The gainful employment rule enforces the Higher Education Act’s requirement that all career education programs receiving federal student aid “prepare students for gainful employment in a recognized occupation.” The rule uses debt-to-earnings ratios to assess whether career education programs at public, nonprofit, and for-profit colleges are leaving their graduates with reasonable debt burdens. Programs that exceed allowable thresholds—those consistently leaving their graduates with more debt than they can repay—must improve or lose eligibility for federal funding. This rule also provides consumers with key information about program costs and outcomes so they can make an informed decision about where to enroll.

The Department of Education has proposed rescinding the gainful employment rule completely, arguing that programs’ performance under the rule can be explained by factors like student characteristics and economic background, program field, and school location. However, similarly located career education programs serving similar students can have very different outcomes.

We recently identified several poorly performing programs that are located near programs that have much lower cost and/or much better outcomes. For example:

  • In Birmingham (AL), graduates from the criminal justice administration bachelor’s degree program at Strayer University typically earned almost twice as much and owed $6,600 (20 percent) less than graduates from the same program at Virginia College.
  • In South Plainfield (NJ), graduates from the dental assisting certificate program at Central Career School typically earned $6,600 more per year and owed about half as much as graduates from the same program at Everest Institute.

In addition to providing the same program in the same city, the schools in each comparison serve demographically similar groups of students, as measured by the share of the student body that receives Pell Grants, is Black, or is Hispanic/Latino.

These examples demonstrate the need for the gainful employment rule to prevent poorly performing programs from continuing to bilk students and taxpayers, and to keep unscrupulous schools from enrolling as many students as possible without regard to the quality of the training or job prospects. They also show that students have alternative options for where to enroll even if poorly performing programs close.

To learn more, check out:

  • Our new analysis for more comparisons. 
  • Our comments on the Department’s proposal to rescind the gainful employment rule.
  • The comment submitted by 68 organizations representing students, consumers, veterans, service members, faculty and staff, civil rights, and college access – demonstrating broad support for affordable, quality career education.

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This week, in a strong showing of bipartisan commitment to strengthening federal student loan counseling, the House of Representatives passed the Empowering Students Through Enhanced Financial Counseling Act (H.R. 1635). The bill, introduced by Representatives Guthrie (R-KY) and Bonamici (D-OR), makes key improvements to the timing and content of counseling that all federal student loan borrowers must receive. These changes include ensuring students receive information about their borrowing options and obligations every year, requiring consumer testing of the Department of Education’s online loan counseling tool, and explicitly advising students to exhaust their federal student loan eligibility prior to considering riskier private loans.

Federal student loan borrowers are currently required to complete counseling only twice – once before taking out their first loan, and once upon completing or exiting their program. Thousands of schools use the online student loan counseling tools offered by the Department of Education to provide this counseling. These tools have greatly improved over the years, including through modernizing and streamlining the format, and more fully integrating existing income-driven repayment options into loan repayment plan explanations, as we’ve long recommended. However, by requiring consumer testing of a new online annual counseling tool developed by the Department of Education, the bill passed by the House recognizes that more can and should be done to ensure that the information students receive about their loans is relevant and easy to understand. Students can easily become overwhelmed by the complex information and new terms and concepts related to student loans and repayment. Consumer testing is critical for designing counseling that avoids such common pitfalls and maximizes the potential of counseling to support students making consequential decisions about how to pay for college every year.

The bill also includes a key provision that requires loan counseling to advise students to exhaust their federal student loan eligibility prior to considering riskier private loans, and to provide information about important consumer protections that are unique to federal student loans. This guidance is critical: data show that over half of students who take out private loans having remaining federal student loan eligibility.[1]

Too many students face a financial reality that necessitates borrowing to cover the cost of college; and for students facing the largest financial barriers, not borrowing means not pursuing or completing a degree at all. While loan counseling on its own – however improved – will not solve the problem of college affordability or prevent potentially burdensome student debt payments, it is key to ensuring that students are at least equipped with the necessary understanding of federal loan terms, including options for repayment, before they sign on the dotted line. We thank Representatives Guthrie and Bonamici for their longstanding leadership on this issue, and urge the Senate to follow the House’s direction in making these bipartisan, common sense reforms to student loan counseling.

