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The Education Department Is Turning A Blind Eye On Predatory Lending For A While

GettyImages 687808676
GettyImages 687808676

Last week, the U.S. Education Department took major steps in preventing fraud by freezing a set of regulations designed to prevent fraud.

Yup. You can read that sentence again but it won’t make any more sense than it did the first time.

In an agency press release from June 14, Education Secretary Betsy DeVos announced she would be postponing the implementation of a set of rules approved last November by the Obama administration that would have expanded federal student-loan forgiveness for students who were taken advantage of by for-profit colleges. The Education Department could potentially scrap these rules altogether.

In place of those rules, DeVos said new committees would be formed to tackle Borrower Defense to Repayment (BDR) and Gainful Employment (GE) regulations – the exact things the previous set of rules set out to address.

Before and after

The BDR and GE regulations proposed last year were in response to a catastrophic meltdown in the for-profit college sector. You might remember how two of the industry giants – ITT Tech and Corinthian Colleges – went belly-up after it was discovered that the schools were lying about their post-graduate success rates and acting in a generally fraudulent manner.

In the wake of that chaos, tens of thousands of students were left with mountains of debt but without a school, without degrees and without jobs. An ugly combination.

Regulations were then put in place to help those students have their debts forgiven while simultaneously preventing future students from facing the same devastation. The rules would have allowed for education watchdogs to look at accreditation reports and graduates’ job placement when determining if a school was eligible for federal aid. Without at least some aid, no school could ever stay afloat.

In last week’s press release, DeVos said that it was, “time for a regulatory reset,” and that her job was to “protect students from predatory practices while also providing clear, fair and balanced rules for colleges and universities to follow.” I guess rules like “don’t take money from students and then lie to them about your post-grad success rates” aren’t the type of “clear” she’s looking for.

What now?

Well, that’s sort of hard to answer because if we were living in sane times, this wouldn’t even be happening. The BDR and GE regulations were negotiated and agreed upon, as per section 705 of the Administration Procedures Act. That should mean placing a freeze on them isn’t allowed.

However, due to a federal lawsuit filed in May by an association of for-profit colleges in California trying to kill the regulatory actions, DeVos and company had the grounds to postpone their implementation. And if that sounds to you like the easiest loophole ever in preventing new regulations, that’s because it damn near is.

DeVos was quoted saying “We are working to get these loans discharged as expeditiously as possible…” yet if the agency hadn’t done anything, the rules would have gone into effect on July 1. Now there’s no timetable for when we’ll see a new plan.

Our take

There’s a lot going on here, but there are a few things worth sinking your teeth into.

First, you really, really, really need to do your due diligence when considering pursuing a degree at a for-profit institution. No, they’re not inherently bad places run by bad people. But because regulations around them are so lax — and seemingly getting no stronger — it’s up to the student to make sure they’re attending a credible university.

Second, for those with outstanding loans from one of these shuttered schools, it’s pretty much a game of student-debt limbo for the foreseeable future. DeVos said herself that “Nearly 16,000 borrower-defense claims are currently being processed” and as long as there are no strict rules in place, those students don’t know what they’re responsible for paying.

Finally, there’s a really good chance this will end up with people who had nothing to do with the for-profit education field paying the bill in the form of taxes. Ultimately, if the government isn’t going to tighten up the leashes on the schools, they’ll continue to lend recklessly and prey on students. When those students can’t pay up, taxpayers will have to cover the federally-backed loans.

So yeah, this situation is trash for everyone.

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