Editorial Board

DeVos Should Stick to the Rules on For-Profit Colleges

The Trump administration has an obligation to keep the industry accountable.

Freeze frame.

Photographer: Zach Gibson/Bloomberg

The for-profit college industry has reason to celebrate Education Secretary Betsy DeVos's plans to overhaul two far-reaching regulations. Taxpayers do not.

Of the roughly 8.6 million U.S. students who receive federal loans each year, one-quarter attend colleges or career-training programs run by for-profit companies. Such students account for 35 percent of all defaults on federal student loans, in part due to the collapse in recent years of several large for-profit college chains.

Under former President Barack Obama, the Education Department tried to impose greater accountability on the for-profit industry. The “borrower defense to repayment” rule establishes federal guidelines under which students who believe they were victimized by fraud can have their loans discharged. The "gainful employment" rule, which took effect in 2015, requires all for-profit institutions -- as well as career-training programs at non-profit schools -- to demonstrate that their graduates are earning enough money to pay back their student loans. Programs that fail to meet the government’s debt-to-earnings benchmarks risk losing their eligibility for federal student aid -- which would, in most cases, put those programs out of business.

The Trump administration has every right to examine federal regulations, especially when they can be simplified and improved. In this case, they can’t be repealed overnight: The Department of Education’s negotiated rule-making process involves months of hearings and consultations, followed by a period for public comment. Any revised regulations wouldn’t take effect until July 2019, at the earliest. But DeVos hasn't committed to enforce the existing rules while the revision process plays itself out.

She has an obligation to do so. For one thing, there are an estimated 68,000 alumni of failed for-profit schools whose applications for loan relief under the borrower-defense rule are still pending. As a rule, large-scale student loan forgiveness is bad policy. But borrowers who have legitimate reasons to believe they were defrauded deserve to have their claims evaluated in a timely manner.

Of still greater concern is the fate of the gainful-employment rule, which empowers the government to identify poor-performing vocational programs and cut them off federal aid if they fail to improve -- thus reducing taxpayers’ liability when graduates of those programs can’t repay their loans. The department has  found 803 out of 8,637 programs that fail to meet its minimum standards, nearly all of them run by for-profit companies. (A graduate theater program at Harvard fell short, too.) The Congressional Budget Office estimates that eliminating the gainful employment rule would cost taxpayers $1.3 billion over 10 years, and some put the cost even higher.

There are valid concerns about aspects of both the borrower-defense and gainful-employment policies. Some leaders of traditional, non-profit colleges contend the borrower-defense rule is too vague and could leave them vulnerable to lawsuits from merely disgruntled, rather than defrauded, students. The gainful-employment rule's data-collection requirements, meanwhile, are onerous and time-consuming. These issues can and should be addressed through the established rule-making process. The administration shouldn’t use them as cover to gut common-sense and much-needed reforms -- and then stick the public with the bill.

    --Editors: Romesh Ratnesar, Michael Newman

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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