Posted on 08/08/2016 9:16:49 PM PDT by Mr. Mojo
Regulations are flying out the door in in Washington, where an already hyper-aggressive Obama administration is looking at its last chance to move its agenda forward while sidestepping Congress. Many of the expensive rules in areas like energy, health care, and finance have drawn widespread public and media scrutiny – which makes it all the more curious that what is likely to be the single most expensive proposed regulation of the year, a Department of Education rule that would discharge billions in student loans, has gone almost completely unnoticed.
The proposed rule, titled the “Borrower Defense to Repayment Regulations,” would create a stampede to file claims for loan forgiveness based on a newly broadened, vague standard requiring only that a plaintiff allege a school made a “substantial misrepresentation.” This phrase is defined broadly as any “statement” or “omission” with a “likelihood or tendency to mislead under the circumstances.”
For decades students have been able to apply for loan forgiveness when they were victims of intentional fraud or another violation of state law. The proposed rule ditches the requirement that there be any actual legal violation, substituting in a new standard so vague that complaints will proliferate based on innocent errors and alleged misunderstandings – with the costs shifted either onto schools or, ultimately, to federal taxpayers.
Schools will have little recourse to defend against the allegations. Determination of whether an institution has made a “substantial misrepresentation” to a student or group of students is made unilaterally by a hearing examiner at the Department of Education. The examiners, facing sympathetic tales of woe from people who racked up big debt totals, will likely be inclined to approve most of them. State universities and community colleges will consume taxpayer dollars defending themselves even when they prevail. Some schools, flooded with claims, will likely be put out of business, leaving taxpayers on the hook.
The ultimate cost to taxpayers will be astonishing. The department’s own analysis found “a net budget impact in costs over the 2017-2026 loan cohorts ranging between $1.997 billion in the lowest impact scenario to $42.698 billion in the highest impact scenario.”
Let that sink in. Bureaucrats are proposing a rule that imposes costs – they think – of at least $2 billion and quite possibly $40 billion or more on taxpayers. What kind of insane range is that? They clearly have no clue how much this will cost. And who elected the Department of Education to spend our tax dollars at all?
I, sadly, agree. The students who took out the loans bare a good portion of the problem. However, our schools are telling all students that they must go to college, that any degree will gain them great benefits, and that the money will be easily paid back. It is my belief that, as disgusting as it may seem, our system owns part of the problem. Why does our system allow others to file bankruptcy to discharge their debts but not student loans. I am by no means advocating not paying your bills but the system has no form of relief for some poor joe buried under student loans.
Would the snowflakes then have to study actual college-level curricula?
“a newly broadened, vague standard requiring only that a plaintiff allege a school made a “substantial misrepresentation.” This phrase is defined broadly as any “statement” or “omission” with a “likelihood or tendency to mislead under the circumstances.””
While I agree that schools that told kids they would be able to earn a living with degrees in crap like “queer studies” basically committed fraud, we shouldn’t forgive the loans. Instead, the school should have to refund the tuition, plus penalties, to the student (and the government if there was a loan).
“But banks can be bailed out freely, without any moral hazard.”
Whoever said that? Nobody on FR that I’ve ever seen, that’s for sure!
“The education monopoly needs to be destroyed.”
Just get government out of the business of student loans entirely. Government funding is what allows the inflation of tuitions, allows schools to escape any ramifications from poor performance, and shields them from any competition (since they are all sucking off the same teat anyway).
A few thoughts.
1) our government operates on cash flow management, not profit. This money has already been spent (for the most part poorly) and it is uncollectable for the most part.
2) If this is implemented, it will put a lot of schools and colleges out of business both good ones and bad ones.
3) there are pros and cons to this.
My complaints are mostly with the accrediting national body that blessed off on inflated trade schools and diploma mills receiving federal tuition assistance and student loan money’s. Most of the people that attend such schools are not terribly sophisticated financially and in my opinion were taken advantage of and the feds basically blessed off on it.
Ahhh, ain’t socialism great.
Government Control!
I don’t think the bad loans have been sold off and wound up into bonds which eventually become as worthless as the loans as much as happened with the bad housing mortgages - this will probably be a more transparent collapse in that people will be able to see pretty much where the money is owed - what made the housing collapse so bad was that eventually nobody knew what any of the collateralized bonds were worth and so nobody could trust any bank any longer because they didn’t know what they were actually worth....
Thanks for that explanation.
Student loans aren’t really secured against anything and their default rate as it is is humongous. Also, generally their interest rate is capped artificially low. Not allowing them to be discharged in bankruptcy was part of the agreement that was reached between borrower and lender to give lenders something of an incentive to make such a risky and unrewarding loan.
Of course, the government has pretty much taken over the market anyway—and that government should simply be shut down totally and immediately. In the modern world, there is no reason for students to go live a six-year party at taxpayers’ expense for what on average is a part-time commitment in hours to learning.
Let students learn from cost-effective online systems unless they or someone else is voluntarily interested in paying their freight for that extended party.
Taking two classes a semester over a three-semester year will get most undergraduates graduated in less time than the average undergraduate takes today. With that workload, they ought to be able to suck up a full-time, if menial, job to fund themselves along the way—and nobody therefore has to end up in debt.
“Let students learn from cost-effective online systems...”
Great thought. I agree that the system is out of control and the government has played a big roll in screwing things up. Hey, when does the government not screw things up? Good post.
Thanks. ;-)
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