[1] TICAS analysis using the U.S. Department of Education’s National Postsecondary Student Aid Study (NPSAS), 2015-16.

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The gainful employment rule enforces the Higher Education Act’s requirement that all career education programs receiving federal student aid “prepare students for gainful employment in a recognized occupation.” The rule uses debt-to-earnings ratios to assess whether career education programs at public, nonprofit, and for-profit colleges are leaving their graduates with reasonable debt burdens. Programs that exceed allowable thresholds—those consistently leaving their graduates with more debt than they can repay—must improve or lose eligibility for federal funding.

The gainful employment rule is needed to prevent programs like those from bilking students and taxpayers. Yet the Department of Education has proposed rescinding the gainful employment rule completely, which would be costly in several ways. Our new analysis illustrates one aspect of the cost to students – quantifying how much they borrowed to attend the worst-performing career education programs.

A single round of Department of Education data showed that more than 350,000 students graduated from the worst-performing career education programs with nearly $7.5 billion in student loan debt. Those programs, rated as “failing” or “zone” in the Department’s existing gainful employment rule, would eventually lose access to federal financial aid if they did not improve.

The table below shows the five states with the most failing and zone program graduates, and the amount they borrowed to attend those programs. For example, more than 56,000 students graduated from the worst-performing programs at California colleges, with $930 million in debt to repay.

(college location)

Graduates at failing and zone programs

Amount borrowed to attend failing and zone programs
















Most of these students graduated in 2010-11 or 2011-12, though smaller programs included graduates over a 4-year period. Note that some colleges based in these states have branch campuses in other states (e.g., ITT Technical Institute, University of Phoenix, and DeVry University); due to data limitations, all graduates are counted under the state where their college’s main campus is located. To see the full state-by-state table and details about our methodology, see our new factsheet.

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By Diane Cheng (TICAS), Rachel Fishman (New America), and Laura Keane (uAspire)

Financial aid award letters are crucial tools for students and families to determine which colleges are within reach, but many letters are difficult to decipher and compare. TICAS’ December 2017 analysis of almost 200 award letters, and New America and uAspire’s June 2018 analysis of over 500 award letters from unique institutions found numerous ways in which those letters are inconsistent, confusing, and in many cases misleading to students – such as omitting costs, grouping grants and loans together, using different terms for the same type of aid, and not calculating a bottom-line net price to show how much the student and family will have to cover.

We’re excited to see growing momentum for improving award letters, and we applaud the National Association of Student Financial Aid Administrators’ (NASFAA) recent support for requirements that would set standard terminology and formatting practices for award letters. Specifically, at their recent national conference, the NASFAA Board decided to:

  • “Support a policy that would require schools to disclose estimated cost, as well as an estimated net price in their award notifications.
  • Support requirements that the federal government, in partnership with financial aid professionals, develop a set of common, consumer-tested terminologies and definitions for student aid programs.
  • Support requirements that grants and loans and other self-help aid not be listed together in award letters, and that loans always be clearly labeled as such.”

