With the Covid-19 pandemic still at the front of everyone’s mind – and with parents and students alike trying to plan for an uncertain fall semester – it can be hard to step back and take a bigger picture look at how Washington is managing the future of student loan debt and forgiveness.
Here’s where the situation currently stands when it comes to the Trump Administration and its stance on student loan forgiveness when it comes to “borrower defense to repayment.”
The original “gainful employment rule”
In the 2010’s, there was increasing pressure put on government and the for-profit university industry to better care for student loan borrowers, many of whom graduated with overwhelming amounts of debt.
That debt became a particular problem for borrowers who weren’t able to find employment after graduation. It was also an issue for the borrowers who were in the middle of getting their education when an institution closed.
The Obama administration finalized a rule in 2014 to tackle these issues. The law that was passed then required that most for-profit programs and certificate programs at nonprofit or public institutions (programs that are shorter than a typical Associates or Bachelors degree) had to help students find “gainful employment in a recognized occupation” in order to receive federal student aid.
That’s a mouthful, but some of the most important intentions of the rule were:
- Once employed, the estimated annual loan payment of the typical graduate wouldn’t exceed 8 percent of earnings, or 20 percent of their discretionary income
- Schools would have to provide a higher level of transparency about their graduates’ employment rates, salaries, and debt burden after school
- Improved outcomes for students especially at for profit institutions, and programs intended for career-specific training
One way the rule would enforce these changes was the plan to forgive federal student loans for students who had attended a school that employed illegal or otherwise deceptive practices in order to get students to attend – and thus take out large amounts of debt.
The regulations went into effect on July 1st, 2015.
The impacts of the “gainful employment rule”
As the law went into effect, the Obama Administration cited statistics to support their decision. At the time, they estimated that:
- Around 1,400 programs would not meet the new standards.
- Around 99 percent of these programs were at for profit higher education institutions
- Over 800,000 students would be impacted by the changes
- On average, a two year for profit institution would cost around 4 times as much as a community college
- Students at for-profit colleges encompass about 11 percent of the total higher education population – but 44 percent of federal student loan defaults
On the other side of the equation, many education institutions would be impacted by the rule – especially many for-profit schools who depended on federal student aid for much of their revenue. Leaders at such institutions pushed back against the rules, like then president of ITT Technical Institute Gene Feichtner who referred to “unjust assaults.”
Such for-profit institutions had previously benefitted from Bush-era regulations, and enrollment at places like the University of Phoenix, Corinthian, and others had seen their share of the total undergraduate population increase from 4.6 percent in 2000 to 10.3 percent in 2012.
Opponents of the rule also say that the loan forgiveness program places an unfair burden on taxpayers in the event that an institution goes out of business – the money to forgive the loans has to come from somewhere.
The new administration and Betsy DeVos
In 2016, a new round of rules was announced to further protect student borrowers as the Obama Administration wrapped up its time in office – but they would be short-lived.
Much of the Trump Administrations’ initial actions once taking office involved repealing Obama-era rules, and this was no exception.
Betsy DeVos, a long time advocate of things like school choice and charter schools, began the job of U.S. Secretary of Education.
With a background in business, DeVos set to work combatting the Obama era regulations, arguing they were unfair to both the institutions and taxpayers alike. That turned into an extended legal battle.
In 2019, it was announced that the Obama era regulation would be revoked, effective July 1, 2020. DeVos stated:
“The department’s rules should be designed to support all students and treat all schools fairly. The previous administration’s rule did neither. All schools should be clear and transparent about their outcomes and all students should have a full range of information available. We’re committed to making that happen.”
DeVos also endeavored a rewrite of the rule. As noted above, the original version of the rule put forth during the Obama administration allowed students to have their federal student loans wiped clean if it was shown that the school was deceptive in encouraging students to take on debt to attend the institution.
In the DeVos version of the rule, the definition of what was deceptive or fraudulent would be narrowed down. She has long argued that the rules are too broad, and allowed for too many borrowers to qualify for forgiveness at the expense of taxpayers. A key change would be shifting the loan forgiveness from automatic in the case of a school closing, to requiring borrows to both apply for forgiveness and show financial harm.
She said in a statement:
“The regulations proposed today accomplish that by laying out clear rules of the road for higher education institutions to follow and holding institutions, rather than hardworking taxpayers, accountable for making whole those students who were harmed by an institution’s deceptive practices.”
The 2020 battle
As this year began, the new DeVos rule was put before Congress. In January, the House of Representatives voted to overturn the rule, by a vote of 21-180. In March, the Senate also voted against the new rules, by a vote of 53-42.
In May, President Trump then vetoed the bill, agreed upon by both Chambers of Congress, effectively holding up the DeVos rule.
An attempted override of the Trump veto by the House of Representatives failed in June.
What comes next
After failing to override Trump’s veto, the new narrower student loan forgiveness rules were instituted on July 1st of this year – in the midst of many other major national stories domineering the headlines.
States have already started fighting back against the new rule, with attorneys general from 22 states and Washington DC filing a lawsuit that same month in federal court against DeVos. The suit claims that the bill violates federal law.
What it means for you now
The battle on this front is far from over and while likely continue, even with bigger education issues on the horizon. We will have to wait and see what happens with lawsuits and other avenues before a conclusion is reached. However, it’s good to know whether these rules even affect you. Student loan debt forgiveness is a common term, so it’s important to note that these rules aren’t the same thing as loan forgiveness that comes from public service, or the ability to pay off loans based on income.
As the Covid-19 pandemic continues, many more student loan borrowers are also unsure of what will happen to their debt and repayment options in recent months. When Congress initially passed their first stimulus relief bill in March, payments for federal student loan borrowers were suspended for six months. But similar relief is not currently included in the proposed HEALS Act.
That deal would allow, starting October 1st, for those who are out of work to have their payments waived, but to start paying again once they are making income. Democrats are against the deal and are pushing for more stimulus relief, and Congress still needs to reach a deal.