institutions accountable to recover funds.  One of the issues to balance in defense to repayment is those of the interest of students and taxpayers, but, one, it's time to start considering the other actor in the mill, which is institutions.

As a student is released from his or her obligation to repay because of the actions of an institution, the government should be able to recoup funds from the institution.  But as recent history suggests, it's really difficult.

The bankruptcy judge for the Corinthian case just set aside $4 million to discharge student loans, but at its peak in 2009-10, Corinthian enrolled 225,000 students.  $4 million won't go very far.

One possibility would be to require --- for the panel to consider how institutions could reserve funds at the outset that can be recovered in the event of fraud or collapse.  The requirement could be achieved by posting a deposit or borrowing a line of credit.

In short, I think the panel should figure out a way to make institutions accountable in a way that protects students from the risks of the system. 

And finally, the issue of defense to repayment being borrower friendly.  The panel should explore more ways to streamline the discharge process where evidence is warranted to make sure that students receive the relief they deserve.

While student borrowers well know the burden of repaying a loan, they are often less knowledgeable about how to mount a defense to repayment.

Students should be not held to a standard of expertise that would be expected of a legal counsel.

A successful defense to repayment should not be contingent on key words or terms that a student is required to include in a narrative about their interaction with a college.  That would be a difficult standard to get exactly right if a student is uninformed about the fraud case.

For example, it would be problematic to hang a discharge on whether or not a student documented that a specific placement rate was cited.

A more reasonable standard would be to take the student's word for it that they felt pressured, misled or lied to when the Department knows that an institution was engaging in predatory practices.

And finally, many of the borrowers who attended schools who commit fraud or engage in deceptive practices are the very people whose lives make it difficult for them to know about their rights or to mount the defense.

So, the Department and the rulemaking panel should take those factors into account and help them to be applied equally.  So, thank you very much.

MS. MAHAFFIE:  Dan Reighard.

MR. REIGHARD:  Hi.  My name is Dan Reighard.  I'm going to speak to you a little bit about my education through the Art Institute and my experiences now.

So, I attended a for-profit school at the Art Institute of Philadelphia, or AIPH -- owned by Education Management Corporation, or the EDMC -- from 2008 to 2011 for visual effects and motion graphics.  So, I'm an artist.  I pursued the motion graphics side of my degree.

As a student at the AIPH, my time there was very disappointing.  The teachers there were pretty unprofessional; they were supposed to be industry professionals, but some of them weren't, really.

Some professionals were learning the subjects as they --- at the same time that they were teaching them, but much what I learned was self-taught through like the lynda.com series of tutorials and stuff.

The general education classes there, too, were geared towards more of like an art student.  So, they weren't to the caliber of what they should be for a college.

And then I graduated with a 3.7, but that being said, I attained that through a lot of my teaching myself and my past degree in graphic design, too.

The financial advisors that I had at AIPH were pretty rude to me.  Every time I went into the office, you know, she never really wanted to explain things to me; it was like getting in there and out of there real quick.

She wouldn't really explain to me like the loans that I had and where they were being processed; it was really just how much money I needed to graduate.

And at my last quarter of school, they told me I ran out of funds.  So, I would have never graduated, but fortunately I was able to scrape up some money and graduate school.

Now, I'm about $130,000 worth of debt with this.  And I'm on an income based repayment plan.  So, it's going to take up to 25 years; I'm 33 right now, so it's going to be a very long time.

My school loan payments are $1,200 a month.  I struggle all the time for money to pay my bills and to even, you know, put food on the table.

And the education I received was not worth the $89,000 worth, you know, what they claimed that it should be.

At the time of enrollment at AIPH, the estimated salary for a person like me for visual effects and motion graphics was $29,724.  I have no idea how somebody would be able to have that type of salary and, you know, pay $1,200 a month in school loans.  It's pretty poor.

I worked very hard for my degree, my past degree and my current one, not through the Art Institute.  I'm a person that works very hard at everything I do, and I'm not a slacker by any means, but put yourself in the shoes of these people that have gone for for-profit classes and schools, you know.  People that give it all and then, you know, some are told that they can't graduate because they don't have enough money to graduate through funds and, you know, scholarships, or they're in debt $100,000 worth.

The debt, you know, it's crazy.  These people are financially in debt for more than half their lives, struggle with mounds of debt, living paycheck to paycheck, you know.

They can't even save up for retirement, which I'm kind of in that case right now, too.

So, how do you feel to get a degree from an institute and, you know, they failed miserably at giving you a proper education, but now you're in this big mound of debt?

So, in 2011 the Department of Education, of course they had brought lawsuits against the EDMC, stating that EDMC was not eligible for $11 billion in state and federal financial aid that they received in 2003 and 2011.

And in 2014, 12 states filed documents with the U.S. Securities and Exchange Commission, looking into EDMC's practices related to recruitment of students, admission standards, graduate placement statistics, graduate certifications and licensing results, and student lending activities.

How can you allow these schools to operate like this, you know?  For me, I don't think that that's something -- you know, it's something that should be taken into consideration and something be done to it.  So, they're just taking advantage of people and making money off of it.

I worked very hard, like I said, for my education, and I thought it would help me, but, in turn, it financially hurt me.  I'm in so much debt now.

So, if you knew what I --- if I knew what I know now and the amount of debt ratio that I have gone through and the poor quality of education that I received from the Art Institute, I would have never went, you know.

I got a great education from Pittsburgh Technical Institute, but the Art Institute fell really short.  So, thank you for your time.

MR. APPEL:  Thank you.

(Applause.)

MS. MAHAFFIE:  Thank you.  And I apologize for mispronouncing your name.

MR. REIGHARD:  Oh, that's okay; it happens all the time.

MS. MAHAFFIE:  Maggie Thompson.

MS. THOMPSON:  Hello.  My name is Maggie Thompson; I am the campaign manager for Higher Ed, Not Debt.  We are a multi-year, multi-organization effort dedicated to student loan borrowers and fixing the student debt crisis in this country.  Thank you so much for the opportunity for us to give feedback on this issue.  

At Higher Ed, Not Debt, we've heard from just approaching 9,000 students that have attended for-profit colleges.

The majority of these students have shared their stories with us, and all of them have demanded a refund from their school and want to have their federal benefits restored.  So, I'm here speaking on behalf of them.

The students that we hear from came from several different schools across the for-profit sector, including Corinthian Colleges, ITT Tech, DeVry University, EDMC and others.

The federal loan forgiveness process being initiated with this rulemaking is critical to making students that have been victims of fraud or misrepresentations by their school whole.  

These students will never get their time back or other funds that they sunk into these schools, but we at least owe them a chance to have their federal benefits restored in full, so they can attend a school that will allow them to realize their aspirations and dreams.

From a student perspective, I think the most important thing that we want out of this rulemaking process is that this process not place the burden for loan forgiveness on the individual borrowers.

We think that having, you know, the most important part of our forgiveness program is that this should be class based and automatic and opt out, rather than an opt in process for students.  So, just echoing the testimony of our fellow advocates.

