Student debt is on the rise in the U.S.
Students who rack up debt attending for-profit colleges were supposed to get some additional protections this month.
If their school was found to have misled them into borrowing money to attend, a new rule would have simplified the process for seeking loan forgiveness.
It was the work of the Obama administration, which made it a mission over its two terms to rein in perceived abuses by the for-profit higher education sector: vulnerable students lured by the false promise of training programs that would quickly launch them into new careers, then left with worthless degrees and tuition bills they could never afford to repay.
But last month, U.S. Secretary of Education Betsy DeVos abruptly announced that she would postpone the change and seek a “regulatory reset.” She later delayed key provisions in another regulation targeting programs with poor employment outcomes, and plans to rewrite both of them.
California, which under former state Attorney General Kamala Harris investigated some of the industry’s biggest players for predatory practices and helped write the loan forgiveness proposal, is fighting back. Higher education advocates worry that their recent progress is on the verge of being erased under President Donald Trump, leaving future students exposed once again to being taken advantage of by unscrupulous colleges.
“Both of those rules were instituted to protect students and taxpayers from investing in schools that were not worth their salt,” said Debbie Cochrane, vice president of Oakland-based The Institute for College Access and Success. “It creates a disincentive for fraud.”
Cochrane said the regulations had prompted improvements in the industry and some of the worst actors to close their doors. Without them, she said, “we’re going to see a return of all the bad behavior.”
DeVos’ actions came as no surprise to anyone who has been tracking the pitched federal battle over for-profit colleges. While the two policies she targeted – known as “borrower defense to repayment” and “gainful employment” – were signature achievements of former President Barack Obama’s higher education agenda, they had been lambasted by the industry and its largely Republican political allies as unfairly singling out one segment of post-secondary schools and limiting students’ options.
The gainful employment rule was a priority of Obama’s from his early days in office and finally took effect in 2015 after years of development. It blocks career-training programs with a high debt-to-earnings ratio – where students don’t make enough after graduating to pay off their loans – from qualifying for federal financial aid.
Originally set to take effect on July 1, the rule would have created a process to automatically cancel federal financial aid debt for student borrowers at schools deemed to be fraudulent.
Though it applies more broadly, the regulation was largely aimed at for-profit colleges, whose students have much higher loan default rates than those at public schools. A review released in January found more than 800 vocational programs, or nearly a tenth of those assessed, failed to meet the criteria; 98 percent of those were based at for-profit institutions.
DeVos pushed back a requirement for schools to disclose the data to students and gave those designated as failing more time to appeal. In a statement, she said, “We need to expand, not limit, paths to higher education for students, while also continuing to hold accountable those institutions that do not serve students well.”
California was more closely involved with the borrower defense policy. It emerged from the high-profile collapse of major for-profit chains like the Santa Ana-based Corinthian Colleges, which closed its remaining campuses in April 2015, eighteen months after Harris sued over alleged deceptive marketing and exaggerated job-placement rates. The Attorney General’s Office served as a principal negotiator in its writing.
Originally set to take effect on July 1, the rule would have created a process to automatically cancel federal financial aid debt for student borrowers at schools deemed to be fraudulent. The federal government has already approved tens of thousands of applications to cancel loans worth more than $650 million related to the shuttering of Corinthian and another chain, ITT Technical Institute.
The regulation also would have required schools to provide more documentation of their financial viability and prohibited them from including arbitration clauses in their enrollment agreements that forbid students from seeking damages in court.
In May, the California Association of Private Postsecondary Schools sued, claiming the rule was “arbitrary and capricious” and exceeded the Department of Education’s authority. The association, which includes for-profit colleges among its members, could not be reached for comment.
DeVos cited the lawsuit as her reason for holding off on the changes, which she called a “muddled process that’s unfair to students and schools.”
California hit back last week. Attorney General Xavier Becerra joined 18 other Democratic state attorneys general to sue DeVos and demand implementation of the borrower defense policy. Becerra has been highly critical of the Trump administration’s leniency with for-profit colleges, comparing the president, whose for-profit Trump University recently settled fraud claims for $25 million, to a fox guarding the hen house.
“At the California Department of Justice, we will continue working to ensure that all who seek higher education can do so without worrying that their American Dream will be stolen by unscrupulous purveyors of a sham college education,” he said in a statement. “These regulations should be implemented because they’re good for students and because that’s what the law requires.”
Assemblyman Marc Berman, a Palo Alto Democrat, is also trying to bring the gainful employment standard into state law. His Assembly Bill 1619, introduced as a response to Trump’s election, would prohibit for-profit institutions in California from enrolling new students if they fall below the federal debt-to-earnings ratio for several years running.
The Assembly overwhelmingly approved the measure last month, but it stumbled in the Senate Education Committee over concerns about how California would enforce the policy if the federal government stops monitoring schools. Berman plans to make changes and take the bill up again next year.
“If a private, for-profit college recruits students based on the premise that they will get good, well-paying jobs, then we should be sure that’s the case,” he said. “It’s critical that California maintain the regulations as they existed under the Obama administration.”