Here’s why this matters: (See actual award letter examples of these practices in our reports)

  • Providing the full cost of attendance
    • Financial aid is only part of the equation when determining which colleges are within financial reach – students also have to know how much the colleges will cost. For example, when buying a car, it’s not enough to know that you have a $2,500 rebate – you also have to know whether the car costs $10,000 or $25,000. However, a large share of award letters include no cost information at all, and some of those that do include some cost information include only tuition and fees and other costs paid directly to the college. Yet students’ understanding of total costs is critical to being able to assess their ability to pay for them. Basic living expenses such as housing and food are part of the cost of attending college, and students also need to pay for transportation as well as textbooks and supplies to be able to attend class and study.
  • Separating grants from loans and work-study
    • There are important and big distinctions between types of aid - grants and scholarships don’t have to be paid back, loans need to be repaid with interest, and work-study funds need to be earned over time after securing a qualifying job. Unfortunately, both of our analyses found that less than a quarter of award letters separate grants, loans, and work-study. Many award letters presented all the aid types lumped together – leaving students left to sort out what strings are attached to each aid offer. Clearly separating aid by type with simple explanations can improve student decision-making.
  • Calculating net price
    • Net price is the difference between the full cost of attendance and grant/scholarship aid. It’s the remaining amount that a student needs to cover through savings, earnings, or loans to attend the school. Comparing net prices is crucial to getting an apples-to-apples comparison of how much money students and their families will have to pay to get to and through college.
    • Our analyses found that many award letters don’t calculate any bottom line cost, and those that did used inconsistent calculations. New America and uAspire research found over 23 different calculations for this bottom-line cost, which makes comparisons among letters almost impossible, and TICAS’ analysis found that only 13% of award letters included the net price.
    • It’s also important for students and families to know what their “estimated bill” is going to be, namely, what they will need to pay directly to the school before they can enroll and start classes. uAspire has seen time and again students choose their school based on their financial aid packages in the Spring, only to receive a bill in the Summer that is much higher than what they anticipated.
  • Using standard terms and definitions
    • Award letters are filled with jargon and inconsistent terms for the same type of aid. For example, New America and uAspire found that the 455 colleges that included unsubsidized student loans in their aid packages listed them in 136 unique ways, and 24 of those ways didn’t even include the word “loan.” Student-centered communication of mandated common terms and definitions will significantly increase transparency.
    • It is important to consumer test these terms and definitions with stakeholders, including students (particularly low-income and first-generation students who may be less familiar with the college process), parents, college advisors, consumer advocates, financial aid administrators, and others.

With clearer and more comparable award letters, students and families will be able to make more informed decisions about where to go to college and how to pay for it. NASFAA’s recent Board decision aligns with our belief that poor communication that obscures costs and available financial aid serves neither students nor schools. Unclear costs and uncertainty about how to cover them put students at risk of dropping out if their bill is larger than anticipated— and dropping out is one of the major predictors of federal student loan default. Both students and colleges are better off when more students are able to complete and repay their loans successfully. While, in and of themselves, award letters will not solve the gaps in financial aid that create affordability challenges for students, improvements to those communications will help ensure that students and families clearly and accurately understand the costs they’ll be facing.

We applaud NASFAA, federal and state policymakers, as well as college financial aid administrators who see themselves as part of the solution. uAspire has already heard from colleges that are leading the way to improve their own award letters, including Colorado State University, the University of Missouri, and Dartmouth College. If you are working to improve student-centered communication of financial aid offers, we would love to hear from you.

To learn more about the shortcomings of financial aid award letters and policy solutions to improve transparency of college costs and aid, check out our research:

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Much has already been written about higher education in the California budget agreement for 2018-19, the broad parameters of which have been public for days. Yet there are several important provisions for college affordability and financial aid in the budget trailer bill passed today that have flown under the radar and deserve to be elevated. They include the following:

