DeVos Cancels Gainful Employment Rule, Deregulates For-Profit Colleges and Trade Schools

In late July, the NY Times Erica Green reported that her newspaper had obtained a plan by the U.S. Department of Education to cancel the Obama Department of Education’s “gainful employment rule,” which has denied federal loans and grants to for-profit colleges and trade schools whose graduates were so poorly prepared they were unable to secure jobs by which they could pay off their sizeable student loan debts.

On Friday, Green followed up.  Now two weeks later Green documents that Education Secretary Betsy DeVos has now formally implemented her plan to eliminate the Obama-era rule designed to protect student borrowers from for-profit colleges that had made inflated claims about job preparation: “Education Secretary Betsy DeVos formally moved Friday to scrap a regulation that would have forced for-profit colleges to prove that the students they enroll are able to attain decent-paying jobs, the most drastic in a series of policy shifts that will free the scandal-scarred, for-profit sector from safeguards put in effect during the Obama era.  In a written announcement posted on its website, the Education Department laid out its plans to eliminate the so-called gainful employment rule, which sought to hold for-profit and career college programs accountable for graduating students with poor job prospects and overwhelming debt.”

In her important 2014 book, Degrees of Inequality, Cornell University political scientist Suzanne Mettler explains that private, for-profit colleges and trade schools aren’t really so private after all: “Ironically, despite being regarded as part of the private sector, the for-profits are financed almost entirely by American taxpayers. They enroll about one in ten college students today, but utilize one in four dollars allocated through Title IV of the Higher Education Act of 1965, the predominant source of federal student aid.  A 1998 law permits the for-profits to gain up to 90 percent of their total revenues from this single source. Other government funds do not count against this threshold, so the for-profits also receive 37 percent of all Post-9/11 GI Bill benefits and 50 percent of Department of Defense tuition assistance benefits. In recent years, this combination of public funds has provided the for-profit schools with 86 percent of their total revenue, to the tune of roughly $32 billion annually. So, we have substandard educational institutions producing many students who can’t get good jobs, costing taxpayers billions. Question: who is actually benefiting from this arrangement?  Answer: the businesspersons who own them and their corporate shareholders. The largest for-profits, though subsidized almost entirely by government, are now publicly traded on Wall Street… Even in the midst of the financial downturn in 2008, the top companies enjoyed a 4 percent growth in their stocks, while the S&P 500 declined by 39 percent.” (Degrees of Inequality, pp. 2-3).

Arne Duncan cracked down. Corinthian Colleges and ITT Technical Institute were put out of business.

Now Betsy DeVos has announced she is rolling back the regulation that sought to stop the for-profit college rip-off. She published the Department’s new proposal late last week. A period will follow when the Department will accept comments.  The final regulation must be published by November 1, 2018, reports Michael Stratford of POLITICO. The new rule will go into effect on July 1, 2019.

Erica Green reports that DeVos plans to publish employment data about the graduates of all American institutions of higher learning—not just the for-profit career and technical institutes.  She quotes DeVos: “Students deserve useful and relevant data when making important decisions about their education post-high school. That’s why instead of targeting schools simply by their tax status, this administration is working to ensure students have transparent, meaningful information about all colleges and all programs. Our new approach will aid students across all sectors of higher education and improve accountability.”

Green adds: “The Obama administration encouraged the expansion of public community colleges as it forgave at least $540 million in taxpayer-funded student debt for for-profit graduates who could not find decent jobs with the degrees or certificates they had earned..”

The gainful employment rule had been only partly implemented prior to the time DeVos took over the Department of Education. Green reports: “The 2014 rule required for-profit institutions to measure how much debt their students incurred against their post-graduation earnings and ordered them to disclose their failing marks in advertisements.  A year ago, Ms. DeVos delayed those parts of the regulations from taking effect.  But one part of the rule that had already been put into place has identified hundreds of failing programs, many of which went on to shut their doors after they were measured against the new standards according to an analysis by New America Foundation. That regulation will also be eliminated.  In the first assessment of college graduates’ debt-to-earnings ratios, about 800 programs, or 10 percent of those examined, had failed to meet the requirements laid out in the gainful employment rule, the department announced; of those, 98 percent were for-profits.”

