A new Obama administration proposal that would ease the process for student loan forgiveness would cost taxpayers up to $42 billion over the next decade, according to administration estimates.
The proposed rule streamlines the loan relief process for students who say they were defrauded by either a for-profit or nonprofit college or university. More students could take legal action, either individually or by class action—the change would allow for group discharges of debt, including for students that did not even join the lawsuit if it is ruled their institution committed widespread misrepresentation.
The federal government is currently financing over $1.2 trillion worth of outstanding student loan debt, some of which is held by students who are unhappy with the education they received, according to the Wall Street Journal.
The White House Office of Management and Budget has dubbed the change to the debt-relief process as “economically significant.” The Department of Education estimated that the proposal would cost up to $42.69 billion from 2017-2026.
Sen. Lamar Alexander (R., Tenn.), who chairs the Senate Committee on Health, Education, Labor and Pensions, said he is concerned that the proposal goes too far and will be too costly.
“I am carefully reviewing today’s proposal on the ‘borrower defense’ regulations to address student loan forgiveness options, but I am concerned the proposed regulations expand these options too far and will result in significant cost to taxpayers,” Alexander told the Washington Free Beacon. “Students have been hurt, but the department is establishing a precedent that puts taxpayers on the hook for what a college may have done.”
Alexander questioned whether the administration is coming at the problem from the most logical angle.
“If your car is a lemon, you don’t sue the bank that made the auto loan—you sue the car company—and if students feel they were defrauded by their college, the legal system exists for them to seek justice,” he said.
Alexander said his Senate committee should be given a chance to address how to best assist students who have been taken advantage of by a college through legislation.
“Later this year in the reauthorization of the Higher Education Act, the Senate will review and address the right way to help students who find themselves in this predicament,” Alexander said in a statement. “This is one more reason it was a bad idea to make the U.S. Department of Education the banker for students as well as the regulator of their colleges.”
Alexander added his committee is working to ensure colleges have “skin in the game” on risky loans they offer to students.
“In the Senate education committee, we are working to require colleges to have some skin in the game so they share in the risk of lending to students and making sure our accreditation process focuses on ensuring schools’ academic quality,” Alexander said.
Rep. John Kline (R., Minn.), chairman of the House committee on education and the workforce, called the administration’s proposal “extreme” and said it could end up bringing frivolous action against institutions that have done nothing wrong.
“The department is rejecting the reasonable approach for an extreme, partisan approach,” Kline said in a statement. “This vague and subjective regulatory scheme—which totals more than 500 pages—threatens to ensnare institutions that are following the law and serving the best interests of their students.”
Kline said schools that commit fraud against a student should be held accountable and forced to provide relief through a fair process, but that it should not be put on the back of the taxpayers.
“Taxpayers will be on the hook for billions of dollars in discharged loans, and ultimately, students will have a harder time accessing the education they need to succeed in life,” Kline said.