So, you know, one of the things that I would really applaud the Department and the Federal Government for was the way that the loan forgiveness for the private Corinthian Genesis loans was structured.

That was an automatic loan forgiveness program; the burden wasn't on students to have those loans forgiven.  And as close as we can get to that in this process, that's something that we, as advocates hearing from students, just know it makes all the difference in the world, you know.

Requiring students to apply, not only does that offer a burden to students, it may stop them from taking advantage of this program.

As several other commenters have noted, these students are often financially stressed and don't understand exactly what benefits they're eligible for.

We also are concerned that placing an application process that may be burdensome in place here may offer another chance for unscrupulous debt companies to take advantage of students yet again, you know. 

We've worked with students who, for example, don't know about their options for income driven repayment, public loan forgiveness or loan rehabilitation.

Many of these students have been taken advantage of by debt relief companies promising lower payments and loan forgiveness for a fee, you know.

Setting up an application process through this rulemaking, potentially if it's not a student friendly process, opens yet another means of fraud for these companies to sign borrowers up for free programs that they're entitled to.

We see the ads on social media every day, and this is something that's impacted my family.

My brother-in-law attended the Universal Technical Institute and has been struggling with his debt from that institution for years.

His Facebook was bombarded with ads by debt relief companies, and he was receiving calls on his personal cell phone.  And, you know, not everyone happens to have a sister-in-law that works on student debt issues, but we were able to get him signed up for an income driven repayment program at no cost successfully, but I know not everyone has those resources.

So, you know, we would just really encourage you, not only because it would remove barriers for students, but also because I know the Department has done great work and the secretary has spoken out against these companies.  We want to make sure that there's not another opportunity for fraud here.

As you're designing this system through this rulemaking process --- to echo just the comments of some of our partners -- we'd also encourage you to make all loans, including FFEL, Perkins and student consolidated loans part of this process.  And we also don't think there should be a time limit on this, you know.

We've heard from several students who are still struggling with debt that they took out as far back as the 1980s to attend some of these unscrupulous schools, and we would encourage you to make them whole through this process as well.

This rulemaking should also ensure that the schools, you know, have a piece of this process and that deceptive schools are responsible for paying at least part of the loan forgiveness.

They shouldn't be solely responsible.  I think that, you know, if they don't have the money, there still needs to be funds available to refund students.  But schools, as noted earlier by Elizabeth Baylor, should share some of the risk here.

We also believe strongly that the executives and board members of some of these deceptive schools should not then be allowed to serve in leadership positions at other institutions that are receiving title IV funds.

We think that it's important that if a board member or president of a college that engaged in fraud, and that fraud was found to be legitimate, wants to move to another school, that that's not something that is allowed.  And we'd very much appreciate you addressing that in this process.

And lastly, we'd encourage you to think about other issues to include in this rulemaking that we see that impact students that would be potentially applying for this process, including CDR manipulation and 90/10 rule manipulation; that we often see these schools engaging in.

And lastly, for the rulemaking process itself, I'd like to echo the call made by Alexis Goldstein and Jessica King and several of our partners to increase the representation of students and borrowers on this panel, as they are the ones that are most impacted by this and I think will have very helpful insight about how to design a process that's easy for students and borrowers to apply for that can be implemented effectively.  And thank you so much for the opportunity to testify today.

MS. MAHAFFIE:  Thank you.

(Applause.)

MS. MAHAFFIE:  Charlotte Hancock.

MS. HANCOCK:  Hi.  Good morning.  My name is Charlotte Hancock; I'm the Digital Director for Higher Ed, Not Debt, a multi-year, multi-organization effort to address the issue of student debt.  Thank you for the opportunity to give feedback this morning.

As my colleague Maggie noted, at Higher Ed, Not Debt we have heard from almost 9,000 students who have attended for-profit colleges. The majority of these students shared their stories with us, and all have demanded a refund from their school.

These stories run anywhere from five sentences to 4,000 words.  They take place at schools from the 1980s through present day, and they are nothing less than heartbreaking.

The students we hear from came almost exclusively from for-profit schools like Corinthian Colleges, ITT Tech, DeVry University, EDMC and the University of Phoenix.

The Federal loan forgiveness process is critical to restoring students who have been victims of fraud by their school.

The students we hear from are financially stressed and often struggling with defaulted loans, a worthless degree or debt from a degree that they were unable to complete from a dishonest institution.

Among the four things we hear most commonly from students are: first, that students were misled on their job prospects.

For example, a former ITT Tech student in Indianapolis was told by the school that they would help him find a job.  They haven't, and he is currently working for barely above minimum wage while paying child support, rent and his car payments.  Repaying his student loans is not even an option.

The second thing we often hear from students is that they were misled on the cost of their education and how much of their education would be covered by loans versus grants.

A University of Phoenix student we heard from in Virginia says the school was never clear on what she would have to repay and what was a grant.

She was only two classes into her bachelor's degree, but Phoenix told her she has maxed out her lifetime eligibility for grants after promising her otherwise.

The third thing we often hear from students is that they were misled about the quality of programs.

A former student at the Illinois Institute of Art said, "In the end, the institute got exactly what it wanted --- to reel in a young and hopeful high school student with all the promises for the future.  At 18, we were blindfolded and signed over our lives without truly understanding what we were doing."

The fourth thing we often hear from students is that they were lied to about their eligibility to qualify for certain jobs.

One woman in Montgomery, Alabama was promised she could become a nurse, despite telling the school she had a felony conviction.

She spent three years at the school, now has $60,000 in debt, and cannot be employed as a nurse due to the felony the school promised her would not be an issue.

These students have been through enough without now being required to complete an arduous application process that may be difficult for them to use or requires them as individuals to prove fraud.  The majority of the students we hear from lack the legal and financial means to do so.

How is Cassandra in Illinois supposed to get her money back with an application?  Cassandra says, "When I enrolled at ITT Tech, I was 16.  They told me I had to join then because the school was about to start, and they wanted everything done.  When I turned 18, I dropped out because it was hard with a job and two kids.  They are charging me over $19,000; I do not have the money.  I am on food stamps; my power and water have been shut off."

Cassandra does not have the time to fill out a complicated application or get it to a fax machine.  She does not have the money to hire a lawyer to help her with this.

These schools preyed on people's aspirations.  And the Department, through this process, does have the opportunity to at least help make them whole again.

As Payton from Daphne, Alabama told us, "I was so excited to enroll at ITT because I never thought I'd be able to go to college.  But because ITT didn't deliver what it promised, I don't have a job in my field, and I can't afford my loans."

First generation students like Payton should be made whole through this rulemaking.  Thank you again for the time to talk with you.

MS. MAHAFFIE:  Thank you.

(Applause.)

MS. MAHAFFIE:  Mike Firestone.

MR. FIRESTONE:  Good morning.  My name is Michael Firestone; I'm an Assistant Attorney General in the Office of the Massachusetts Attorney General.

On behalf of Attorney General Maura Healey, thank you for inviting us to participate today.

