For-Profit College Debt Discharge Receives Court Reprieve

A federal judge in Washington ruled last week that Obama-era protections for defrauded students will go into effect immediately–no thanks to Betsy DeVos and Donald Trump, who have repeatedly sought to delay implementation of such rules at the behest  of for-profit colleges.

The same judge had ruled last month that DeVos’s delays were unlawful.

The regulation, called borrower defense, provides a clear process through which defrauded students can have their federal student loans canceled. Certain students whose schools closed while they were enrolled will be entitled to an automatic discharge of debt. Further, schools that receive federal funding can’t force their students into arbitration or require them to forgo class actions.

More than 160,000 people have claimed to the government that their school defrauded them, and new applications continue to pour in. Almost all of these complaints come from for-profit schools, of which there are some 7,000 around the country. While the regulations were set to go into effect in July 2017, an association of private post-secondary schools filed suit with the Department of Education, saying that such regulation was outside of the government’s authority.

The Department soon said it was postponing certain provisions of the regulations. Quoth Ms. DeVos: all one had to do was raise his or her hands to be entitled to so-called free money. Although the administration has signaled  intent to rewrite the regulations, they will remain in force at least until July 1, 2020.

In an interesting interplay of timing, also released last week was a report by the Roosevelt Institute, saying basically that incurring debt to pay for college is not worth it, calling student loans a “massive generational scam and failed social experiment.”  [See https://www.vice.com/en_us/article/pa9899/heres-fresh-evidence-student-loans-are-a-massive-generational-scam] How big a problem is this? It is estimated that some 44 million people have $1.5 trillion in student loan debt.

The college debt burden tends to compromise “adult” behaviors, such as buying a house, starting a family, etc.  At the same time, the degrees do not uniformly command higher income, and young people respond to pressure to fund advanced degrees in search of higher paydays. The problem is exacerbated in that college is no longer the golden ticket; now, it’s the basic, have-to-have goal. However, with only a high school education, job prospects can be dismal. And trade programs, which formerly were in separate, much-less-expensive educational environments, are now being woven into mainstream colleges–at those higher rates. 

So what is to be done?  The authors of the report observe:

We should be looking at both free and debt-free options for college. Free college at public universities and more debt-free options for students. But we also need to do something about borrowers stuck with debt right now. My sense is we should be taking a really hard look at ways to cancel at least some of the existing debt.

 

 

 

 

 



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