Student Loan Related

Department of Education Logic. If You Change the Definition of Student Loan Abuse You Reduce Abuse

Written by Steve Rhode

The current Betsy DeVos Department of Education is attempting to gut the Borrower Defense to Repayment program that serves to protect students from student loans from fraudulent schools.

The Department has gone so far that in 2019 they proposed new rules that would change the way that abusive student loans are forgiven and reduce the accountability for schools engaged in such behavior.

If you think that doesn’t sound logical, it is because it’s not.

In a current court case attempting to stop the rule change, a document was filed by a non-partisan think tank.

This document is full of head-slapping facts that could lead you to believe the goal here is to change the rules to protects schools over students.

“The Department’s analysis of the 2019 Rule in fact assumes a 5 percent decrease in the rate of institutional misconduct compared to its analysis of the 2016 Rule. This is due to the 2019 Rule’s “changes in the misrepresentation definition and removal of the breach of contract claims.” 84 Fed. Reg. at 49,896. In other words, the Department assumes that institutional conduct will not change, but narrows what it considers to be misconduct.”

The document points out a real concern I have about why fraudulent and abusive schools that attracted students and stuck them in student loans based on false or misleading information, should not get a free pass.

If student loan debtors are required to shoulder the burden for these putrid student loans, it simply reduces their ability to participate in the economy and makes it much more likely that they will wind up being a burden to all.

“Although the Department projects that the Rule’s main effect will be a substantial reduction in student-loan discharges, the Department disregards nearly all of the real-world costs that such a reduction will entail—overlooking key social benefits of student-loan discharges that the Department recognized in the 2016 Rule. Specifically, a critical basis for the 2016 Rule was the Department’s finding that borrowers whose loans are discharged can “become bigger participants in the economy” by, for example, “buying a home, saving for retirement, or paying for other expenses”—a finding supported by considerable economic research. 81 Fed. Reg. at 76,051. Yet the Department now entirely ignores these impacts in rolling back many of the key provisions of the 2016 Rule, failing to account for the economic and social harm to borrowers and society of these forgone loan discharges.”

See also  Department of Education Amended Complaint by 19 States and D.C.

The document also goes on to state why this rule change will embolden bad schools, not curtail them.

“The Department also disregards costs that the 2019 Rule will impose by increasing institutional misconduct—that is, causing more frequent and widespread defrauding of student borrowers by institutions of higher education. In promulgating the 2016 Rule, the Department found that discharging loans of defrauded borrowers and recouping the value of those discharges from culpable institutions would “deter[] misconduct,” such that fewer borrowers would be defrauded in the future. Id. at 75,927. But while the 2019 Rule will dramatically reduce financial responsibility for culpable institutions by restricting both student-loan discharges and recoupment mechanisms, the Department implausibly assumes that these rollbacks will in no way undermine the deterrent effects of the 2016 Rule, effectively papering over the costs on future borrowers who will be defrauded as a result of the 2019 Rule.”

In a game of smoke and mirrors, the Department of Education appears to make the argument the new proposed rule is better. But is it?

“While neglecting some of the 2019 Rule’s largest costs, the Department extols supposed regulatory benefits that are implausible or non-existent. For instance, the Department touts benefits for borrowers whose loans will be forgiven under the new rule, failing to appreciate that such forgiveness would also have occurred under the 2016 Rule and that, in total, the 2019 Rule reduces the total volume of loan discharges. The Department also characterizes a reduction in federal outlays as a “benefit” to the federal government, 84 Fed. Reg. at 49,893, violating longstanding executive guidance and agency precedent—as well as basic economic principles—directing agencies to treat a change in federal outlays as a monetary transfer rather than a cost or benefit.”

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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