Over the past several years, the Massachusetts Attorney General's Office has made addressing fraud and abuse of student borrowers by for-profit schools a key priority.  As a result of this dedication of resources, we have already achieved significant relief for affected students.

On July 30th, we announced settlements with Lincoln Technical Institute and Kaplan Career Institute, totaling $2.3 million, to pay down student loan debts.

We have reached settlements with two additional for-profit school --, Sullivan and Cogliano, and Salter College -- worth an additional $4 million, every dollar of which went to defrauded students.

In each case, our office documented outrageous misconduct and egregious violations of our state law by these schools.

Time and again we came across students who, while seeking new opportunities for themselves and their families, were lured into programs that promised employment assistance, jobs and higher earnings. But far too often, these programs left students with little to show for their efforts except unaffordable debt.

We are currently in litigation with Corinthian Colleges and American Career Institute for alleged unfair and deceptive practices that fit the same troubling pattern.

As you all know, Attorneys General across the country are engaged in similar litigation on behalf of their students.

This experience puts us in a unique position to provide the Department with insight into these matters.

We also note that our enforcement efforts will not be enough to provide all of these students who have been taken advantage of with the relief they deserve, particularly where the schools have emptied their coffers.

That's where the Department's efforts are so crucial, and we want to be a partner in that process.

We have extensive experience overseeing complex claims processes and providing extensive relief to consumers in our states, including consumers who may not even know they were victims of illegal conduct until a check from our office arrives in the mail.

In a letter from 11 Attorneys Generals' offices on August 18th, we raised several concerns that we urged the Department to consider, both as it convenes the negotiated rulemaking process, and now as it uses its existing authority to grant relief.

We urge the Department to establish simple processes for impacted students to seek relief to which they are entitled by law and by contract.

While many students fell victim to these schools, the Department and others in the room well recognize they are in a poor position to prove that their schools violated state law.

For this reason, we ask that the Department provide a process by which the loans of entire cohorts of students may be discharged as a group.

Applications could be made by law enforcement agencies of the federal or state government, including State Attorneys General.

We believe the Department should rely on conclusions and investigative findings reached by State Attorneys General regarding state law violations and provide discharges without requiring individual students to make a submission to the Department.

To require such replications would be inefficient, unduly burdensome and unfair to students involved.  It would erect a barrier to recovery that will harm those most in need of the relief they are owed.

Just last week, our office was pleased to host the Special Master and several representatives from the Department at an event in Boston at which students from the Everest Institute in Brighton -- a Corinthian campus -- worked with mediators and attorneys from our office to apply for loan discharges.

We plan to submit more than 60 affidavits from those students and their discharge applications to the Department in the coming weeks, along with our own investigative findings, which are the basis for our lawsuit against Corinthian.

We are hopeful for these students.  Their rights under Massachusetts law were violated by a school that broke the law to enrich itself at the expense of those students.

They are legally entitled to have their loans discharged.  But we also speak for the students who did not attend, and there are hundreds.

In total, our office spent more than 300 hours training our mediators and attorneys, compiling lists of impacted students, mailing, calling and emailing those students, and assisting those who attended.

We spent hundreds more hours investigating the Everest Institute and developing those claims.  Still, we were only able to bring a fraction of the cohort to the event that evening. 

If the Department relies on our extensive investigative findings, examines our evidence, reads these dozens of testimonials from students, then relief should not be limited to the students who attended alone.

Relief must not be limited just to those who can hire a lawyer or those who know the magic words about placement rates to communicate in an attestation.  It cannot be limited to those for whom we could find a current phone number.

We urge the Department to exercise its existing authority in ways that extend relief to all those for whom the case has been made whether they make it themselves or rely on others to do so.

Ultimately, this is about accountability.  This is happening jointly on our watch.

We need a robust process through which the Department makes good on the bargain it has struck with students, the bargain expressed clearly in their promissory notes.

These students are counting on us to enforce the law and fight for them.  The Massachusetts Attorney General's Office and our colleagues in law enforcement across the country are committed to that important work.  Thank you.

MS. MAHAFFIE:  Thank you.

(Applause.)

MS. MAHAFFIE:  Daniel Jones.

MR. JONES:  Hello, everyone.  My name is Daniel Jones.  I am a former student at ITT Technical Institute and I am here to speak about my experience at the school.

I am 20 years old and grew up in Ohio and South Carolina.  I enrolled in ITT Tech in Hanover, Maryland one year ago pursuing an Associate's degree in Network Systems Administration.

I attended the school on my father's post-9/11 GI Bill benefits.  He's been in the United States Army for over 32 years and has worked very hard to ensure that me and my sister could have a top notch education.

I had perfect attendance and GPA during my time at ITT Tech and a huge desire to learn, but I quit ITT Tech one week ago in search for a more credible school and I need help.

I quit for three reasons.  One, when I was enrolled, the IT chairman told me and other students at the orientation that if I successfully completed the program, I would be able to start work as a network systems administrator.

My salary upon graduation will be between 80 to a hundred thousand dollars annually.

I found out how impossible this was later on by speaking to professionals in the field.  They will tell you that it takes years of experience and a number of certifications to become even a network administrator.

The school misled me not only about my job prospects, but also what I would learn from an ITT Tech education.

Two, the school did not provide the time or resources to properly educate us.  Professors did not follow student policy on submitting assignments, which often resulted in lost work or delayed grades causing us to receive no credit in the grade book until we complained about it.

This makes it difficult for one to measure how they were doing in the course.  It just seems they have this particular proclivity for procrastination.

We also weren't given the opportunity to have the real hands-on experience that they promised in networking.  All of the hands-on they did provide was virtualized.

The school does not fund the equipment needed for us to develop the skills we need.  The business model for a virtual library is efficient for the company, but not applicable for the students.

Three, there was not a professional learning atmosphere for students and there was not any feedback given when problem with our classes or instructors were brought to our attention.

Any information on what was done in conjunction with any concerns was considered against policy and not any of the student's business.

The director did not want to discuss any details with me on the collective problems I brought to their attention and insisted it wasn't my place as a student.

I would like to apply to Carnegie Mellon University in Pittsburgh, Pennsylvania, but I no longer have the financial resources to do so.

I have a long road ahead of me, but it's an impossible road for me without the GI Bill money my father worked for.

Here are my three reasons:  One, ITT Tech students don't have the money for lawyers or the insight or knowledge to get their money back.  Getting back the money that is rightfully mine so that I can go to a more credible school should be fast and easy.

Students should have a free and easy process to change their education when they have been taken advantage of due to their financial situation.

Just like if I had purchased something and wasn't satisfied with it due to misleading advertisement, then I would give a valid reason and expect a refund.  We should have this choice.

Two, ITT Tech took 11 months of full benefits from the GI Bill for a program that I found out would not get me where it promised.

I would like to use that money at a school that can get me a real career I can work for.

Three, I need the GI Bill money to take a prerequisite Physics class for Carnegie Mellon before I can even apply.  Without that money I cannot afford the prerequisites.

