The Department of Education last week announced it had been canceling $6 billion in education loan debt and issuing refunds for attendees of shuttered for-profit colleges included in a settlement in a class-action lawsuit.
The plaintiffs in Theresa Sweet v. Miguel Cardona declared debt relief under the \”borrower defense to loan repayment\” program. Developed by the Federal government, borrower defense allows the Education Department to forgive the federal education loan debt of students who can show these were defrauded through the school they attended. Underneath the Trump administration, the Education Department's evaluation of borrower defense applications slowed to a halt. In reaction, former students of the now-defunct Corinthian Colleges sued Education Secretary Betsy DeVos for \”unlawfully withholding or unreasonably delaying action on Plaintiffs' applications.\” Miguel Cardona, President Joe Biden's education secretary, then became the defendant.
Under the terms of the settlement, the Department of Education will forgive roughly $6 billion in loans for 200,000 attendees of dozens of technical schools and for-profit colleges. The settlement also necessitates the Department of Education to reimburse borrowers who already made payments or perhaps paid off the entirety of their loans. It's not clear how many borrowers taught in settlement will get loan forgiveness for outstanding debt and how most receive full reimbursement for debt they already repaid. When inspired to clarify how many borrowers were in each category, a Department of Education spokesperson said the company does not discuss ongoing litigation.
Over the past 2 yrs, the Biden administration has approved debt forgiveness claims for thousands of former students at for-profit colleges. Earlier this year, the administration announced over $5.8 billion in loan forgiveness to former students of the now-defunct Corinthian Colleges.
However, the Department of Education's role because the largest issuer of student loans in the country implies that it is constantly on the fund universites and colleges that fail to prepare students. Low standards for federal funding incentivize the creation of schools whose sole mission would be to collect federal loan money. Even for-profit institutions that do serve the majority of their students still put taxpayers on the hook for attendees who can't take full advantage of the amount. Debt forgiveness for those borrowers, including nonprofit private colleges and public institutions, would have exactly the same effect.
If the federal government really wants to prevent vulnerable, low-income people from being defrauded by for-profit colleges, the simplest policy solution is always to obtain the authorities from the education loan business altogether. There is clear evidence that \”federal student aid fuels the ivory tower's infamous price inflation, including roughly a doubling, in tangible terms, of sticker prices between the 1991 -92 and 2022 -22 school years,\” wrote Neal McCluskey, director of the Cato Institute's Center for Educational Freedom. He continues: \”It also makes logical sense: If you give loads of people easy money to pay for something, the price of that thing will rise as people require more of it, with greater bells and whistles.\”
Without easily accessible, seemingly bottomless federal student loans, schools-private, public, for-profit, and nonprofit-would need to either charge rates that attendees will pay up front, or convince private lenders they present an education that positions most their graduates to settle their debts.
For now, such a solution seems distant. A limit on the annual quantity of federal loans was lifted in 1993, and it appears unlikely to come back. Meanwhile, calls to cancel federal student loan debt are growing. In the middle of this mess, the Biden administration is focused on symptoms as the underlying disease goes largely unacknowledged.