  • Full-time Cal Grant recipients at community colleges will see an increase to their financial aid awards. In his January budget proposal, the Governor proposed consolidating two community college financial aid programs into one, and to increase funding for the consolidated program. We had some suggestions on how to do it in a way that better addressed both students’ and colleges’ needs. The proposal adopted by the Legislature reflects many of our recommendations, including making the grants easier for students to receive, making the program easier for colleges to administer (and providing some administrative funding as well), and better supporting students in summer terms. Importantly, under the final language, all full-time community college Cal Grant recipients will see an increase to their awards. These changes will enable many community college students to spend more time in class and studying, rather than working to cover total college costs, increasing their odds of graduating and graduating faster.
  • Foster youth will have an easier time getting a Cal Grant, as we have long recommended. Students who transition quickly from high school to college are entitled to receive a Cal Grant, but those who don’t face long odds to get one. For former foster youth, who face particularly challenging hurdles en route to college, insufficient support can lead to delayed enrollment which in turn affects how much financial aid they can receive. The budget agreement extends former foster youths’ entitlement to a Cal Grant by several years (until age 26), and gives those attending community college a longer window of time in which to apply.
  • A modest but important step towards greater institutional accountability for financial aid, by allowing students at nonprofit colleges to retain a larger Cal Grant award if their sector enrolls more students with Associate Degrees for Transfer from community colleges.
  • Through funding for the California College Promise (AB 19/Statutes of 2017), colleges will be able to provide even greater support to students whose financial struggles hold them back from graduating. How colleges use their California College Promise money is up to them, so long as it is used to support student success. After exploring what is holding students back, some colleges are choosing to spend their resources helping students overcome the financial barriers that non-tuition costs of college pose to student success. Whether used to provide childcare resources, transportation vouchers, or textbooks, helping financially needy students cover their non-tuition costs of college is an important way to support student success.

Higher education experts throughout the state agree that greater and more targeted investments in financial aid are needed, and we are grateful for both Governor Jerry Brown’s and the Legislature’s continued leadership and commitment to improving college affordability. The financial aid provisions in this budget agreement mark yet another step in the right direction for our state’s underserved students. Nonetheless, the severity and scale of equity gaps demands that more be done. We look forward to continuing to work with the Legislature and the next Governor to ensure that all needy Californians can afford to get to and through college.  

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About seven million undergraduates each year rely on federal loans to enroll in and complete college. While many students find that student loans are an excellent investment in their future and are able to successfully repay their loans, others struggle to make payments, or make payments that do not keep up with accruing interest. The worst-off borrowers are those who don’t make payments for at least 270 days, end up in default, and are left with much more to repay, wrecked credit, and limited employment and educational opportunities.

Two new TICAS fact sheets released today use different datasets and measures to look at where student loan repayment challenges are particularly severe. One uses a nationally-representative longitudinal survey of students who began college in 2003-04 to find that 17 percent of students defaulted on their loans within 12 years, including nearly half of students who first enrolled in for-profit colleges. Like others who have dug into these data, such as the Department of Education, Ben Miller, and Judith Scott-Clayton, our analysis finds that certain groups of students – including African-American students, Pell Grant recipients, and first-generation students – are far more likely to end up in default than others, even if they completed their programs.

The second fact sheet uses College Scorecard data to explore the colleges where many borrowers are seeing their loan balances grow, rather than shrink, many years after leaving school. Specifically, we focus on the 781 colleges where most undergraduate students borrow federal loans, and where fewer than half of those borrowers were paying down their debt seven years into repayment. At half of all for-profit colleges, most students borrow and few repay. Additionally, African-American students, Pell Grant recipients, and first-generation students all disproportionately enroll at colleges where most students borrow and few repay.

While these fact sheets take different approaches to looking at student loan repayment struggles, they underscore similar trends. First, while student loans are an excellent investment for many students, we need to pay more attention to the students who struggle to repay their loans. Second, they show that enrolling in and borrowing for college pose particular risks for underrepresented students, groups which may need additional support before, during, and after college. Finally, there are wide variations in repayment outcomes at different colleges, and for-profit colleges are especially likely to have poor repayment outcomes - underscoring the need for stronger accountability and oversight by states and the federal government of colleges that leave students with debts they cannot afford. 