I am currently pursuing a career in computer science and forensic and information systems.  I have an overextending passion for learning everything that I can with the time that I have.

My benefits should be restored along with all other students that have not just lost their benefits, but years of their life to these predatory schools.

I hold with me the most honest intentions for our students here in America and I hope justice will be served to those who have earned it.  Thank you.

(Applause.)

MS. MAHAFFIE:  Jessica Morales.

MS. MORALES:  Good morning.  My name is Jessica Morales and I am Policy Advocate at Generation Progress.

Generation Progress is a national organization dedicated to working with and for young people to promote effective solutions to political and social challenges.  Thank you for the opportunity to provide a comment today.

In today's society, having a degree is essential for economic stability and growth.  We all know this.

It is for this reason that so many students are doing the right thing and choosing to pursue a higher education.

Unfortunately, as we have seen lawsuit after lawsuit filed by States Attorneys General and schools begin to close, we know that there are too many bad actors in the for-profit education industry.

And too often it is the individuals who are financially unstable, including those who work one or multiple full-time jobs, are former service members and their families, have a family to care for or face other financial and time consuming obligations that are targeted by for-profit colleges and are subjected to these deceptive practices.

Together Generation Progress and our Higher Ed, Not Debt campaign have received stories from almost 9,000 borrowers who have been harmed by for-profit colleges.  Most of whom did not receive a valuable education or degree and are left with crippling amounts of student loan debt.  

Unfortunately, these stories of abuses and fraud are not isolated incidents.  Federal and state agencies have investigated and proven numerous for-profit institutions guilty of illegal and fraudulent practices.

There are still a multitude of lawsuits by States Attorneys General moving forward.  The harm that for-profit colleges cause is not going to end any time soon.

Through these negotiations, the Department has the opportunity to establish regulations that will hold bad actor schools accountable and provide restitution to all borrowers who fell victim to these industries because of the lack of oversight.

Most importantly, students must come first in this process moving forward, not schools, not lenders or servicers, but students and borrowers who are doing the right thing in pursuing their higher education, but were intentionally targeted for their financial aid and deceived in the process.

The Department should use the negotiated rulemaking to assist and protect students by granting automatic class based discharge.

If a school is closed or shutting down, or if a school has been under investigation, all students should have their loans discharged without needing to go through a tenuous and difficult process of applying for the discharge.

As we have seen with the neg regs and things like that, the student loan repayment is already difficult.

Current forms and procedures for relief include far too many barriers and hoops to jump through for vulnerable populations deserving, and rightfully so, of restitution.

Additionally, the Department should ensure that all Federal loans are eligible for discharge; these include the FFEL loans, Perkins, Direct and consolidated loans, regardless of when loans were issued.

For-profit institutions have hurt and continue to harm students.  These practices are not constrained by time.

It is also important that the Department establish regulations that will expedite these cases so that borrowers receive timely relief and are no longer crippled by their debt.

As an organization that works with and for students, we believe that the most valuable information against these for-profit institutions has come from borrowers' experiences.

It is for this reason that we believe the Department should establish the aforementioned points as well as continue to engage borrowers who have been harmed by for-profit colleges and use their experiences to guide effective and strict regulatory oversight over these institutions.

Additionally, because borrowers are the ones that have to go through this process and jump through all these hoops, the Department should create a borrower slot as part of the Negotiating Rulemaking Committee.

I know that others have mentioned possibly more slots.  But, if anything, at least one.

We appreciate this opportunity to voice our recommendations and we look for a continued collaboration.  Thank you for your consideration.

MS. MAHAFFIE:  Thank you.

(Applause.)

MS. MAHAFFIE:  Reid Setzer.

MR. SETZER: Good morning.  My name is Reid Setzer.  I am the Policy and Legislative Affairs Analyst at Young Invincibles, which is a national nonprofit dedicated to expanding economic opportunity for young people.

Thank the Department today for giving us the opportunity to testify on how it can assist student loan borrowers who attended failing schools.

For the past several years Young Invincibles has commented publicly on the dismal outcomes generated by and the predatory behavior of some poorly performing for-profit institutions.

We've spoken to and heard from thousands of student loan borrowers across the country.  Many of whom are left with mountains of debt, worthless degrees and limited job prospects, including borrowers who went to schools owned by Corinthian Colleges.

In light of the collapse of Corinthian, we are heartened by the Department's willingness to solicit comment on how it can minimize the burdens of seeking relief placed upon student borrowers.

Creating a process that is straightforward, accessible and simple for borrowers is tremendously important for assisting those impacted by Corinthian's failure, but also for future claims against other bad actors within the industry.

Young Invincibles recommends the following regarding the establishment of a defense to repayment process to ensure that it is accessible, understandable and protects borrowers victimized by unscrupulous actors in the higher education space:  One, the Department should use existing findings to grant automatic group relief to borrowers.

The Department has the power to grant automatic relief to groups of students when there is substantial evidence that the institution has engaged in a pattern of misconduct and/or fraud.

Young Invincibles supported group relief for a large percentage of students who attended Heald College and would support a similar process during the upcoming negotiated rulemaking.

There must also be a uniform Federal legal standard that is construed in favor of the borrower.

The Department should finish their investigations on non-Heald campuses before making a final determination if those students at those campuses are eligible for group discharge.

All claims should be granted if they are sufficient to establish a defense to repayment under Federal or state law barring substantial evidence to the contrary.

Two, the application and processes for relief should be as simple, direct and streamlined as possible with little burden placed on struggling borrowers.

Any general application form and the process surrounding it should contain the following characteristics:  All Federal student loans of any type should be eligible for discharge through the application process.

The Department has a commitment to offer relief to victimized borrowers regardless of the type of loan.

The application should also be simple and clear.  The burden of reporting information on borrowers should be minimal.

There should be no legal expertise required on the part of the borrower and the application should use plain language whenever possible.

Borrowers should also not be required to produce written proof of fraud as many describe similar verbal recruitment techniques that were misleading and deceptive.

Verbal misrepresentations are actionable under state law and sworn complaints describing verbal communication should be considered as valid as complaints with written proof.

Students were discouraged by some of their institutions from keeping records, and the Department should have internal records that are sufficient to verify students' sworn complaints.

This Department should make one single, universal form for borrowers instead of several state specific forms wherever possible.

Three, where relief is granted it should be comprehensive relief.  Federal regulations allow the secretary provide further relief to borrowers as appropriate under the circumstances.

Corinthian Colleges and many like it leave tens of thousands of borrower students in worse educational and financial shape than when they found them.

We ask the Department to provide comprehensive relief to students including tax re-forgiveness of student debt, reinstatement of Pell grant and GI Bill benefit eligibility and extension of full relief to both consolidated and unconsolidated loans.

Defense to repayment claims are successful in the illegal conduct of an institution results in a finding that the student borrower was never liable for the debt when it was first issued.

The taxation of that forgiven amount is a financial hardship for most of the borrowers in question, some of which are on limited incomes.

The point of the process is for borrower victims to be made whole again.  And burdening those borrowers with additional tax liability effectively punishes those borrowers for being victimized by unscrupulous for-profit actors.

