Regulatory rollback on student loan protections
An ill-advised governmental action will financially doom millions of student loan borrowers, and arrives as the cost of higher education continues to soar and household incomes remain largely stagnant.
On June 28, the U.S. 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 dollars. Additionally, covered institutions and programs were required to disclose to prospective students the career earnings and student debts of recent graduates.
Finalized in 2014, the rule was too late to help tens of thousands of student borrowers affected by the failures of Corinthian Colleges and ITT Technical Institute. Borrowers at these now-shuttered for-profit colleges were left without degrees or transferable credits but with unaffordable debts that have devastated their families’ stability. These closures also resulted in massive losses to taxpayers who fund federal financial aid.
Even so, the Gainful Employment rule has been effective in other ways. First, it pushed many other for-profit institutions to cut their worst-performing programs. Secondly, it controlled tuition costs. Violations brought regulatory sanctions.
Now, instead of these protections, consumers are left on their own — directed to a web resource known as a ‘College Scorecard’ where information on student debt and earnings now includes 2,100 certificate-granting programs.
Education Secretary Betsy DeVos said in a statement, “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.”
Saying that information is equivalent to regulation is simply not true. Effective regulations impose penalties, fines and conditions on future actions, to deter bad actors from repeating behaviors. Information only discloses, with no guarantee that what is shared will be truthful, complete or current.
Elected officials and consumer advocates were quick to decry the 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,” said U.S. Rep. Bobby Scott, chairman of the House Committee on Education and Labor.
A 2018 Center for Responsible Lending (CRL) research report, “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 at 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.
The National Consumer Law Center, too, has found that for-profit-college students borrow more, and more often. More than 80 percent of for-profit college graduates were 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,” said Abby Shafroth, an NCLC attorney who works with its Student Loan Borrower Assistance Project.
With 44 million student borrowers owing $1.5 trillion nationwide at the end of 2019’s first quarter, removing federal guardrails against future borrower risk is as costly as it is unsustainable. As the federal government turns its back on these borrowers, perhaps other levels of government will fill the void.
“Now more than ever,” said Goldstein, “states have important roles to play in regulation, oversight and enforcement.”
Charlene Crowell is the Center for Responsible Lending’s communications deputy director.