Green quotes Steve Gunderson, president of a for-profit college trade association—a lobbyist for the for-profit colleges—admitting that the Gainful Employment Rule has made an important contribution: “The reality is every school that has a program that was failing gainful employment metrics—and they knew it couldn’t be fixed—they’ve already closed. The sector today is so much better.”

Consumer protection advocates have been very supportive of efforts to crack down on the for-profit career and tech-training institutes.  Eighteen state attorneys general have sued the Department of Education under DeVos’s leadership for failing to enforce the rule against predatory for-profit institutions.  Green quotes New York Attorney General Barbara D. Underwood: “Rescinding the rule is a derogation of the department’s duty to protect students from exploitation and taxpayers from the waste of federal funds.”

Responses from members of the U.S. Senate Health, Education, Labor and Pensions Committee to DeVos’s action to cancel the gainful employment rule follow party lines.  Senator Lamar Alexander, the Tennessee Republican and chair of the committee, said: “Secretary DeVos’s regulation proposes to end a clumsy rule that consumed 945 pages to define two words in the higher education law and targeted just one segment of our 6,000 colleges and universities.”

Senator Patty Murray, the Washington Democrat, and ranking member, castigated DeVos’s action: “Her extreme proposal to rescind this rule is further proof that there is no line Secretary DeVos won’t cross to pad the pockets of for-profit colleges—even leaving students and taxpayers to foot the bill.”

In her 2014 book, Suzanne Mettler explains how the Obama-Duncan era gainful employment rule came into being in 2011 and how it was intended to work: “At last, in early June 2011—after three rounds of hearings and discussions and almost one hundred meetings with lobbyists and others, the Department of Education released the final version of the gainful employment rule. The essence of the rule was that for students of any particular school to use Title IV funds, programs had to meet at least one of three criteria indicating that the training they provide genuinely leads to gainful employment.  First, at least 35 percent of a school’s former students, roughly one out of three, must be successfully repaying their loans. As education secretary Arne Duncan put it, ‘We’re asking companies that get up to 90 percent of their profits from taxpayers’ dollars to be at least 35 percent effective.’ Second, as a measure of debt-to-income ratio, the estimated annual payment of the typical former students could not surpass 30 percent of his or her average discretionary income. Third, as an alternate measure of debt-to-income ratio, the annual payment from such borrowers must not be greater than 12 percent of their total earnings. Regulated institutions were required to disclose such information to prospective students, enabling them to make informed choices about attendance. Also, the final rules dictated that programs would not lose eligibility unless they failed to meet these criteria for three out of four years, rather than in one single year. The penalty for schools violating these principles would be the loss of eligibility for federal student aid programs for at least three years.” (Degrees of Inequality, pp. 183-184)

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For A Change: A Bit of Positive News from U.S. Dept. of Education—on College Loan Debt

The past couple of weeks have brought three pieces of positive news about the U.S. Department of Education’s massive student loan program.

I.     Legal Injunction Blocks—for Now—Controversial DeVos Policy Only Partially to Reimburse Students Defrauded by Corinthian Colleges

At the end of last week, a district court judge in California stopped, for now, a new practice the U.S. Department of Education had been using since December to determine partial forgiveness of federal loans for students defrauded by the now-closed Corinthian Colleges—a chain of for-profit institutions closed in 2015 after the Obama administration cracked down.

USA Today‘s Kevin McCoy examines the background surrounding the closure of Corinthian Colleges—the background for last week’s legal action: “The legal fight focuses on Corinthian, a former Santa Ana, Calif.-based company that primarily offered certificate and associate degree programs nationwide through its Everest, Heald, and WyoTech colleges.  During 2009 and 2010, Corinthian operated more than 100 campuses in 25 states, enrolled more than 110,000 students and collected $1.7 billion in federal student aid…. The department placed a hold on Corinthian’s access to student loans, essentially choking off much of the company’s funding.” The Obama administration discharged the loans for 25,000 Corinthian borrowers who proved they had been defrauded by Corinthian or been enrolled when the schools closed.