There is also U.S. Tax Court precedent that debt discharge from contested liability is not taxable income.  The Department should do all it can to prevent taxation in this instance.

Another extremely salient issue that we've heard a lot about for students that have been victimized by fraud and misrepresentations is the loss of their Pell Grant and GI Bill eligibility.

The Department should reinstate Pell Grant eligibility and waive the 36-month limit for military educational benefits if they determine it is in their power.  If not, they should work with the appropriate agencies in Congress to do so.

Reinstating these benefits is a crucial step to making borrowers whole again and allowing them to pursue higher education.

Finally, borrowers should be entitled to full relief through defense to repayment claims for consolidated and unconsolidated loans.

Borrowers with consolidated loans to make unwieldy payments more manageable should have the same rights as any borrower seeking redress under defense to repayment.

Young Invincibles looks forward to working with the Department and the Administration as it moves forward with plans to assist students who attended failing schools and ensure they receive the full relief that they deserve.  Thank you very much.

(Applause.)

MS. MAHAFFIE:  Amy Harfeld.

MS. HARFELD:  Good morning and thank you for the opportunity to be heard this morning on this important issue.  

My name is Amy Harfeld and I serve as the National Policy Director for the Children's Advocacy Institute.

CAI is part of the University of San Diego School of Law, a nonprofit academic research and advocacy organization working to improve the lives of children and youth with special emphasis on improving the child protection system, foster care systems and enhancing resources available to youth aging out of foster care.

Since 2008 when the Federal Fostering Connection to Success and Increasing Adoptions Act was enacted, 33 states across the nation had taken steps to implement this ground breaking legislation extending foster care on an opt-in basis for youth beyond 18 in hopes of improving outcomes for older foster youth as they transition out of care.

Fostering Connections was intended to better prepare foster youth who were not adopted to age out with the skills and education needed to secure gainful employment and become self-sufficient citizens.

In part, this law came about because of statistics showing abysmal educational outcomes for this population.

We know that nearly a quarter of youth who age out of foster care at 18 have neither a high school diploma nor a GED.

Less than four percent of foster youth ever received a two-year degree, and only 2.5 percent receive a four-year degree.

In order to be eligible for funds under Fostering Connections, youth must either be completing their secondary education or enrolled in an institution which provides postsecondary or vocational education or removes barriers to employment.

This requirement makes these youth particularly attractive targets for private for-profit colleges.

And former foster youth are particularly vulnerable to harm in other ways.  Given the realities of foster care, most of these students have struggled in high school due to the tumult and trauma inherent in foster care experience.

Unfortunately, this often makes it difficult for them to get into or complete a matriculation process for a more traditional private or nonprofit college.  And obviously, most foster youth lack the familial support enjoyed by most of their peers.

When they are defrauded by unscrupulous colleges, they have nobody to turn to, to bail them out and no well to go back to for continued financial support for their education.

This group of young people estimated to be over 23,000 annually has exclusive access to Chafee Independent Living Funds, Education and Training Voucher Funds and other dedicated streams of Federal and state financial aid.

Generally these funding sources are exempt from the 90/10 rule and are intended to ensure educational access and eventually to help provide financial self-sufficiency.

As it currently stands, once these sources of funding are exhausted, there is no mechanism to restore them.

Debt relief or loan discharge for the students victimized by these unscrupulous colleges should incorporate restitution of Federal monies paid from limited and critical specialized streams such as these to vulnerable youth such as former foster youth whose lives turn on attaining a sound education.

Students who use these funds for a school like ITT Tech and others that have folded, should have those funds replenished to be used at a legitimate postsecondary education institution that can actually help them secure a good job.

In addition, we must hire and train advocates to locate and assist students with restitution.

The type of student targeted by this industry faces unique challenges in resolving a long and complicated administrative process.

There are good reasons why for-profit colleges rely so heavily on helping these nontraditional students through the sometimes daunting application, registration and administrative paperwork.  

In order for restitution and debt relief to be most accessible and meaningful, there should be trained advocates assigned to assist victims through the process of accessing restitution.

These advocates should also work to break down barriers to students with unknown or unstable housing as is very common in this population, to ensure that proper notice is provided to these students and to assist them through the process.

While we sort out the parameters of relief for previously injured students, abuses continue every day as we continue to allow Federal dollars to be handed to predatory corporations who will commit the same harms again and again.

As we negotiate a fair and accessible process to help students that were already harmed, including current and former foster youth, we must also stem the tide of wrongdoing to prevent further abuses.  Thank you for your time.

MS. MAHAFFIE:  Thank you.

MR. APPEL:  Thank you.

(Applause.)

MS. MAHAFFIE:  We do not have anybody else scheduled between now and the break.  Is there anybody who has not had an opportunity to speak who would like to at this point?

(No comments.)

MS. MAHAFFIE:  Is there anybody who has already spoken who would like to come up again?

(No comments.)

MS. MAHAFFIE:  Hearing none, we will take a break beginning now.  We will come back at 10:40 and we do have somebody scheduled to speak at that time.  Thank you.

(Whereupon, the proceedings went off the record at 10:19 a.m. and went back on the record at 10:45 a.m.)

MS. MAHAFFIE:  Thank you and welcome back.

Pamela Banks.

MS. BANKS:  Yes.

MS. MAHAFFIE:  Thank you.

MS. BANKS:  Good morning, everyone.  My name is Pamela Banks and I am Senior Policy Counsel for Consumers Union, the policy and advocacy arm of Consumer Reports.

We appreciate the opportunity to testify in response to the Department's plans to convene a negotiated rulemaking committee that will address, among other things, procedures for asserting a defense to the repayment of Federal education loans.

We urge the Department to use this opportunity to ensure that students have meaningful access to recourse when schools made false promises and saddled them with debt for an uncertain future.

This rulemaking presents a crucial opportunity for the Department to help right the many, many wrongs that certain unscrupulous schools have inflicted upon college students.

We urge the Department to; one, apply class wide loan discharges for students whether evidence warrants it, consider a range of relevant evidence including, but not limited to, state and Federal enforcement actions or other findings, lawsuits and documented student complaints.

Two, allow discharges regardless of the type of Federal loan program and regardless of when the student borrowed.

Three, create a clear, simple process for students who wish to assert an individual defense to repayment.

The process should be standardized and easy to use.  Students should not need a lawyer to help them complete it.

Four, leave room for states to do more.  Nothing about the process the Department creates should preempt states that wish to provide additional relief to the students within their jurisdiction.

We also urge the Department to prevent unscrupulous schools from taking advantage of students and taxpayers by doing the following:  One, prevent manipulation of cohort defaults and evasion of the 90/10 rule.

Two, update regulations to expand access to loan discharges based on false certification or a closed school.  The Department has statutory authority to broaden access to relief beyond what is in current regulations.

Three, bend the inclusion of arbitration clauses in enrollment contracts.  Students deserve the right to have their day in court if schools mislead them or inflict other kinds of harm.

