Three progressive goals for the price of one rule.
That is how the Wall Street Journal described the Obama administration's college loan debt rule issued in its waning months. It accelerates government by regulation, targets for-profit colleges while creating debt release, and will be a boon for the trial lawyers, a big constituency for Democrats.
The rule came after a "negotiated rulemaking committee" set up by the Department of Education failed to clarify an arcane provision in Higher Education Act of 1965. The provision said that the secretary of education can void a loan based on “acts or omissions of an institution of higher education.” The committee failed to reach a conclusion, so the administration said, "Hey, we'll do it by fiat."
The editorial explains that the rule grew out of the administration's move to provide debt relief to mitigate anger after it drove the for-profit Corinthian College out of business. The administration created an ad hoc process, according to the editorial, to forgive the loans of 85,000 Corinthian borrowers.
The price tag for taxpayers could be up to $3.2 billion. Under the new rule, the cost could be between $199 million and $4.2 billion annually. (Expanded loan relief already has cost many times that.)
The Wall Street Journal explains:
The new proposal would allow borrowers to discharge loans if a court renders a legal judgment against their college or if their school breached a contract. The department also wants to make borrowers eligible if their college made a “substantial misrepresentation.” This is defined as “any statement that has the likelihood or tendency to mislead under the circumstances” or “omits information” and on which that person “could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.”
This would vastly expand the basis for debt relief since nearly all ads can be defined as misleading under some circumstance. Government bureaucrats would play King Solomon and oversee a tribunal—which means a rubber stamp.
The Secretary of Education could also certify claims for groups of borrowers with “common facts and claims.” A “department official” would represent borrowers pro bono. Another government solon would review “the basis for identifying the group,” resolve claims and determine the liability of a college for discharged loans. This quasi-judicial system would eviscerate due process.
A group under this definition could encompass tens of thousands of borrowers who attended a for-profit that has been investigated or sued by a government agency. Neither the government nor borrowers would have to prove the individuals were harmed by the school’s alleged misrepresentation. The Secretary, not a judge, would adjudicate appeals and could fine colleges and cut off their access to federal student aid, which could force many out of business.
The administration has set up complicated “financial responsibility” regulations that have nothing to do with an institution's solvency (such as a lawsuit by a federal or state agency). These rules apply only to for-profit colleges.
Of course, something must be done about student loan debt–but at the source. Instead of pouring more government money into student loans, we should take steps to reduce the role of government so colleges will have to be competitive about tuition. Now, the sky's the limit–government will always step in to make more loan money available, and colleges can hire more administrations and charge more.
It's also time for students to consider the value of a degree from a particular institution up front. The time to do that is before taking out a loan, not as an adult burdened with debt. We should also re-examine the notion that a college degree is the sine qua non for a successful life. This idea, bolstered by the Obamas who obviously see their success as made possible only by Ivy League degrees, wasn't as prevalent in an earlier America.
But this program is as much about destroying for-profit colleges as debt management.