Dept. of Education rule hurts poor students, private institutions

The proposed regulation is supposed to improve debt repayment programs for students who were taken advantage of by corrupt institutions (Trump University, anyone?). Secretary of Education John King stated, “We won’t sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag.”

{mosads}Student debt forgiveness has been a popular staple of left-leaning political platforms this election season, and it seems that the Obama administration is taking advantage of this idea to push a political agenda that unfairly punishes private institutions.

The new regulation has certain provisions that strictly affect the for-profit sector. The most misleading discriminatory standard includes expanding the circumstances under which borrowers can file a claim against their university. Particularly, a borrower can bring a case through ED if the school “misled” a student about the benefits or costs of a given education program. The tricky part is that under the new rule, “misleading” does not require intent. The regulation even spells out an example in which an advisor tells a student inquiring about financial aid that “most of our students receive scholarships,” which could be considered misleading if the student made a decision based on that information.

Furthermore, proprietary institutions that the department determines to be “financially risky” will now also be required to include a specific, plain-language disclaimer in all of their promotional materials. ED’s criteria for determining what institutions are “financially risky” are based on repayment rates with a misleading twist. ED regularly surveys and posts data on different student loan repayment rates for various institutions. However, the new hundred-page regulation clarifies,  in two brief sentences, that new standards will use 50% as a baseline in determining at-risk schools, making the rates far less dramatic than one would initially assume given ED’s current calculation of repayment rates. In some cases, the institutions subject to the stricter regulations are not a riskier investment for students than the exempt public universities.

While some students certainly suffer to repay the cost of an education from a now defunct institution, providing this type of relief is extremely costly in reality. Despite the Secretary’s comments, the plan for streamlined debt relief would still leave taxpayers on the hook for cases the ED forgives and then is unable to recover from the universities with a tax impact of up to $4.23 billion annually.

Additional costs could arise due to the confusing language, leading to years of litigation by, and against, the department. Primarily, the terminology “misleading under the circumstances” is highly subjective, potentially leading to an eruption of case filings. Once again, the costs of wading through the legal complexities of the rule would fall on the taxpayer.

Despite the major costs, helping financially struggling students is a justifiable cause. However, student debt repayment plans of any sort have been shown to be regressive, since most borrowers tend to come from higher-income households, relief benefits those borrowers the most. With this in mind, it is at least questionable how much relief ED’s rule could provide to those they explain to be experiencing “long-term repayment hardship.”

Perhaps most importantly, the new regulation would severely limit education programs and institutions available to those who most need improved job prospects. Not only would we see institutions and programs geared towards those in need disappear, institutions would also be less likely to provide financial aid to low-income students. Some scholars have suggested that the possibility of new litigation resulting from students with outstanding debt will discourage schools from investing in poorer students. Effectively, this regulation will limit loan aid to borrowers from higher income households, a consequence ED has failed to consider.

The new regulation takes on a popular political guise, but ultimately only serves to bolster public institutions and shield them from outside competitors. Unfortunately, the consequences of this political move could mean some of the only education options for those stuck in a cycle of poverty will disappear.

Lili Carneglia is a student at the University of Alabama where she is getting a joint bachelor’s and master’s degree in Economics. She is a Young Voices advocate.

The views expressed by authors are their own and not the views of The Hill.