Charlene CrowellColumnistsFinancial Literacy

Regulatory Rollback on Student Loans Takes Away Borrower Protections

Every Fourth of July celebrates this nation’s founding. But this year, only a few days before the annual freedom celebration, an ill-advised governmental action will financially doom rather than free millions of student loan borrowers.

Moreover, this action arrives as the cost of higher education continues to soar and household incomes remain largely stagnant.

On June 28, the Department of Education announced the end of an important student loan regulation that since 2015 has held colleges with career training programs accountable for failure to provide an education that resulted in marketable skills and earnings high enough to repay student loans.

Known as the Gainful Employment rule, it required career and technical training programs that receive federal financial aid to prove that students would receive the education promised or forfeit future federal funding dollars. Additionally, covered institutions and programs were required to disclose to prospective students the career earnings and student debts of recent graduates.

In other words, the rule was intended to rein in abusive schools before they could harm students or waste taxpayer-funded aid.

Finalized in 2014, the rule was too late to help the tens of thousands of student borrowers affected by the failures of huge for-profit institutions, Corinthian Colleges, and ITT Technical Institute.  Borrowers at these now-shuttered colleges were left without degrees, or credits that could be transferred, but carried with them unaffordable debts that have devastated the stability of their families. These closures also resulted in massive losses to taxpayers who fund federal financial aid.

Even so, the Gainful Employment rule has been effective in two other ways. First, it pushed many other for-profit institutions to cut their worst performing programs. Secondly, it controlled tuition costs. Either violation brought regulatory sanctions.

Now, instead of these protections, consumers are left on their own — directed to an expanded web resources known as a “College Scorecard” where information on student debt and earnings now includes 2,100 certificate-granting programs.

“These important reforms are a more complete and effective way to hold all types of higher education institutions accountable and make sure that students have a full suite of data when making a decision about their education,” said Secretary DeVos in a statement.

Saying that information is the equivalent of regulation is simply not true. Effective regulations impose penalties, fines, and conditions on future actions – all to deter bad actors from repeating behaviors. By contrast, information only discloses with no guarantee that what is shared will be truthful, complete, or current.

Elected officials and consumer advocates were quick to point out the shortcomings of student loan deregulation.

“[B]y eliminating this rule without enforcing any alternative standard the Education Department is giving low-quality, for-profit colleges a free pass to charge high tuition for worthless credentials that leave students with insurmountable debt,”  noted Rep. Bobby Scott, chairman of the House Committee on Education and Labor.

“Students need protection against unaffordable loans,”  said James Kvaal, president of The Institute for College Access & Success (TICAS). “This rule rolls back the clock on those very protections. At a time when millions of borrowers are struggling with debt they cannot afford, the Department’s repeal of the gainful employment rule is reckless and irresponsible.”

The ills that TICAS’ Kvaal points out are well-documented.

A 2018 research report by the Center for Responsible Lending (CRL), “The State of For-Profit Colleges,” analyzed student debt on a state-by-state basis. It concluded that investing in a for-profit education is almost always a risky proposition. Undergraduate borrowing by state showed that the percentage of students that borrow from the federal government generally ranged between 40 to 60 percent for public colleges, compared to 50 to 80 percent at for-profit institutions.

CRL also found that women and Blacks suffer disparate impacts, particularly at for-profit institutions, where they are disproportionately enrolled in most states.  For example, enrollment at Mississippi’s for-profit colleges was 78 percent female and nearly 66 percent Black. Other states with high Black enrollment at for-profits included Georgia (57 percent), Louisiana (55 percent), Maryland (58 percent) and North Carolina (54 percent).

“Betsy DeVos’ decision to eliminate this important education protection is a disservice to the public and only serves to put corporate interests ahead of struggling students and taxpayers,” said Debbie Goldstein, a CRL executive vice president, following the recent rescission of the Gainful Employment rule. “Completely removing oversight of these programs and leaving parents and students to navigate the college loan system is irresponsible and wastes federal money on programs that aren’t performing.”

Similarly to CRL, the National Consumer Law Center (NCLC) has found that for-profit college students borrow more, and more often. More than 80% of for-profit college graduates incurred nearly $40,000 in debt at the time of graduation. Further, Black and Latino student loan borrowers were found to default on their loans at twice the rate of similarly situated whites.

Repealing the Gainful Employment rule will cost taxpayers over $6 billion over the next decade, and ending this rule will worsen the student loan debt crisis, especially for the people of color and low-income students who disproportionately attend career education programs and who are often targets of predatory recruitment practices,” said Abby Shafroth, an NCLC attorney who works with its Student Loan Borrower Assistance Project. “The Department’s unfounded claims that students will benefit from “more access” as a result of the repeal are bogus: Students don’t need access to more failing schools, they need a student loan system that doesn’t set them up to fail.”

With 44 million student borrowers owing $1.5 trillion nationwide at the end of 2019’s first quarter, removing federal guard rails against future borrower risk is as costly as it is unsustainable. As the federal government turns its back on these borrowers, perhaps another level of government can and will fill the void.

“Now more than ever, states have important roles to play in regulation, oversight, and enforcement,” Goldstein said.

Charlene Crowell is the Center for Responsible Lending’s Communications deputy director. She can be reached at Charlene.crowell@responsiblelending.org.

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