Biden administration expands attack on free market in new student debt rules

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Instead of tackling the college debt crisis, the Biden administration has proposed new rules designed to punish for-profit colleges and give taxpayers billions of dollars in debt forgiveness.

Taxpayers deserve accountability from the Department of Education, not carrots and sticks that interfere with a free market for higher education.

The rules, proposed last month, do two things. They make it easier for students to evade their contractual obligations, allowing more errors and opening the door to fraud. And they are cracking down on proprietary colleges, while claiming the new rules apply to all institutions.

The cost to taxpayers will be in the tens of billions of dollars. But that’s a small change from the rest of the nearly $2 trillion in student debt the rules don’t affect.

A central problem with federal student loans is artificially low interest rates. The easy money, whether a student wants to pursue a degree in engineering or women’s studies, allows colleges to raise tuition more and more. Instead of doing something to fix the problem, the department is making it worse by making easy money even easier.

The Department of Education is proposing to make it easier to qualify for student loan forgiveness by modifying the Public Service Loan Forgiveness Program, disability leave, and interest capitalization.

The Civil Service Loan Forgiveness Program remission takes effect after 120 months of payment. But the ministry wants to count months of “payment” when a borrower is on deferment or forbearance (not actually paying). And despite the risks of bad data, the department is proposing to “simplify” forgiveness by receiving data from federal agencies to automatically count eligibility for civil service loan forgiveness or disability leave.

Disability leave is charitable, but how do we know who qualifies? Disability fraud is rampant. Under the proposed rule, low-level medical professionals could declare whether a person is completely and permanently disabled, and the requirement for documentation in later years would be removed entirely.

As for ending the capitalization of interest, it is mainly a trick of optics.

For every $10,000 of debt, if you accrue 5% interest and get six months forbearance, you have $250 of interest that would no longer be capitalized. The interest on this amount, which you will no longer earn, is $12.50 per year. That’s almost enough to buy fries in New York.

Meanwhile, the bad old days of punishing proprietary colleges for making profits are returning. The way it goes is this: First, make it easy to file a “borrower’s defense to repayment” claim on minimal evidence. This means that a borrower claims that he does not have to repay the loan. Under the new rule, the department would accept group claims and assume a full pardon.

Then, because the college might have to refund the money the students got for tuition, it is required to issue an onerous letter of credit, proving it has the money if needed. Finally, the letter of credit becomes so important that there is no more credit available and the college goes bankrupt.

That’s the plan. This dates back to the early days of the Obama administration. In 2016, the Department of Education demanded 2,700 letters of credit, specifically to squeeze for-profit colleges.

This time, the ministry is giving itself new tools of oppression. One is the possibility of reopening “at any time”, that is to say forever, a request for defense of the borrower which was refused. The lack of a time limit puts every institution under fire forever for any claim, no matter how small.

Another is the idea of ​​starting various timelines with the accuser’s last date of attendance at the institution. This produces the absurd result that a student who attended college in the 1970s and then returns to finish in 2023 could file a claim based on the institution’s promises in the 1970s.

Although the department says the proposed rules would apply equally to nonprofit and public colleges, the rule’s narrative concedes that for-profit colleges would be disproportionately affected, as expected.

How do rules attack profit? On the one hand, they prohibit recruiting tactics that are normal marketing in other sectors of the economy. What the department calls “aggressive” includes pressure to make a decision on the day of an investigation (as any good salesperson would do), or placing “unreasonable emphasis” on the negative consequences of delaying a decision (of course, “unreasonable” will be defined by the department).

And the laughable ban on not responding to a potential student’s request for more information is just a ban on poor customer service.

Additionally, prohibitions on “omission” of information give the department almost unlimited discretion to punish colleges. The rules are written so generically that the ministry could penalize any college it chooses. For example, the rules would prohibit omissions regarding “the availability of enrollment openings” or omissions “relating to the nature of the institution’s programs of study” or “the employability of graduates of the institution”.

Finally, the department prohibits the resolution of disputes through internal dispute resolution or arbitration, and it prevents the prohibition of class actions. The rule conditions federal student aid on the freedom of a borrower and an institution to enter into a mutually agreeable contract, and it even prevents institutions from enforcing their existing contracts.

Given how the ministry has treated property institutions in the past, I fully understand that they don’t trust the ministry to be a fair arbiter, so they prefer other methods of resolution.

The Department of Education’s goal should be to fix the student loan crisis, not make it worse or hurt profits.

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