Tag Archives: loan forgiveness

Costly loan forgiveness amendment will burden universities

The Department of Education is pushing a loan forgiveness amendment to federal student loan policy that would relieve students of their debt if they could make the case that the school “substantially misrepresented” the education received. This new policy would have vast financial implications, is poorly thought-out, and is unlikely to be adjudicated properly.

Under the current policy, there are two main situations in which a student can apply for loan forgiveness: when the borrower succeeds in legal action against the school or when the school fails to meet contractual obligations.

This policy change would add a third component, stating that when the school makes substantial misrepresentations toward the borrower, the borrower can be eligible for loan forgiveness.

At first glance, this amendment looks as though it is protecting the small guy against big, powerful universities. However, the wording of this amendment, “substantial misrepresentation,” goes well beyond the legal definitions of fraud, making it easier for borrowers to make expansive and unreasonable claims. “Substantial misrepresentation,” as defined here, could take the form of a university advertising salary expectations or job prospects which the borrower did not find themselves able to achieve. Or, it could mean the university providing a school ranking institution with any flawed or misleading statistics — a common practice.

While universities should provide honest and detailed statistics to college ranking outlets, the famed U.S. News and World Report rankings are well-known to be fraught with problems; metrics are played around with every year, changed in small ways. Universities must report their acceptance rates, so some have been known to artificially inflate their applicant pool numbers.

A large element of the ranking is subjective, based on reputation or intangible factors like faculty dedication to teaching. It should be no surprise that rankings are far from a precise science. Yet with this new Department of Education ruling, these flimsy metrics could be used to dole out costly loan forgiveness. This amendment is unlikely to bring about greater accountability in college advertising and ranking reporting. Rather, it will simply create an avenue for individuals to drag universities through mountains of paperwork in attempts to get vengeful claims. According to the proposed rule, these claims could cost taxpayers anywhere between $2 and $42 billion.

Continue reading at the Richmond Times-Dispatch.