Cost of Higher Education to Spike From New Federal Loan Forgiveness Rules?

The advent of universal schooling was a noble, distinctly American endeavor that is responsible for massive strides in education among the American public. But the over-reliance on public education and a resistance to for-profit institutions has created its own beast, including a federal Department of Education that is overbearing in the areas of regulation and implicated in the rising cost of higher education.

No one wants to be cheated in their learning after paying the pricey cost of higher education, and while some predatory for-profit institutions need to be reined in to prevent substandard college-level teaching, the creation of a new trigger in the Department of Education to cover the tab for students who didn’t get what they expected could be the next step in the push for universal higher education.

That appears to be a potential outcome resulting from the latest set of guidelines proposed to penalize for-profit schools — and even public universities — when students don’t get the post-degree payoff they expected.

Under the new (Education Department) proposal, former students may apply for (loan) forgiveness if a college has made a ‘substantial misrepresentation’ to its students, defined as a statement or omission with a ‘likelihood or tendency to mislead under the circumstances.’ This clear-as-mud definition would give wide latitude for complaints. In a typical fraud cause, the burden is on the plaintiff to demonstrate an ‘intent to deceive.’ Here, the burden would be on the defendant to disprove a ‘tendency.’ The verdict will rest on the whim of a Department of Education hearing examiner; colleges will have no recourse to a court of law.

According to the Education Department, these regulations are aimed primarily at for-profit colleges. But, this standard would apply to all colleges, and all ought to be alarmed. For-profits aren’t the only institutions that could find themselves accused of fraud.

Take, for example, Arizona Law School, ranked 40 by U.S. News and World Report’s ‘Best Law Schools.’ Alumni could point to a flier boasting a 2.8 percent unemployment rate nine months after graduation. Bloggers at Above the Law accused the law school of deception, pointing out that Law School Transparency lists the number at 9.7 percent. Arizona Law School responded that 9.7 percent was the nonemployed number, which included those who are not seeking work, so they were well within their rights to advertise 2.8 percent. No court would call this fraud.

But an enterprising graduate could claim that it ‘had a tendency to mislead under the circumstances,’ and recruit all alumni who plausibly could have seen that flier for a joint-action complaint. The burden would be on the ‘schools to demonstrate that individuals in the identified group did not in fact rely on the misrepresentation at issue.’ That being plainly impossible, a hearing officer could grant loan forgiveness to all. These graduates wouldn’t just see their outstanding balance erased, they’d also recoup the last six years of payments.

How does this affect the taxpayer? Well, according to author Max Eden in U.S. News & World Report, quoted above, Hillary Clinton and Donald Trump both have proposals for dealing with loan forgiveness, and both appear to open the door for the public to ultimately cover the cost of repaying student loans. Clinton’s proposal is flat-out taxpayer spending while Trump’s idea would force universities into an asset insurance program that could clearly drive the schools into bankruptcy.

Eden doesn’t take the step of suggesting that the new regulations are an attempt to rig the system toward the ultimate ends of government-paid higher education, but if it becomes an exorbitantly prohibitive cost for colleges to protect themselves from spurious alumni demands for tuition repayment, that direction seems like an obvious heading.

Read more from Eden about how loan forgiveness rules could increase the cost of higher education paid by everyone.