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Regulatory rollback on student loans takes away borrower protections

Charlene Crowell | 7/2/2019, 7:50 p.m.
Every Fourth of July celebrates this nation's founding. But this year during the annual freedom celebration, an ill-advised governmental action ...

Every Fourth of July celebrates this nation's founding. But this year during the annual freedom celebration, an ill-advised governmental action will financially doom rather than free millions of student loan borrowers - as of July 1. 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 U.S. Representative 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."