The Department of Education’s proposal to broaden the existing borrower defense to repayment rule will give college students new grounds to sue their schools for loan forgiveness. Underemployed grads and downtrodden dropouts can claim they were misled and never got their federally loaned money’s worth. But the biggest problem with the proposal is the price tag. Indeed, the potential cost to taxpayers is virtually inestimable in its vastness: somewhere between two and 43 billion dollars, according to the Office of Management and Budget.
Back in July, when the regulation was up for public comment, THE WEEKLY STANDARD wrote:
Nothing’s really changed since then, although opposition to the rule has advanced in step with its progress. Taxpayer advocates say the rule’s steady march toward enactment, despite its alarmingly uncertain price tag, is due to the administration’s political preference. Late last month, a coalition of taxpayer defense groups who’ve continually called foul to no avail coauthored a letter to OMB’s Office of Information and Regulatory Affairs, which currently in the process of reviewing the rule.
Ever watchful for costly federal overreach, groups like Heritage Action and Americans for Tax Reform urge OIRA—the “central authority for the review of Executive Branch regulations,” after all—to do its job. “If OMB review of regulations is worth anything, they should at least put a pause on this one until we can get an economic analysis that’s not totally laughable,” Phil Kerpen of American Commitment told TWS.
The rule is set take effect in the fall of 2017, and the Department of Education plans to release it in its final form by November 1—following a public comment period that closed on August 1, and pending approval by OIRA. As it’s a lame duck priority for this administration, there’s little chance OIRA will pause to permit an independent review.
This administration cannot so easily ignore the cost to small private colleges, on the other hand. The regulation could bankrupt schools whose small endowments won’t cover legal defense against a forthcoming flood of class-action suits. Historically black colleges (HBCUs) and universities serve their founding missions by recruiting primarily first-generation, low-income college students. Unfortunately, many of these students come underprepared or unsure what to expect. Many drop out. Prudently, HBCUs anticipate a flood of BDTR claims, as a result of which they would have no choice but to raise tuition. A July letter from HBCU leaders and advocates urged Education Secretary John King to extend the comment period.
OIRA will likely approve the regulation without a ripple of concern for its vague consequences and unknown cost. If any of the public comments sway the executive oversight body to revise the rule, it would be the HBCUs’. Although their request for an extended comment period was not met, they can reasonably anticipate a sympathetic OIRA review, Kerpen told TWS.
Taxpayer advocates, on the other hand, can expect no such sympathy. The difference between the responses two groups’ can expect comes down to this administration’s political priorities. A clear path to block the rule will open only in the case of a President Trump getting to sign off on a Congressional Review Act action overturning it. (I’d advise against holding your breath though.)
Susan Dudley, head of OIRA under George W. Bush, told the Washington Free Beacon, “The OMB team is probably raising red flags about the analysis of this rule but then you might have other people saying that this is a high priority of the president.” She went on, “When the president’s priorities and good government analysis conflict, most of the time the president’s priorities will win.”
Kerpen, who has implored OIRA to ask for a more exacting analysis of BDTR’s cost, told TWS Dudley’s comments to the Beacon should give us pause. “It makes you wonder a little bit if a former OIRA administrator is telling you that,” he said. “It inspires very little confidence that someone who formerly had that job is saying that the function of that job can essentially be trumped by political considerations.”
Proponents of the rule do claim it’s a much-needed relief to victims of dishonest for-profit colleges, poor fools buckling under the weight of their crushing, “crisis“-level college debt. (Meanwhile, the numbers of for-profit colleges and their borrowers’ default rates only continue to fall.) The vague and ambitious rule would apply to any and all who can show they’ve been somehow duped. In effect, BDTR shifts the burden of culpability to colleges themselves when every school is guilty, to some degree, of dishonest advertising. Helpfully for the feds, this expanded loan forgiveness would lift blame from the loaning body. Like the loans themselves, the rule comes with a misleading message: The government is your friend. In the spirit of defense-to-repayment, shouldn’t I get my money back if I can prove I’ve been “intentionally misled” by the federal government?
