Winners and Losers From DeVos Approach

Eighteen months into Education Secretary Betsy DeVos's tenure, colleges with poor student outcomes -- particularly for-profit institutions -- are poised to benefit from a more forgiving regulatory approach than under the Obama administration. Colleges had pushed for those changes, but consumer advocates say students will lose out.

DeVos late last month released details of a new borrower-defense rule that would raise the standards for students who were misled by their institution and are seeking to have their federal loans forgiven. And she reportedly plans to repeal entirely the gainful-employment rule, which would cut off federal aid to career-oriented programs that produce too many graduates with debt they can’t repay, offering in its place more outcomes data for all higher ed programs.

Both proposals meet the demands of industry groups, and the repeal of gainful employment, in particular, would be a boon to the for-profit college sector, which accounted for the vast majority of programs that failed federal standards.

The Education Department says its overhaul of the borrower-defense rule will protect students while providing a fairer process for institutions. But its critics have said the new rule -- and the rumored repeal of gainful employment -- show the priority is to serve institutions first. The department is also planning another rule-making process to re-examine standards around accreditation, the standard credit-hour definition and faculty interaction requirements. That announcement was welcomed by many involved in online education but stirred further concern among student advocates.

“At every instance possible, they’ve sided with the interest of schools over students,” said Ben Miller, director of postsecondary education at the Center for American Progress.

The proposed borrower-defense rule would require borrowers alleging they were defrauded or misled to demonstrate that their institution knowingly made false statements about program outcomes. It would also eliminate group discharge, requiring all claims to be addressed individually.

Opponents of the DeVos agenda point to the department’s own projections for the cost of the regulatory overhaul to back those assertions. The proposed borrower-defense rule would mean about $12.7 billion less in loan forgiveness over 10 years compared to the Obama rule issued in 2016. Meanwhile, Politico reports that internal department estimates show repealing gainful employment will cost about $4.7 billion over a decade -- much of that cost driven by Pell Grants awarded to students in programs that would otherwise fail the rule.

The department hasn’t released any information on its plans for the gainful-employment rule. But those estimates reflect similar estimates for savings generated from the rule over an earlier 10-year time frame.

“Their whole agenda has been around deregulation and favoring institutions over students. To this point, they’ve done nothing to disprove that,” said Michael Itzkowitz, a senior fellow at the think tank Third Way. “What all of these regulatory changes mean is fewer protections for students and more taxpayer money for institutions that have served students poorly time and time again.”

DeVos said after the unveiling of the new loan-forgiveness rule that borrowers and colleges would have clear standards to follow and that institutions themselves, rather than taxpayers, would be held responsible for making students whole.

“Our commitment and our focus has been and remains on protecting students from fraud,” she said.

The outcome for both rules -- a more restrictive borrower-defense rule and more transparency on outcomes in place of the current gainful-employment rule -- was anticipated by both the department's supporters and detractors.

Officials in the for-profit college sector were out in front in opposing both rules under the Obama administration. They argued the borrower-defense rule was too permissive for loan-forgiveness claims and that gainful employment should apply to all postsecondary institutions, not just career-oriented programs. And they were banking on the prospect that a Republican administration would soften, if not reverse, the Obama administration's aggressive crackdown on institutions in the sector.

“The administration is correcting what I think were some obvious and narrow ideological assaults that, frankly, could not stand the test of time,” said Steve Gunderson, president and CEO of Career Education Colleges and Universities.

CECU had offered regulatory and legislative proposals in line with what the department is reportedly contemplating on gainful employment. The New York Times and The Wall Street Journal have reported that DeVos plans to repeal the gainful-employment rule and, the Times reported, build on the College Scorecard by offering more program-level outcomes data for all higher ed programs in its place.

Even the for-profit sector's chief lobbyist, though, believes the DeVos borrower-defense rule went too far in tilting the balance away from students. The proposal contemplates limiting loan-forgiveness claims only to borrowers who have already defaulted on their loans -- a departure from previous practice at the department, where any borrower misled by their institution could apply to have their debts cleared no matter the status of their loans. (A call for comment asks members of the public to weigh in on that idea specifically.)

“The idea that a student has to default on their loan in order to be able to file a claim on borrower defense is something we just don’t agree with,” Gunderson said.

Preston Cooper, an education research analyst at the American Enterprise Institute, wrote that the provision “marred an otherwise sensible rule.”

Cooper and other critics of the Obama borrower-defense rule, which never took effect, said it had the potential to create huge new costs for taxpayers if students and lawyers began to look for misrepresentations to serve as the basis for claims. The motive of overhauling borrower defense, he said, appeared to be reining in what the DeVos team saw as an overly broad rule while still maintaining paths to loan discharge for student borrowers who were defrauded.

Instead of costs, Cooper said he saw a different concern, flexibility, at play in the gainful-employment rewrite and in the plans to revisit the standard credit-hour definition.

“Of course, there’s a trade-off between more flexibility for higher education/creating a hospitable environment for innovation and protecting taxpayers,” he said. “Giving colleges more flexibility could lead to improvements -- but at the cost, on the taxpayers’ dime, of funding mediocre programs that don’t live up to their promises.”

Cooper said he would like to see some kind of outcomes-based accountability reflecting earnings or loan repayment. But he said more program-level transparency could, if done right, promote accountability better than “relatively weak teeth” in the existing gainful-employment rule.

Sandy Baum, a fellow at the Urban Institute’s Education Policy Program, said there’s little evidence that more information without accountability will serve students or the government well.

“The suggestion that ‘oh, we’ll just let the market work’ -- we’ve tried that before, and we know that many students are likely to suffer from it,” she said.