Read our new fact sheets here:

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As Americans across the country scramble to finish their taxes this month, some federal student loan borrowers are facing a new obstacle for the first time – a larger tax bill due to student debt that was forgiven through income-driven repayment (IDR). Long recognized as a policy design flaw and looming threat for borrowers in IDR, this unfair tax penalty will become a growing problem for struggling borrowers in the years ahead and policymakers need to act quickly to address it because borrowers should not be hit with a potentially unaffordable tax bill after making responsible loan payments for 20 or 25 years.

Why shouldn’t the forgiven debt be taxed? Simply put, forgiven student debt is not a windfall of income. A borrower with a $20,000 remaining loan balance doesn’t suddenly have $20,000 more in spending money when that balance is forgiven.

The benefit of loan forgiveness for borrowers is severely undermined if forgiven loan balances are treated as taxable income, immediately replacing one unaffordable debt with another. It is contrary to the policy goals of forgiveness for the government-as-lender to forgive debt so that a borrower may move on only to have the government-as-tax-collector immediately demand further payment.

Additionally, it’s unfair that forgiven federal student debt is taxable in some cases but not in others. Debt forgiven due to school closures, a borrower’s total and permanent disability, and a borrower’s 10 years of qualifying public service work is not treated as taxable income, while there’s a tax penalty on debt forgiven under IDR and debt discharged when students are mistreated by their colleges. Regardless of the reason, discharged or forgiven student loan debt should never be treated as taxable income.

Who is affected by this tax penalty for IDR? Borrowers in IDR plans who still have balances remaining after making payments on their federal student loans for 20 or 25 years (depending on the plan). While many borrowers will repay their full debt plus all accumulated interest before their repayment period is up, borrowers with low incomes relative to their debt over a long period of time may receive forgiveness.

At the most recent Federal Student Aid conference in November 2017, the Department of Education confirmed that four borrowers had received forgiveness under IDR.

In order to receive forgiveness last year, these borrowers must have started making payments on Direct Loans under the Income-Contingent Repayment plan in the mid-1990s, switched to the REPAYE plan after it became available in 2015, only borrowed for undergraduate education, and made 20 years of qualifying payments. While small in number, these borrowers are the proverbial canary in the coal mine as many more borrowers will become eligible for forgiveness under other IDR plans in the coming years.

How much is the tax penalty? It depends on the borrower’s individual situation, but we ran the numbers for a few hypothetical borrowers. For a small business owner with $50,000 debt who is married with two children, for example, the tax penalty could double the amount of taxes the family owes – adding $13,050 to their federal income tax bill for that year.

For more details and borrower examples, see “Tax Consequences of Loan Discharges for Borrowers in Income-Driven Repayment Plans.”

How can this tax penalty be fixed? The U.S. Congress can remove this tax penalty by changing the law. Recent bipartisan tax reform legislation included the elimination of this tax penalty for borrowers who received student loan discharges due to total and permanent disability, and Congress needs to do the same for struggling borrowers in IDR. Bipartisan legislation to eliminate the taxation of debt forgiven under IDR has been introduced in the past and supported by a broad constituency of colleges, student loan lenders, financial aid officers, and student advocates.

In the meantime, states can pass legislation to at least make sure that federal student loans forgiven under IDR are not treated as income for state tax purposes. For example, California passed legislation last year to address this tax penalty at the state level. 

What can borrowers do if they received IDR forgiveness and face an unaffordable tax penalty? Seek out tax advice and/or reach out to the IRS. You may be able to pay the tax in installments or qualify to exclude some or all of it from your income based on the insolvency exception under IRS rules. If you later receive a notice from the IRS and need to correct your filing, have a dispute with the IRS, or get audited, you may qualify for the IRS’ Low Income Taxpayer Clinic program.

Also, please reach out to us if you or someone you know is being taxed after receiving student loan forgiveness. Your stories can help make this issue real for policymakers and support necessary policy change!

