Happy New Year, and welcome to 2016!
2015 was a big year in student loan law. We saw the collapse of major for-profit colleges and the abrupt downfall of a major student loan assistance company. In what may come to be viewed as historically significant acts of civil disobedience, a sizeable contingent of student loan borrowers began a debt strike to protest the collusion of the federal student loan system and predatory for-profit colleges; protesters are demanding that their federal student loan debts be canceled. Meanwhile, consumer advocates became increasingly vocal in their criticisms of the U.S. Dept. of Education’s servicing and debt collection practices, sending waves through the industry. The year ended with the rollout of REPAYE, a new income-driven repayment plan for federal student loans.
What a year. Here’s what to expect (and what not to expect) during 2016:
More Pressure on For-Profit Schools
The collapse of Corinthian Colleges is likely only the beginning of what will be a major shake-up in the for-profit college industry. EDMC, the parent company of the Art Institutes, recently reached a huge settlement with federal and state governments amidst allegations that the company engaged in unfair and deceptive business practices. Other major for-profit college chains such as ITT Technical Institute and the University of Phoenix are reportedly under investigation as well. As more pressure is applied to these schools, and their tactics and outcomes are more heavily scrutinized, I think it’s safe to say that we’re going to see some major turbulence in the industry.
More Concrete Process for “Defense to Repayment” Loan Forgiveness
Some student borrowers who were defrauded by for-profit college chains such as Corinthian Colleges are demanding that their federal student loan debts be forgiven under a little-known regulatory and contractual provision called “Defense to Repayment.” While thousands have applied for relief under this provision, and the Dept. of Education set up some sort of response unit, there is still no formal application or review process for dealing with these requests, and so thousands of borrowers have been stuck in limbo. However, in the winter and spring of 2016 there will be several negotiating rulemaking sessions where the U.S. Dept. of Education will begin the process of setting up new regulations to address Defense to Repayment. There is some hope that maybe, just maybe, by the end of 2016 there will be a more formalized process in place and we’ll start seeing some movement on this issue.
Student Loan Reform Legislation? Don’t Bet On It
There were widespread calls for student loan reform from a variety of individual legislators during 2015, and that will likely continue through 2016. Some of these proposals have been good (i.e., streamlining income-driven repayment and improving loan servicing), while others weren’t (such as eliminating student loan forgiveness). But don’t expect any of these proposals to go anywhere this year. With a divided government and the 2016 Presidential election just over the horizon, both political parties are likely going to wait things out to see what the post-election Congress looks like and who wins the White House. Most Democratic and Republican presidential candidates have rather murky positions on student loan reform, so there’s really no way to predict what any final reform package may look like. But I think it’s safe to say that any major student loan legislative reform will be put off until at least 2017.
Student Loan Reform From the Courts? Maybe
2015 saw some noteworthy student-loan related court decisions, including some modest re-interpretations of the harsh anti-student-borrower bankruptcy standards, and some losses for national student loan servicers who had been claiming that they were constitutionally immune from lawsuits by borrowers. Since American law is based on legal precedent, these 2015 victories for student loan borrowers could set the stage for more favorable court rulings. There could be some big 2016 decisions from several courts as consumer advocates and state attorneys general continue to aggressively pressure for-profit schools, student loan servicers, and third-party debt collection agencies. It’s possible that even the U.S. Supreme Court could weigh in on some big student loan legal issues this year.
2015 was a big year for student loan law, and I expect nothing less in 2016. Stay tuned.