Education Secretary Betsy DeVos recently announced plans to suspend two Obama era regulations designed to protect student borrowers and hold for profit colleges accountable for deceptive tactics. Last month, the California Assn. of Private Postsecondary Schools filed suit in federal court in Washington, DC, to block the borrower defense rules from going into effect. Secretary DeVos has cited the lawsuit as a reason for postponing the rules.
“Unfortunately, last year’s rulemaking effort missed an opportunity to get it right. The result is a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs,” DeVos said.
For several years now for profit colleges have faced intense scrutiny from the Department of Education. Students from for profit colleges hold a disproportionate share of student loan debt when compared to students taking loans from traditional higher education universities or colleges throughout the country. Many of these for profit financial institutions have also been accused of making false claims about their students job placement rates and other statistics meant to attract potential students.
The regulations targeted by DeVos’ Department of Education are the Borrower Defense to Repayment (BDR) and gainful employment (GE) rules.
The BRD rule was set to go into effect on July 1st, but is now on indefinite hold. It would have allowed students who have been defrauded to seek forgiveness on student loans. Currently, there already are regulations in place for getting student loans forgiven in cases of fraud and misrepresentation, but they are greatly overcomplicated. Under current regulations, student loan borrowers sometimes wait years before their applications are approved or even reviewed. As of January 2017, more than 68000 applications were still pending further review. The new regulations were written to simplify and streamline this process; allowing borrowers to seek forgiveness in groups, rather than submitting individual petitions. The rule comes as part of a reaction to the shutdown of large for profits colleges, such as Corinthian and ITT Tech; meant to make it simpler for students at colleges found to be fraudulent to get their loans forgiven.
The GE rule went into effect on July 1st, 2015, and will continue to be active while being reviewed. The rule is intended to punish colleges whose graduates are unable to find ‘gainful employment’ after graduation; evaluating programs based on how many graduates were able to pay back their loans. Under the rule, if a school’s average graduate has loan payments exceeding either 20 percent of their discretionary income or 8 percent of their total salary, that school is at risk of losing its federal aid. Earlier this year the Department of Education announced that more than 800 programs had failed the new standards and were at risk of losing federal funding. This caused much concern for many in the for profit college industry since federal aid comprises nearly 90 percent of revenue at for profit colleges.
The Secretary of Education promised a regulatory reset to ensure students are protected from predatory practices, while also ensuring rules set for colleges and universities are fair. DeVos has said she plans to hold public hearings next month in Washington and Dallas as part of the effort to rewrite the rules.
The American Federation of Teachers issued a statement in response to DeVos announcement that said, “The Trump administration’s actions today show that the White House stands with predatory for-profit schools, not the students they rip off. About the only thing worse than ripping off students with worthless degrees from for-profit colleges is denying them help to relieve their substantial debt, and allowing the schools to continue to prey on students. Given that for-profit colleges were big donors to Trump and other Republican candidates, one wonders whether this is simply a new pay-to-play scheme at the expense of our students…”
The for profit education industry praised the Department of Education’s decision to halt the regulation. Steve Gunderson, president of the Career Education Colleges and Universities, argues the Obama administration conducted an “ideological assault” on the sector’s “very existence”.
The Trump administration has been much friendlier to the for profit education industry. Critics of the industry believe more should be done, and blaming the lack of action to the fact that President Trump himself ran a for profit school.
DeVos has said the Department of Education is working with loan servicer’s to get the ~16,000 claims discharged as soon as possible, but any new applications will be put on hold.
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