“Rebuttable Presumption”
This post was written by Michael Bennett
November 27, 2007 5:00 am Code of Conduct, Ethics, Loans, RegulationsIn my travels to various conferences, I have attended the Federal Update sessions presented by Jeff Baker from the US Department of Education. These updates are always well attended because Jeff does a wonderful job reviewing the Federal issues of the day.
In one his “Prohibited Inducement” slides, Jeff reviewed the concept of “rebuttable presumption.” The concept of rebuttable presumptions refers to provisions in the final rules on loans that state any lender or guarantor that participates in certain behavior with students as outlined in the prohibited inducements definitions (682.200 or 682.401) will be presumed to have made those payments to secure loan volume, and may have its authority to make FFEL program loans revoked. It would be up to the lender and guarantor or - maybe with cooperation from a school - to prove otherwise.
I think the first time I heard this explained in that manner I blinked twice.
For example, one of the provisions in the regulations would forbid any lender from “undertaking philanthropic activities, including providing scholarships, grants, restricted gifts, or financial contributions in exchange for FFEL loan applications or application referrals, or a specified volume or dollar amount of FFEL loans made, or placement on a school’s list of recommended or suggested lenders.” I would venture to guess that the majority of philanthropic giving by loan providers to colleges and universities occurs outside of student loans. Under these regulations, the very act of philanthropic giving could be called into question by the Department, at which point it would be incumbent on the lender to prove its innocence.
I am not a lawyer, but my definition of “rebuttable presumption” would be that I am following the regulations and doing the “right things” unless proven otherwise. I thought as an American citizen one would certainly be “innocent” until proven “guilty” (and isn’t the purpose of Office of Federal Student Aid and Office of Inspector General reviews and audits to find these issues?)
In the final rules the Secretary assured that “contracted services between financial institutions and schools in non-student aid related areas will not be affected by these regulations as long as the arrangements are negotiated in good faith and are not undertaken to secure FFEL loan applications or limit a borrower’s choice of lender.” But at what point the Department would force a loan provider and school to prove the innocence of such philanthropic giving is unclear. Under the premise of “rebuttable presumptions,” the Department would be able to call any such charitable giving into question at its discretion, declaring the lender guilty until proven innocent.
It has become particularly challenging to understand the differences between a college’s code of ethics, NASFAA’s Code of Conduct, individual state laws, attorneys general codes of conduct, negotiated agreements with a state attorneys general, and new federal laws, followed by additional regulations. Having five or ten standards enormously complicates our efforts to comply with the various codes and standards.
Like most, I hope that the recently released federal regulation bring clarity and order in times when it feels as if many parties are “piling on” with their own agendas, and clearly not helping matters.
What are your thoughts?
November 27th, 2007 at 9:19 am
I agree with you about the premise and right of innocent until proven guilty. What happens to the scholarships that a number of student loan businesses award? If they are already on a school’s lender list (maybe even the top lender due to excellent services, etc. and student/s from that school are selected, can they now be charged or investigated? I find it very difficult to keep up with the legislative “going ons” while also doing my job in an extremely busy and understaffed office and wonder whose agenda is really being served, our students and colleges or a particular political party or legislator.
November 28th, 2007 at 8:32 am
I, like you, was taken aback when Jeff did the slide on the rebuttable presumption at the MASFAA conference in St. Louis this year. The phrase caught my attention as I am an attorney.
My thoughts were that now lenders or schools are guilty until proven innocent. That does run contrary to one of the most important principles underlying our judicial system, the presumption of innocence.
I believe that this is a bad piece of legislation because it turns the rebuttable presumption against the lender and also because of the potential for abuse.
The legislation, in my opinion will have the effect of discouraging scholarships and the like that are sponsored by lenders. The big loser in all of this is the student.
November 28th, 2007 at 8:47 am
Thank you Mike! Your words represent the thoughts of many of your colleagues.
November 28th, 2007 at 9:36 am
I feel uncomfortable with the idea that scholarships are being funded by the income generated from debt incurred by thousands of needy borrowers and by taxpayer subsidies to allay risk in making these loans.
November 28th, 2007 at 9:38 am
I admire Michael Bennett’s willingness to raise important but uncomfortable topics regarding student financial aid. I suspect he has developed the habit of occasionally looking over his shoulder these days…
Every aid administrator should be incensed by a rule that considers you and your institution guilty of illegal behavior when a company involved with student loans (whether at your institution or not) performs an act of philanthropy for your institution or for your students.
It is difficult to understand who members of Congress felt they were protecting, and from what, by this regulation. From my vantage point, students lose the most.
Mr. Bennett, please continue to fight the good fight. The cause is worthy.
November 28th, 2007 at 12:01 pm
In my view the “rebuttable presumption” is a punitive, over-compensating response from the Department of Education to a loan “scandal” that appeared (and may indeed have in fact proliferated) while on their watch. Want to reassure the outraged American public? Show em’ our new teeth…we will reel in those corrupt practices, just you wait and see! Now that the public has been sold the notion of scandal, and the lenders and the schools have been painted into the Bad Guy Corner, the Department “has” to act. One could reasonably wonder where the similar passion has been directed in regards to the tens of millions of taxpayer dollars wasted in “rolling over” 9.5% student loans, but that would approach a real response to a real travesty…much easier to paint the players as guilty until proven innocent. As Scrooge once famously said, “I’ll retire to bedlam.”
November 28th, 2007 at 7:36 pm
Someone stated above that the scholarships are being funded by the income generated from debt from needy students and from taxpayer subsidies, but that comes off as just another judgement (guilty until proven innocent)- how does this person know where the funds are coming from? Do we have the right, then, to assume that the money this person donated to the poor came from cheating an elderly person out of their retirement funds?
November 29th, 2007 at 10:40 am
I’m nostalgic for the days when Greg Woods started using the word “partner” to describe how ED viewed members of the financial aid community. There was a sense of working together towards common goals.
Sadly, that’s been dismantled by a Department embarrassed by being one-upped by Andrew Cuomo and a Secretary of Education who has brought us back to the days of William Bennett (no relation to Mike, of course), using her position as a bully pulpit.
Jim Eddy makes an excellent point…if only ED felt this strongly about one lender’s quarter billion dollar+ taxpayer-funded, loophole-aided windfall.