Four, monitor emerging issues in light of Corinthian Colleges' bankruptcy to ensure students do not experience further harm.

For example, the Department may want to consider requiring clear accounting of title IV funds held in trust for the Department and to be dispersed to students.

Fifth, explore any and all avenues to hold schools and their executives responsible for poor quality programs that saddle students with unfair debt.

All too many students in recent years have relied on the deceptive promises that some colleges, especially those in the not for-profit sector, have made about training and job prospects.

Relying on these promises, students have taken a significant debt to attempt such programs.

In light of the massive, unprecedented collapse of Corinthian Colleges, students are struggling to find an end to the harms they have experienced as a result of attending campuses that are now closing or being sold.

Meanwhile, students at other colleges are still experiencing similar abuses taking on onerous debt for questionable college programs.

The time is now to take action and stand up for students.  Thank you.

MS. MAHAFFIE:  Thank you.

MR. APPEL:  Thank you.

MS. MAHAFFIE:  Walter Ochinko.

MR.  OCHINKO:  My name is Walter Ochinko.  I'm the Policy Director for Veterans Education success.

We're a small nonprofit organization focused on protecting the integrity and promise of the GI Bill and other federal education programs for veterans and service members.

We appreciate the opportunity to share our perspective on the standards and procedures to assist veteran students directed by their colleges to obtain relief under the defense to repayment provision of the Higher Education Act.

I want to start by pointing out that veterans who are defrauded by for-profit colleges not only confront student loan debt and a reduced eligibility to obtain Pell Grants, but also the loss of some or all of their 36 months of eligibility for GI Bill benefits, a benefit that they've earned by service to their country.

Although the Education Department is to be commended for taking steps to forgive Federal student loans in such circumstances, currently the Department of Veterans Affairs believes that it lacks the authority to reinstate benefits when schools are found to have defrauded students, including veterans.

The for-profit school business model has not changed significantly since the introduction of the original GI Bill in 1944, which led to explosive growth in the number of for-profit trade schools, many created exclusively to serve veterans.

Some of these schools offered shoddy training at inflated costs to take advantage of the maximum amount covered by the GI Bill.

Over the next decade Congress enacted a series of requirements to address program vulnerabilities involving for-profit institutions.  By 1974 predatory practices by the for-profit sector were a national scandal.

In a now largely forgotten, but still extant statute, Congress directed VA to cut off veteran enrollment at any school that utilized advertising sales or enrollment practices of any type which were erroneous, deceptive, misleading either by actual statement, omission or intimation.

Lawmakers were concerned that for-profit schools broadened in the 1970s to encompass abuses of Federal student aid.   

By the early 1990s student loan default rates at for-profit schools were 41 percent compared to an overall rate of 22 percent.

Moreover, students were leaving for-profit institutions with poor schools and employment prospects and burdened with student loan debt.

In 1992, Congress established an 85/15 rule for Federal student aid.  That is no more than 85 percent of the school's -- for-profit school's revenue could come from title IV funds.

The ratio was changed to 90/10 in 1998 and subsequently Congress made it easier for schools to maintain compliance.

The findings of the 2012 U.S. Senate Health, Education, Labor and Pensions Committee report on for-profit schools might best be characterized as deja vu all over again.

The committee reported that the for-profit business model hadn't changed appreciably, high tuition, high marketing costs, minimal investment in instruction, high dropout rates and a high student loan default rate, but now the generous post-9/11 GI Bill had literally put targets on the backs of veterans.

Although VA is not enforcing the GI Bill ban on deceptive and misleading recruiting enacted in 1974, several Federal agencies and most notably state AGs are at the forefront of lawsuits to protect students, including veteran students, from the predatory recruiting practices of for-profit schools.

On May 26, 2015, the Federal Trade Commission announced a settlement with Ashworth College.

The FTC found that the school had misled students about the training they received and their ability to transfer credits to another school.

The settlement noted that the many programs offered by this for-profit institution did not meet state requirements for those careers, including teachers and massage therapists, and the claims made about transfer credits were often not true.

Ashworth College is not the only for-profit institution found to deceive students.  Similarly, numerous State Attorney Generals and Federal agencies have reached settlements with for-profit schools over misleading recruiting practices, including Career Education Corporation, EDMC, Alta, Kaplan, Bridgepoint, ATI, Premier Education Group, Education Affiliates and others.

Despite the settlements, all these for-profit companies continue to operate, continue to enroll veterans and continue to receive title IV funding, yet there is little evidence that these companies have abandoned their misleading and deceptive advertising and recruiting practices.

In effect, the settlements were a slap on the wrist, the cost of doing business, which was far outweighed by the continued flow of Federal student aid and GI Bill benefits.

The Education Department's own crackdown on Corinthian was too little and too late. 

The Department allowed Corinthian to continue to enroll students after it forced the company to sell or close all of its campuses in June of 2014, and it only found that Corinthian had misled students about their job placement prospects after most of the campuses had been sold and the remaining 28 were on the verge of bankruptcy.

Veterans Education Success believes; one, that Federal and state AG lawsuits cited in our testimony constitute sufficient evidence of the acts or omissions of these for-profit institutions, and; two, serve as a solid basis to support defense to repayment for the students of the programs covered by the settlements.

They also serve as a warning sign that broader investigations of deceptive recruiting practices by other schools under the same ownership are warranted.

We believe that a prime area of focus should be schools' programs that do not lead to state licensure or certification.

For example, the FTC found that Ashworth's BS in Early Childhood Education does not lead to a teaching license, because Ashworth is nationally accredited and states generally require teachers to have graduated from regionally accredited schools.

Similarly, the Iowa AG settlement with Ashford University, a subsidiary of Bridgepoint Education, found that its online teachers program did not lead to a teaching job in Iowa or any other state without additional course work and tuition, a fact that it failed to disclose when it recruited students.

Our own research found that 20 percent of the 300 degree programs we examined that are approved for GI Bill did not meet the state licensure and certification, which is required to obtain a job upon graduation.

These programs are prime examples of misleading and deceptive advertising and recruiting.

As the August -- in conclusion, as the August 18th, 2015 letter from 11 state AGs to the Education Department noted, the Department should rely on the conclusions and investigative results reached by State Attorneys General regarding state law violations and provide discharges without requiring any individual to make a submission.

To require an individual student to replicate the work of state law enforcement officials would be inefficient, unduly burdensome and unfair to students involved.

The letter also noted the Department should as a part of their review process, invite interested Attorney Generals to provide additional supporting material regarding the school's unfair or deceptive practices.  Thanks for the opportunity to testify.

MR. APPEL:  Thank you.

MS. MAHAFFIE:  Thank you.  That is everybody we have scheduled before the lunch break.

Is there anybody else who would like to testify who hasn't had an opportunity to?

(No comments.)

MS. MAHAFFIE:  Anyone who has already spoken who would like an opportunity to come back up?

(No comments.)

MS. MAHAFFIE:  Hearing none, we will take a long lunch break from now until one o'clock.  We do have someone scheduled to speak at one o'clock.  Thank you.

