President Trump overturns an Obama-era student loan rule

Both chambers of Congress had passed a resolution to reverse a proposed policy by U.S. Education Secretary Betsy DeVos that would have changed how defrauded victims of for-profit colleges could seek debt relief.

But on Friday night, two months after the GOP-controlled Senate rejected the proposed policy, Trump vetoed it.

The president had two choices: Either sign the new resolution and affirm that his education secretary made a mistake by attempting to overturn the Obama-era rule or veto the bill and risk a political fight over debt relief in the middle of a pandemic.

The president chose the latter option.

“Today, I vetoed H.J. Res. 76, which sought to overturn a rule from the Department of Education that protects students and taxpayers,” he said in a statement released by the White House. “H.J. Res. 76 sought to reimpose an Obama-era regulation that defined educational fraud so broadly that it threatened to paralyze the Nation’s system of higher education. … The Department of Education’s rule strikes a better balance, protecting students’ rights to recover from schools that defraud them while foreclosing frivolous lawsuits that undermine higher education and expose taxpayers to needless loss.”

‘I’m crestfallen’

Consumer advocates and lawmakers expressed disappointment at the late-evening veto.

“As the devastating economic impact of the COVID-19 crisis continues, cheated and defrauded student loan borrowers need relief more now than ever before. But President Trump’s veto means borrowers will be denied the relief they are entitled to and allow Secretary DeVos’ cruel ‘borrower defense’ rule to stand,” Senator Patty Murray (D-WA) stated.

She added: “The President and Secretary DeVos have shown that even in the midst of a pandemic, they don’t care about helping struggling students, they care about the bottom lines of predatory for-profit colleges. That’s absolutely backwards, and I’ll keep fighting to help cheated students get back on their feet.”

Nevada Representative Susie Lee stressed that Congress still has the chance to override Trump’s veto.

“The fight for our students and veterans is far from over,” she said in a statement. “I’m urging all of my colleagues from both sides of the aisle to put students, veterans, and taxpayers first, and to vote to overturn the 2019 Borrower Defense rule.”

But as it stands right now, the new rule by DeVos’ department — which is expected to be a lot more stringent than the Obama-era standards — will go into effect on July 1.

Trump had indicated that he was going to veto

The veto is his first on a domestic policy issue, but it isn’t a complete surprise.

In January, Trump had promised to veto the resolution, stating that it would “restore the partisan regulatory regime of the previous administration, which sacrificed the interests of taxpayers, students, and schools in pursuit of narrow, ideological objectives.”

Since then, amid the coronavirus pandemic, both Congress and the Education Department created policies to provide much-needed relief to the 44 million Americans holding student loan debt.

“We cannot let the rights of the most hard-hit student loan borrowers … be quietly rolled back during the current national emergency,” National Consumer Law Center attorney Abby Shafroth said in a statement prior to the announcement by the White House. “[W]e hope that the president will seize this opportunity to stand with Congress and struggling Americans against fraud, corruption, and bureaucratic red tape.”

US President Donald Trump hands out diplomas after deliverig the commencement address at a Hope for Prisoners graduation ceremony in Las Vegas, Nevada, on February 20, 2020. (Photo: JIM WATSON/AFP via Getty Images)

Borrower defense rule designed to help victims of fraud

At the center of the situation is the “borrower defense” rule that took on greater significance during the Obama administration.

The borrower defense rule was originally written into law through the Higher Education Act in the early 1990s and was meant to help victims of fraudulent schools seek relief. Under existing law, borrowers with federal loans are eligible for loan forgiveness if a college or a university has misled them or engaged in other misconduct in violation of certain state laws. 

In 2015, after the for-profit giant Corinthian Colleges fell, many former students decided to seek relief for their student loans through the rule. The Obama administration then created special rules to address the problem, making it easier for defrauded students to get their loans cleared — with some getting automatic loan forgiveness if they qualified.

A security guard inside Everest College keeps people after the embattled for-profit Santa Ana school was shut down along with 28 others, ending classes for about 16,000 students. (PHOTO: Mindy Schauer/Digital First Media/Orange County Register/Getty Images)

Beth Stein, senior adviser at the Institute for College Access and Success, had worked on Capitol Hill, leading a two-year investigation on behalf of Senator Tom Harkin (D-IA) into for-profit colleges between 2010 and 2012. She explained what the rule stood for.

“Borrower defense didn’t come directly out of the investigation, but what [it] found was that several of the large for-profit colleges that were particularly engaged in really problematic practices, and that included both Corinthian and ITT,” Stein said. 

Joseph White, a former ITT student who graduated in 2008 and has more than $80,000 in student loans, told Yahoo Finance that while he was initially “intrigued by the promises of high salary amounts after graduation in the six figures,” he later realized he was fed with “outright lies.”

On April 30, amid the coronavirus pandemic, White was told by the department that his federal student loans would not be discharged. 

On Friday, White said that he wasn’t surprised by the veto, and doubted that Congress can override the veto.

DeVos said Obama ‘weaponized’ the borrower defense rule

DeVos has previously defended the attempted policy change, alleging that the Obama administration had left behind a mess.

“When borrower defense arrived in 1995, it … was little used… in the 20 years from 1995 to 2015, fewer than 60 claims were filed,” she said during a previous hearing in front of the House Committee on Education and Labor. “Then the previous administration weaponized the regulation against schools it simply didn’t like. They applied the law in a discriminatory fashion. So since 2015, there has been a 5,000% increase in borrower defense claims.”

U.S. Secretary of Education Betsy DeVos listens during a cabinet meeting on May 19, 2020 in Washington, DC. (PHOTO: Alex Wong/Getty Images)

The House voted to reject DeVos’ new rules in January, using the Congressional Review Act. In March, the Republican-controlled Senate then passed a version of the bill that would reverse DeVos’ revised rules on how her agency processes debt relief claims that were made by students who had been defrauded, mainly by for-profit colleges that were deemed predatory. 

“In the wake of the 2008 recession, enrollment in predatory for-profit colleges exploded given the lack of accountability and oversight,” Center for Responsible Lending Federal Advocacy Director and Senior Counsel Ashley Harrington said.

And the ITT or Corinthian implosion could happen again, she added, and borrowers would be left without any mechanism for just relief.

On Friday, that resolution came to a screeching halt.

“H.J. Res. 76 is a misguided resolution that would increase costs for American students and undermine their ability to make choices about their education in order to best meet their needs,” Trump told the House. “For these reasons, it is my duty to return H.J. Res. 76 to the House of Representatives without my approval.”

The House responded that it was going to try and override the veto.

“When it goes into effect next month, Secretary DeVos’ Borrower Defense rule will discard the streamlined system that helps defrauded borrowers access relief,” Congressman Bobby Scott, chairman of the House Committee on Education and Labor, stated. “Instead, borrowers will be forced to navigate a complex and burdensome process in which they can still be denied relief even if their institution has clearly been proven to have broken the law.”

This story,, which was originally published on May 20, 2020, has been updated to reflect President Trump’s veto.

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Aarthi is a reporter for Yahoo Finance covering consumer finance and education. Follow her on Twitter @aarthiswami. If you attended a for-profit college and would like to share your experience, reach out to her at aarthi@yahoofinance.com 

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