In what is just the latest in a series of government overreach actions, the Obama administration, without any input from elected lawmakers or the authority of legislation, is moving to revise an old rule making it easier for students to have their student loans forgiven, leaving taxpayers on the hook to foot the bill. Naturally, the Democrats favorite constituency group, the trial lawyers, would get in on the action.
On Monday, The Department of Education released a proposed amendment that vastly expands the conditions under which students can apply to have their student loans discharged if they feel that they have been defrauded or misled by their colleges. The DOE itself has even estimated that the impact of these loan discharges to taxpayers could reach as much as $43 billion over the course of the next decade.
The key change that would open the floodgates to litigation under the “borrower defense to repayment” regulation is language that would allow current and former students to apply to have their loans discharged in the event of “substantial misrepresentation” by the school. That’s a vague and wide open phrase that could mean anything.
Intended protect students from unscrupulous colleges intentionally defrauding students, this overly broad language would open up academic institutions of all kinds to the potential for unsubstantiated allegations with little recourse for defense.
Even unintentional clerical errors could fall under this misrepresentation, allowing students to forego their debt obligations for a college’s simple mistake. Disgruntled students long after graduating can apply to have their loans discharged should they be able to make claim they were misrepresented in any way.
Unsurprisingly, liberal organizations have jumped on the Obama bandwagon in support of this proposal. Carmel Martin, Executive President for Policy at the Center for American Progress applauded the proposal, stating, “This proposed rule contains important provisions that will ensure that predatory institutions, not taxpayers, are held accountable when a school fail.”
Who’s she kidding? Taxpayers will inevitably foot the bill for the loan discharges. Given that the proposed new rule would apply to all types of higher education institutions, public, taxpayer-funded institutions could also be implicated for shouldering loan discharges. Many students have federally-guaranteed loans, which if a student were to have their loans discharged the obligation for repayment would fall on taxpayers.
Indeed, as Senator Lamar Alexander (R- TN) has stated, “Students have been hurt, but the department [of education] is establishing a precedent that puts taxpayers on the hook for what a college may have done.”
Even more troubling is a provision of this proposed regulation that would remove the arbitration section of the contracts students sign with colleges and remove the current ban on class action lawsuits. This provision would be ripe for fee contingent plaintiff’s to exploit.
By removing the arbitration section of the contracts aggrieved students, whether the aggrievement is real or perceived, would find their cases in long, drawn-out court drama. This advantages the plaintiff since schools would likely settle rather than pay years of legal bills against lawyers operating on a contingency basis. That means, ultimately, the big winner of this rule change would be trial lawyers, one of the largest donors to Democratic candidates across the country.
Given that this proposed regulation would apply to students attending, public universities, for-profit colleges, trade schools that’s an unimaginable number of new potential clients for unscrupulous licensed Democratic donors.
Students should have protections in place to defend against being misled or defrauded by their academic institutions. However, this proposed rule takes those protections too far and is so vague that it will open up academic institutions to a slew of unsubstantiated claims and frivolous lawsuits. If there’s a case to be made for strengthening student protections the Obama administration shouldn’t be afraid to make it through the constitutionally prescribed legislative process rather than rushing this through by executive order.