Yesterday The Wall Street Journal posted an article about the Obama Administration’s moves to drive for-profit colleges out of business. The first step in this process is to ‘clarify’ a 1965 law.
The article reports:
Last summer the Education Department established a “negotiated rulemaking committee” to clarify an obscure provision in the Higher Education Act of 1965 that authorizes the Secretary to discharge student loans based on “acts or omissions of an institution of higher education.” The committee failed to reach a consensus, so the White House is now rewriting the law wholesale.
The Administration has moved to provide mass debt relief to protect itself from student anger after it drove for-profit Corinthian College out of business. (See “Obama’s Corinthian Kill,” July 26, 2014.) Last year the Education Department set up an ad hoc process to forgive loans for some 85,000 Corinthian borrowers. Taxpayers could be on the hook for up to $3.2 billion. The new rule expands that process and is estimated to cost between $199 million and $4.2 billion annually—though loan-forgiveness expansions have already cost many times more than projections.
The new proposal sets conditions that would have to be met in order to have student loans forgiven. The article lists those conditions:
The new proposal would allow borrowers to discharge loans if a court renders a legal judgment against their college or if their school breached a contract. The department also wants to make borrowers eligible if their college made a “substantial misrepresentation.” This is defined as “any statement that has the likelihood or tendency to mislead under the circumstances” or “omits information” and on which that person “could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.”
This would vastly expand the basis for debt relief since nearly all ads can be defined as misleading under some circumstance. Government bureaucrats would play King Solomon and oversee a tribunal—which means a rubber stamp.
The article concludes:
Naturally, the rule also bars class-action waivers and mandated arbitration in enrollment agreements. While the department claims that class action lawsuits will enable recoveries beyond government debt relief, the main beneficiaries will be plaintiff lawyers.
A fair rule would apply to all colleges, for profit or nonprofit, but public colleges would be exempt from the new financial responsibility rules. Education Secretary John King has said that the department’s goal is to target for-profits like Corinthian. Which more or less sums up the Administration’s campaign against for-profit schools: Shut down as many as possible, and then minimize any student backlash by handing taxpayers the bill for the wasted loans.
Student loans are not a government function. The idea of the government taking over student loans was bad enough, but the eventual cost to the taxpayers is only going to increase.