However, the Associated Press‘s Maria Danilova reports that, last December Betsy DeVos’s Department of Education, claiming that some Corinthian programs prepared students better for employment than other weaker programs, established a new policy intended to save the federal government money by only partially reimbursing students—depending on the Education Department’s assessment of the quality of their schooling—for their unpaid federal loans now that Corinthian has been shut down: “(E)ducation officials in December established a new procedure that would vary the loan forgiveness percentage for former Corinthian students and similar borrowers. The system is based on the programs the students attended and whether they subsequently were able to earn as much as peers in programs that satisfied the gainful employment guidelines. Danilova quotes DeVos describing her new plan: “This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified.”

Attorneys for 110,000 former Corinthian borrowers filed a class action complaint in March, and on Saturday, U.S. Magistrate Judge Sallie Kim instituted a preliminary injunction against the DeVos program pending further investigation: “Kim’s ruling said the Department of Education violated the students’ privacy by sharing their names, birth dates, and Social Security numbers with the Social Security Administration, and then using additional SSA information to calculate what percentage of the loans should be forgiven.” The Department had used the students’ private information to compare the current incomes of Corinthian’s former students to the earnings of others who attended other institutions.  The preliminary junction is merely the beginning of this court battle. The judge has scheduled a second hearing on June 4: “The court also said it needs to hear more from the agency and plaintiffs in the class-action suit in order to decide whether or not to compel the agency to return to full loan forgiveness.”

II.     DeVos’s Department Will Stop Using Private Debt Collectors for Student Loans

The Washington Post‘s Danielle Douglas-Gabriel reported last week: “The Education Department plans to stop using private debt collectors to handle overdue student loans, a practice that had drawn scorn from activists who said the companies stop at nothing in pursuit of tardy loans… Instead of having private collection agencies solely dedicated to recouping past-due education loans, the department will add those duties to the responsibilities of companies that service loans.  Those companies will try to help borrowers who fall behind on their payments before they end up in default.”

The switch will not happen immediately, however: “While the Federal Student Aid office implements its new approach, the 13 private debt-collection companies already under contract will absorb new accounts until the transition is completed. The department has yet to set a completion date.”

There has been controversy as the Department of Education has sought to reduce the number of debt collectors. Two collection companies had been selected to qualify for lucrative contracts, each worth up to $400 million: Windham Professionals and Performant Financial.  Some of the controversy has arisen because Secretary of Education Betsy DeVos had personally invested in Performant Financial, although she divested from the company soon after her confirmation as Secretary of Education.

Douglas-Gabriel reports that in January, a dozen Congressional Democrats formally wrote to protest the Department of Education’s use of private collection agencies: “Last year, the federal government spent about $700 million on debt collection for fewer than 7 million borrowers in default—nearly the same amount it spent on loan servicing for more than 33 million people paying down their debt…. The Consumer Financial Protection Bureau estimates that, in some cases, the Education Department pays private collection agencies nearly $40 in compensation for every $1 in cash recovered from borrowers whose loans are placed back into repayment through a rehabilitation program.” Senator Elizabeth Warren has derided the debt collection agencies for “lying to student borrowers and breaking the law.”

III.     Congress Will Forgive Additional Student Loans for Public Sector Workers Who Had Been Guided by Loan Processors to the Wrong Program

Last week, reports Danielle Douglas-Gabriel, “The U.S. Department of Education… released more information about a temporary program to help social workers, teachers and other public servants at risk of missing out on federal student loan forgiveness because they enrolled in the wrong repayment plan.”  In the 2018 budget bill, Congress included $350 million to expand  Public Service Loan Forgiveness—that cancels the remaining federal student loan debt for people who have paid regularly on their loans for ten years and who have public sector jobs.

Some borrowers have been previously misled by their loan servicing companies and told they were in a plan by which their loans would be forgiven after ten years, only to find out later that they were in the wrong plan. Now, explains Douglas-Gabriel, “The Education Department will reconsider eligibility using an expanded list of repayment plans: graduated repayment, extended repayment, consolidated standard repayment and  consolidated graduated repayment. None of those plans would typically qualify under the loan forgiveness program.  Borrowers must have made 120 payments under those plans while working full-time in the public sector.”

Douglas Gabriel warns: “Lawmakers created a $350 million fund to cover the cost of canceling more loans, but once the money runs out, so will the offer. Forgiveness under this temporary program is being offered on a first-come, first-served basis. People who meet the criteria must email FedLoan at TEPSLF@myfedloan.org to request their case be reconsidered.”