(Whereupon, the proceedings went off the record at 10:57 a.m. for recess and went back on the record at 1:04 p.m.)MS. MAHAFFIE:  Hi.  Welcome back.  We just have one person scheduled for this part of the afternoon.  And then one in the latter part of the afternoon.

I wanted to first let you know that Fred Marinucci who is the Deputy Assistant General Counsel for postsecondary education has joined us replacing John.

And we can go ahead and get started with Jean McDonald-Rash.

MS. McDONALD RASH:  Thank you.  Good afternoon. My name is Jean McDonald Rash.  I am the Chair Elective the Higher Education Loan Commission and the Executive University Director, Financial Aid at Rutgers University, the state university of New Jersey.

I am speaking today on behalf of the Higher Education Loan Coalition, which is a grassroots organization comprised of schools dedicated to the continuous improvement and strengthening of Federal student loan programs.

The coalition consists of active financial aid professionals working at institutions of higher education across all sectors. 

I'd also like to thank the secretary for the opportunity to provide the Department of Education with comments on Federal student loan programs that may be addressed in the negotiated rulemaking process early next year.

I was pleased to see that defense of repayment will be the primary topic of the negotiations as the protection of student borrowers is the coalition's greatest concern.

To ensure that the Federal loan programs continue to be strong and viable source of funding for students, I wish to address the regulatory issues in the three following areas:  Defense to repayment.  Defense to repayment regulations need to be strengthened and broadened to more accurately reflect the type of situations some borrowers find when they're in inadequate educational programs or when there is possible wrongdoing at the institutional level.

This will lead to the failure to prepare the borrower for a degree or educational certification that can lead to gainful employment.

It is essential that negotiators consider the following to provide adequate protection to student borrowers:  Defense to repayment should apply to all the Federal loan programs.  The Federal Family Educational Loan Program, the Direct Loan Program and the Perkins loan programs should be eligible for inclusion in the process.

All government loan borrowers should be treated consistently regardless of the loan program. 

In the past, the Department has been clear that it has the authority to implement defense to repayment for all of these loan programs, and we encourage the Department to exercise this authority.

When evidence suggests that the abuse or wrongdoing was programmatic campus or institutional wide, then a simple proactive process should be in place to automatically grant defense to repayment status to groups of students.

In these situations, defense to repayment should not be an individual process.  The case will have already been made and putting students through unnecessary processes and lengthy delays is not in the borrower, nor the government's best interest.

Explore with negotiators the use of false certification provisions as a means of discharging loans when appropriate instead of using defense of repayment.

This may simplify the process for students and avoids complexity with state laws.  Discharges are not taxable.

Schools should be held accountable for any wrongdoing.  However, the defense to repayment process and ultimate debt relief should not be delayed while enforcement proceedings are ongoing at the institutional level.

The student borrower needs to be made whole regardless of what happens at the school level.

We would like to consider eliminating interest capitalization to reduce debt.  Regulations allow for, but do not require, interest capitalization each time the borrower changes status beginning at the end of the grace period and under certain status changes in income-driven repayment plans.

Interest capitalization increases the principal amount of the loan and the total cost of borrowing since future interest accrues on the capitalized interest.

Elimination of capitalization will help borrowers reduce their cumulative debt, which could affect their amount of monthly payment by lowering it, and then raise their ability to participate in other economic activities such as home purchases or retirement investments.

Capitalization is not required in Federal law.  It is a holdover from the previous Federal Family Educational Loan Program.

It is not necessary to charge borrowers additional interest and we urge the secretary to consider the elimination of this practice in the Federal student loan programs.

Thirdly, support efforts to limit borrowing.  Current statute allows aid professionals to limit the amount a student may borrow on a case by case basis.

However, the Department strongly cautions against this restriction of borrowing since the Federal direct loan program is an entitlement program.

Some schools no longer then participate in the Federal loan programs, because they fear students will over borrow and they have no options to restrict borrowing.

This forces students at those schools to then turn to more expensive private loan programs.

With the counseling tools now available to inform students about the consequences of borrowing, a professional should be given the opportunity and latitude to develop programs that would not unnecessarily restrict borrowing, but educate borrowers and help students borrow responsibly.

We are not advocating for more loan counseling.  We are advocating for aid officer discretion to develop programs and inform borrowers with the authority to limit borrowing when it is not in the best interest of the student, the institution or the taxpayer.

In closing, I would like to thank you again for the opportunity to present this testimony on behalf of the Higher Education Loan Coalition.

Many of our members were the first schools to implement the Direct loan program over 20 years ago and have years of expertise and operational policy issues, as well as compliance with the regulations for the program.

The coalition looks forward to participating in the negotiated rulemaking process that will occur in early 2016.  Thank you.

MR. APPEL:  Thank you.

MS. MAHAFFIE:  Thank you.  So, we do not have anybody signed up until late afternoon.  Is there anybody here who has not had a chance to speak who would like to come up?

MS. PICARD:  Alyssa Picard from the American Federation of Teachers.

My name is Alyssa Picard.  I'm the Director of Higher Education at the American Federation of Teachers.

And on behalf of AFT president Randi Weingarten and our 1.6 million members, including more than 200,000 higher education faculty and other professional staff, I'd like to thank you for the opportunity to comment.

We believe that the Department has the legal authority to discharge the loans of students who have been defrauded by their colleges and that has the moral obligation to cancel the debt of student who took on loans because of fraud, misrepresentation and wrongdoing.  Students should not be forced to pay for institutional fraud.

Thus, we're pleased that the Department intends to establish a clearer process under the borrower defense and defense to repayment provision to discharge student loans so that borrowers have better guidance on their ability to access this right and will be able to have their student loans discharged.

Today, I want to urge you to make this relief as broad based and easy to access as possible.

We believe that there are several criteria that must be met and addressed by the upcoming Negotiated Rulemaking Committee.

The first is that rulemaking should address all loans.  The Negotiated Rulemaking Committee should address all loans regardless of type.

In previous official communication about its defense to repayment authority, the Department has made clear that such authority extends to Pell and Perkins Loans, as well as to Direct loans.

There's no reason to limit the Committee to considering discharge under defense to repayment for Direct loans only at this time.

Additionally, nowhere in statute or regulations is there a time limit on the Department's DTR authority.  Borrowers should not be excluded from loan discharge no matter when the institutional wrongdoing that harmed them is discovered.

Rulemaking should provide for automatic group discharges.  In cases where fraud is pervasive where there's systematic wrongdoing documented by Federal or state entities such as at the recently shuttered Corinthian Colleges, students should not be obliged to provide proof of harm on an individual basis.

Instead, the Department should facilitate loan forgiveness for these students as a group, and these group discharges should be automatic.

The Department knows which institutions and campuses borrowers attended and should use this information to facilitate automatic relief as is done by numerous other Federal and state agencies.

Rulemaking should address the intersection of state law and Federal standards.  A Federal standard that will qualify borrowers for defense to repayment relief is welcome, as this will help borrowers in many places where state level enforcement actions have not taken place.   

