The Influence Of Lobbying On Student Loan Policy – Central to the student debt relief plan President Biden announced last month is his decision to cancel up to $20,000 in federal loans per borrower. But a more far-reaching and, over time, more costly element of the president’s strategy is his revised blueprint for an income-linked repayment plan that would drastically reduce the monthly fees many borrowers pay.
However, this may have unintended consequences. Unscrupulous schools, including for-profit institutions, have long used high-pressure sales tactics, or blatant fraud and deceit, to saddle students with more debt than they could reasonably hope to repay. By providing more generous education subsidies, the government may create a perverse incentive for schools and borrowers, who may begin to pay less attention to the real price tag of education, while taxpayers may shoulder more of the cost.
The Influence Of Lobbying On Student Loan Policy
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“If people take on the same or more debt and pay back less, it’s the taxpayers who will bear the brunt,” said Daniel Ziebel, chief counsel for the National Student Legal Defense Network, an advocacy group.
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Experts are particularly concerned about how the new subsidies are being manipulated by for-profit colleges, many of which have a track record of convincing people to take on high debt for degrees that often don’t deliver the kind of revenue boost the schools advertise.
Sharon Arnold, 44, a first-generation college student, enrolled at the University of Phoenix in 2009 because she saw higher education as a way out of $12-an-hour service jobs. She was drawn to the school’s online program for working adults and ads touting its career placement services.
Pell Grants and federal loans paid for her tuition, but earning a bachelor’s degree in human services administration four years later didn’t improve her job prospects. Despite her reluctance to take on more debt, career counselors urged her to pursue an MBA. She said she was told it would increase her earning power, and that the school had partnerships with major employers to give graduates employment priority.
But her job search was once again fruitless. Ms. Arnold, who lives in suburban Oklahoma City and now makes $16 an hour in the hospitality industry, owes the government $126,000 in student loans since attending the University of Phoenix more than a decade ago. The debt prevented her and her husband from getting approval for a mortgage to buy a home.
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Ms Arnold’s alma mater has long been under the scrutiny of regulators for what they say is a deceptive claim. The University of Phoenix has paid more than $127 million over the past 20 years to settle government lawsuits over illegal tactics such as tying the salaries of its recruiters to the number of students it enrolls and a deceptive marketing campaign falsely claiming partnerships with large corporations .
The University of Phoenix has 150 schools with strong indications of “serious misconduct,” according to the Department of Education. (The list was included in a legal settlement the department reached in June that, if finalized, would cancel $6 billion in federal student loan debt for 200,000 borrowers, including Ms. Arnold.) The school is the The list is still running. It still qualifies for federal student loans and relies on them for nearly all of its income.
University of Phoenix spokeswoman Andrea Smiley said the school is “proud of all of our one million graduates, and we have several student support initiatives, including tuition guarantees, academic and career coaching, lifelong career services And 24/7 online support and more.”
She added that the school “categorically” disagreed with any suggestion it had acted inappropriately. The University of Phoenix did not comment on the Biden administration’s loan cancellation plans.
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Experts say Biden’s new plan could increase schools’ incentives to saddle students with unreasonable debt.
“Debt cancellation and income-directed repayment cannot be done alone,” said Sarah Sattelmeyer, director of the Higher Education Project for a New American think tank. “We need to couple those things with really strong accountability structures.”
Past efforts to rein in underperforming institutions have been derailed by lobbying, litigation and changing political tides. The administration’s most powerful hammer — a provision called the “gainful employment” rule implemented during the Obama administration that threatened to cut off federal aid funding to for-profit schools whose students earned too little to pay back their loans — was repealed In 2019, President Donald J. Trump’s education secretary, Betsy DeVos, proposed it.
The new subsidies may also make students less wary of taking on high debt. The Education Department has yet to release details of Biden’s new repayment plan, but the outlines the president described last month could change higher education financing, especially for undergraduate degrees, by shifting more costs from borrowers to taxpayers.
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Jason Altmire, chief executive of Career Colleges and Universities, an industry group representing for-profit colleges and universities, said: “As several economists have argued, the new repayment plan could departmental costs and incentivizes students to take on more debt.” He criticized the revenue-driven plan proposed by the Biden administration, saying it would “create more confusion and do nothing to lower college costs.”
Some 45 million people owe the government $1.6 trillion in student loans, with the average balance hovering around $37,670. Currently, borrowers who opt for an income-linked payment plan typically have to pay more than 150 percent of the poverty line above 10 percent of their discretionary income (defined as all income).
Biden wants to raise the minimum income and housing income to 225% of the poverty line, cut the repayment rate on undergraduate loans to 5% of income and stop charging borrowers interest on monthly payments. As with existing income-driven plans, any remaining balance will be forgiven after up to 20 years of payments.
Collectively, the changes will allow millions of borrowers to pay little or nothing on their loans. But any unpaid payments will eventually be absorbed by the government – a dangerous proposition in a system already rife with abuse.
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With potentially billions of dollars at stake, schools accused of wrongdoing fight back vigorously, and it can take years to sever ties with even the worst actors. The government relies on independent accreditation agencies to ensure the quality of schools, but schools that lose accreditation—a drastic move designed to sound the death knell—sometimes manage to retain eligibility for federal funding.
Jonathan Glater, a law professor at the University of California, Berkeley, said the government’s choice to deal with school misconduct has never been “preventive, but acted after the fact.”
He added: “It would be great to have a regulatory scheme that would actually prevent harmful behaviour, but it’s surprising that more people aren’t asking for it.”
In a written statement, the Education Department said the Biden administration is “committed to preventing future student debt crises and will hold colleges and universities accountable if they leave students in debt or without good jobs.”
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The department recently said it was rebuilding the federal student aid division’s enforcement team (which Ms. DeVos disbanded) and would more actively police accrediting agencies.
Aaron Ament, who oversaw enforcement issues at the Education Department during the Obama administration, said it was just the beginning, but the agency needed to move faster. He would particularly like to see the gainful employment rules that Ms. DeVos repealed revived.
“The rule is one of the best front-end accountability measures we have to weed out failed projects,” Mr Ament said.
Ms. Arnold, a Phoenix graduate, is proud of her degree, but in hindsight, she says, she would not have had so much debt if she had realized that her studies had little financial return. “Even though I put a lot of effort and time into my education, I also want a good return on investment,” she said.
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The University of Phoenix wants her back. Last month, the company emailed her offering a scholarship of up to $3,000 if she returned home to pursue a Ph.D. Ms Arnold declined the offer.
Stacy Cowley is a financial reporter focusing on consumer issues and data security. She has previously covered a variety of business topics, including technology and economics, for CNN Money, Fortune Small Business, and other magazines and websites. More About Stacey Cowley
A version of this article appears in section B on page 1 of the New York edition under the headline: How Student Loan Subsidies Create New Problems. Order Reprints | Newspaper Today | Subscribe This site uses cookies. By continuing you agree that we may use cookies as disclosed in the Privacy Policy.
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