A newly proposed student loan bailout rule would expand loan forgiveness to those who were “defrauded or deceived by an institution,” but it’s going to cost taxpayers anywhere from $2 billion to $43 billion.
18 national taxpayer organizations — from the Tea Party Patriots to the National Taxpayers Union — are demanding that the Department of Education withdraw the new rule.
The updated Borrower Defense to Repayment (BDTR) provision of the Higher Education Act would “create a stampede to file claims for loan forgiveness based on a newly broadened, vague standard,” according to a letter the taxpayer groups sent to Education Secretary John King Jr.
The existing BDTR rule had only been used 5 times since 1993, according to education lawyer Katherine Lee Carey. However, since the collapse of Corinthian Colleges last year, they’ve had around 20,000 new claims.
Without a framework to process the high amount of claims, the Department of Education set about replacing the old rule.
“The new rule establishes a set of new claims that a borrower could make to get out of paying off his or her loan: a breach of their contract with the school; a substantial misrepresentation by their school (even if unintentional); or a legal judgment against the school,” Carey explained.
This rule does not just apply to for-profit colleges — it applies to all colleges and universities that participate in the federal student loan program.
“These newly proposed rules are so broad and vague that complaints will proliferate based on innocent errors and alleged misunderstandings — with the costs shifted to federal taxpayers,” said Phil Kerpen, president of the free-market public policy organization American Commitment, which is leading the coalition of taxpayer organizations with their complaint.
The coalition argues that this new rule is a federal overreach by the Department of Education, and only Congress has the power to decide how public money is spent.
The proposed changes were published in the Federal Register on June 16, and public comment is allowed through August 1. ED’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.”
“When a regulation claims to cost taxpayers $2 billion to $43 billion you can assume the agency actually has no idea what the final price tag will be — but it won’t be cheap,” said Kerpen. “Forcing taxpayers to pay for bad student loans is wrong.”
Debt Collective, a group that advocates on behalf of student borrowers, is also opposed to the new rule — because they feel it doesn’t go far enough to help defrauded students get relief.
“Whether collective relief is available for any group of students will be totally up to the Department,” said a statement from the group. “We don’t trust them to do the right thing. They don’t have a good track record.”