However, Federal standards should be in place to help students and not to add extra burden or complexity to borrowers.

To that end, it's important that Federal defense to repayment standards don't preempt any stronger state laws.

Likewise, the state standards should be applicable on a broad basis.  That is to say defense to repayment discharge because of fraud should be available both to residents of a state whose law is violated, and to any students who attended campus in that state.

Rulemaking should consider the exercise of the Education Department's other authority.

For all students who don't qualify under a group defense to repayment discharge, a clear, easy and accessible process is imperative.

And if defense to repayment authority cannot offer the broadest relief, the Department of Education should add other authorities such as false certification regulations to the negotiated rulemaking agenda.

Extraordinary circumstances call for extraordinary measures and the Department must not allow tradition alone to guide its response to institutions like Corinthian whose levels of predation on students and taxpayers are unprecedented in the history of modern American higher education.  Now is the time for bold action within the Department's legal authority.

Students of predatory institutions experience many types of fraud, as you've heard.  You and we have both heard from students who thought they were getting grants when they were actually signing up for loans, or who enroll based on the promise of job placement help that never materialized, to name two examples.

It's critical that these students are part of the negotiated rulemaking process.  We, therefore, call for the Department to ensure that the Committee is truly inclusive of students who have been victims of fraud.

At last count more than 4,000 individuals had already filed borrower defense to repayment claims.  That's per the Special Masters report on August 26.

We urge you to use your power to protect them and all student borrowers who may despite their and our best efforts, be placed in similar situations in the future.  Thanks for the opportunity to consider -- to hear our views.

MR. APPEL:  Thank you.

MS. MAHAFFIE:  Thank you very much.

Is there anybody else who would like to come up?

(No comments.)

MS. MAHAFFIE:  Anybody who testified earlier who would like to come back?

(No comments.)

MS. MAHAFFIE:  Okay.  The next person we have signed up isn't until 2:40.  So, we will break.

If anybody comes between now and then, we will reopen the meeting, and we will definitely reopen it at 2:40.

(Whereupon, the proceedings went off the record at 1:16 p.m. and went back on the record at 2:42 p.m.)

MS. MAHAFFIE:  Thank you for your patience this morning -- or this afternoon.  We have one additional person signed up, Karen McCarthy, from NASFAA.

MS. McCARTHY:  Thank you.  You all came back just for me.

MS. MAHAFFIE:  We had some dead air time.

MS. McCARTHY:  Okay. My name is Karen McCarthy.  I am from NASFAA, which is the National Association of Student Financial Aid Administrators, for those of you who aren't familiar. 

We represent more than 3,000 postsecondary institutions of all sectors here in the United States.

The Department proposes four aspects of borrower defenses for consideration in negotiated rulemaking.

We are not suggesting any additional issues to negotiate in these sessions.  We normally do.  We have encouraged the Department for some time to limit negotiated rulemaking sessions to a reasonable amount of material, and we believe this is a step in the right direction.

The first proposed issue involves procedures to establish a defense to repayment.  We agree with Ed's Special Master that if the Department finds a school violated misrepresentation or consumer disclosure rules on a broad scale, and that violation affected students' decisions to enroll in a program from which they are unlikely to benefit in a substantial way, similar claims of defenses to repayment can be treated together and alike.

Across the board approvals of defenses to repayment, however, should follow a final finding based on clear evidence of systemic fraudulent practices after due process opportunities have been afforded to the school.

Similar findings by a state or accrediting agency should trigger immediate forbearance on student loans pending an inquiry by the Department to determine whether findings rise to the Federal level of severity to constitute across the board consideration.

Loans for any student who files a defense to repayment claim should automatically enter forbearance.  However, when there has been no finding of fraud or misrepresentation by some oversight agency, a rigorous standard of proof of the claim should be imposed.  Multiple claims should trigger a priority inquiry into the school's practices.

The second proposed issue concerns identification of acts or omissions that constitute defenses to repayment.

The regulations center borrower defenses on school acts or omissions that would give rise to a cause of action against a school under applicable state law.

To comply with this language in the recent Corinthian Colleges case, the Department resorted to a state law concerning unfair competition.

Since the ATA does not contain the same language regarding state law, we wonder why the regulation is constructed in this manner.

Discharge of a borrower's loans is an extraordinary step and should be reserved for violations involving fraud or substantial misrepresentation that induce an individual to enroll in a program that would afford him or her little benefit.

Fraudulent information that significantly inflates student outcomes is a valid reason to consider discharge when program graduates cannot actually obtain gainful employment relevant to the program of study.

Certain other program problems may be student specific.  For example, failure to reveal significant conditions of employment in the field of study may give cause for redress for some students, but not necessarily for students unaffected.

So, should harm to the borrower be assessed before determining discharge eligibility.

Misrepresentation in other areas may warrant sanctions against the school.  But if it does not affect the quality of the program or employability of graduates, repayment of loans should be unaffected.

The third proposed topic is the determination of institutional liability.  Fraud and misrepresentation by institutions are rare, but any school that deliberately misleads individuals to enroll on a widespread basis, or fosters a culture of deception or pressure that achieves enrollment by any means possible, should hold liability to students and taxpayers.

Any student who is harmed by a school's or employee's actions should have access to redress.  And the school as a steward of public funds bears responsibility to account for losses to public funds.

A key question is whether the school should continue to operate.  The Department has options for emergency actions against schools that should be denied title IV participation.

If emergency actions or severe sanctions are not applied, imposition of fines and liabilities that are beyond the school's financial capacity to pay may actually harm enrolled students who may benefit from unaffected academic programs, or who attend locations that did not participate in deceptive practices.

The fourth proposed issue is the effective borrower defenses on institutional capability assessments.

Administrative capability is a condition of participation in the Federal student aid programs.

A school that is so poorly administered as to not have control over its employees' fraudulent actions on a widespread scale, probably has serious capability issues that need to be addressed.

School closure or denial of student access to title IV funds is a step that should be imposed very carefully, however, and not as the automatic result of an isolated claim against a school that does not indicate systemic fraud.

We believe there is room to explore these negotiations, minimum requirements or benchmarks, to help determine administrative capability and ensure a financial aid office is appropriately staffed and trained.  Thank you very much for the opportunity.

MS. MAHAFFIE:  Thank you very much.

MR. APPEL:  Thank you.

MS. MAHAFFIE:  Is there anybody else who would like to speak at this time?

(No comments.)

MS. MAHAFFIE:  Thank you.  We do not have anybody else signed up for the rest of the afternoon.

The Department will be here until 4:00 p.m. in case anybody else comes later.  And we will welcome any testimony until that time, but we will take another break.  Thank you.

(Whereupon, the proceedings went off the record at 2:48 p.m. and went back on the record at 3:53 p.m.)

MS. MAHAFFIE:  I just want to have one last call to see if anybody would still like to speak.

(No comments.)

MS. MAHAFFIE:  Looks like the answer is no.  So, this will officially close this hearing.  Thank you very much.

(Whereupon, at 3:54 p.m. the hearing was concluded.)

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