President Joe Biden announced Wednesday that the Department of Education is forgiving $500 million in Federal Direct Loan debt owed by 18,000 former students from the for-profit higher education chain ITT Technical Institute. The chain closed all 140 of its locations and fired the majority of its 8,000 employees in 2022, following a legal battle with various state attorneys general and also the U.S. Department of Education.
\”These borrowers will get 100 % loan discharges,\” according to a Department of Education press release. \”This brings total loan cancellation under borrower defense by the Biden-Harris Administration to $1.5 billion for approximately 90,000 borrowers.\” In March, the Education Department forgave $1 billion in student loan debt held by 73,000 other borrowers who attended for-profit colleges found to have engaged in deceptive marketing practices.
This latest announcement is yet another expensive reminder that federal subsidies for advanced schooling creates incentives for garbage people to start garbage programs for clueless borrowers who stand little chance of ever repaying their student loans.
The \”borrower defense\” concept says that students can apply for loan forgiveness of their Federal Direct Loans when the students \”were misled\” by the schools they attended or if their \”schools engaged in other misconduct violating certain laws.\” In this instance, the training Department says its investigation \”found that ITT made repeated and significant misrepresentations to students associated with how much they might be prepared to earn and the jobs they might obtain after graduation between 2005 and the institution's closure in 2022. The truth is, borrowers repeatedly stated that including ITT attendance on resumes made it tougher for them to find employment, as well as their job prospects were not improved by attending ITT.\”
In the last administration, the us government had much stricter rules about who may need the borrower defense rule and just how much forgiveness they could receive. A major sticking point with loan forgiveness advocates ended up being -Education Secretary Betsy DeVos' use of an equation that granted borrower defense applicants only partial forgiveness of Federal Direct Loans. Education Secretary Miguel Cardona has tossed that formula and replaced it with 100 percent forgiveness, which will be retroactively available to anyone who previously qualified for partial forgiveness.
Is the brand new borrower defense policy a roundabout method of executing mass education loan forgiveness without dealing with Congress? Probably. Do most of the criteria for borrower defense also affect nonprofit liberal arts colleges? Absolutely. Could it be troubling the new application for borrower defense loan forgiveness doesn't need applicants to submit a W-2? It absolutely ought to be.
But what I find most concerning is that American policy makers still ignore a bigger lesson from the last 4 decades: Federal lending for higher education has been a disaster for many low-income borrowers.
A lot of journalism about for-profit higher education shenanigans-which are real and heinous-dates to Occupy Wall Street. It tends to imply that President Barack Obama's Education Department was the first one to stand up to the worst grifters, which this can be a quite recent problem. But it was William Bennett, President Ronald Reagan's education secretary, who first sounded the alarm, way in 1985.
Congress had loosened lending criteria in the 1970s, which allowed unprepared students to borrow federally guaranteed money to attend fly-by-night schools. Consequently, a student loan default rate skyrocketed in the 1980s. Bennett called for and secured a tightening from the higher ed credit market, which reduced the amount of these schools as well as the education loan default rate. A few years later, these restrictions were lifted, and also the process repeated itself two more times: Defaults increased, lending tightened, defaults transpired, lending loosened, etc. Wash the argument, rinse the taxpayers, repeat.
While inducing low-income individuals to borrow money they cannot repay to have an education they can't me is likely the worst results of federal higher ed subsidies, we also know now that easy lending has inflated the cost of \”good\” universites and colleges, which compete with each other by upping costs in order to suck up subsidies that they can purchase prestige points rather than workforce preparation: nicer buildings, fancier dining services, more extracurriculars, and an abundance of non-academic staff to create attendees-particularly those at nonprofit liberal arts colleges, which progressives seldom criticize for their ever-increasing sticker prices-feel like they're staying at a resort with the occasional class.
Despite the most recent spat between DeVos and progressives, the history of the cycle isn't entirely partisan. The late Rep. Alcee Hastings (D -Fla.) stanned a hardship on this awful system while raising campaign funds from crappy schools that mooched off taxpayers and ripped off poor students of color. His partners across the aisle were conservatives like Rep. John Kline (R -Minn.)*, who claimed funneling taxpayer money to unaccountable firms would be a type of \”deregulation\” that advanced \”academic freedom.\”
None of this comports using the original intent of federally subsidized student education loans, that was that students would borrow money to go to good schools, graduate to get affordable jobs, and repay their loans in full-with interest-so that future students could then perform the same. Whether that was ever an acceptable expectation (I submit that it was not) is nearly moot. Today, the Education Department uses pretzel logic to invest money which was never appropriated while Congress repeats the worst mistakes of the previous decade, all while ignoring promising (but undertested) models like income share agreements.
There is so anything else you should be doing differently. Many for-profit programs may likely not exist without occupational licensing requirements, such as those for that cosmetology industry; other for-profit programs, for example those that train students for administrative roles in medicine, are the consequence of the American health care system's metastatic requirement for paper-pushers who are able to manage labyrinthine billing operations and regulatory compliance.
Instead of confronting any of these issues, federal lawmakers have created an increasingly large and disillusioned population of student borrowers and paved the way in which for endless cycles of unpayable debt accompanied by occasional bursts of loan forgiveness.
*Correction: This story originally misidentified their state in which former Rep. Kline was elected. It has been updated.