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California Governor Jerry Brown’s budget proposal for 2018-19, the first step in crafting the state’s budget, was packed with higher education proposals addressing a wide range of issues affecting both colleges and students. In particular, his proposals to create a new, fully online community college and to change the way community colleges are funded have captured national attention. But his proposal to reform community college student financial aid has gotten less attention despite its potential to better support students in their efforts to get to and through college.

Specifically, Governor Brown proposed streamlining two community college financial aid programs (the Full-Time Student Success Grant (FTSSG) and the Community College Completion Grant (CCCG)) and increasing their combined funding by $33 million. With both designed to increase the amount of financial aid available to full-time students who receive state Cal Grants, the Governor’s proposal rightly notes that these programs “target the same socioeconomic student cohort and encourage the timely completion of a degree or certificate,” yet have different requirements which add complexity for both students and schools. We commend the Governor for recommending consolidating these programs into a single grant that “encourages students to take a full course load while recognizing that is not feasible for all students.” However, we believe this goal would be better achieved through an alternate consolidation approach, outlined here, that would result in a simpler and more equitable financial aid program that better recognizes student realities.

Notably, these aren’t the only funds which hold promise for supporting community college affordability. The Governor’s budget also includes funding for AB 19 (chaptered in 2017), a bill that provided colleges that embrace student-focused reforms with additional resources to help students succeed and close equity gaps. Exactly how the funds are used is at colleges’ discretion: for example, the President and CEO of Mt. San Antonio College, Dr. William T. Scroggins, explored the needs of his students and plans to use his colleges’ allocation to help cover students’ unmet financial need, and provide emergency grants and loans to help students pay for food, housing, child care, and transportation.

Finally, while not referenced in the Governor’s budget proposal, it’s important to note that last year’s budget directed the California Student Aid Commission (CSAC) to explore ways to “consolidate existing programs that serve similar student populations in order to lower students’ total cost of college attendance,” and that this work has been expected to inform budget conversations for the 2018-19 year. CSAC contracted with The Century Foundation (TCF) to consider options, which were presented to and considered by CSAC earlier this week. The full report -- which recommends the state provide increased support for students’ non-tuition costs of college, and community college students in particular -- underscores many of the same concerns we heard earlier this year from a diverse slate of higher education experts, and proposes a thoughtful path forward. While many of the details of TCF’s proposal require further discussion, CSAC will be asking that the Legislature use the 2018-19 budget process to build off of the TCF proposal by taking some immediate steps forward, including funding an increase to the Cal Grant B access award. This award, which helps low-income Californians pay for non-tuition costs of college, currently holds less than a quarter of its original purchasing power, and TICAS is joined by more than 20 organizations in supporting this recommendation.

The state has taken substantial steps to improve college affordability in recent budget years, speaking to the extent to which both the Legislature and Governor recognize the importance of this issue to Californians. We look forward to working together to ensure the 2018-19 budget moves us even closer to a California where the promise of an affordable college education is better, and more equitably, realized.

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Congress is preparing to rewrite the Higher Education Act (HEA) for the first time since 2008. While a college degree is more valuable than ever, many students struggle to cover the cost of college, and the lowest income students continue to bear a disproportionate student debt burden. Reauthorization of the HEA presents a unique opportunity to solve widely-agreed upon problems, including a confusing array of student loan repayment options, the need for quality assurance to protect students from low-quality programs and colleges, and college affordability barriers that leave too many students with burdensome debt.

Our recent blog series, How the PROSPER Act Stacks Up for Student Debt, took a deep dive into the HEA reauthorization legislation recently passed by the House of Representative’s Committee on Education and the Workforce. Across five detailed posts, we explored how some of the bill’s major changes would impact student debt.

On whole, the PROSPER Act would do significantly more harm than good, saddling students with more debt and loosening standards in a way that would open higher education and taxpayer dollars up to an unacceptable level of risk. These changes massively overshadow the bill’s attempt to simplify programs, and improve loan counseling and data transparency.

We found that:

  • The ONE loan proposal would increase cost of Federal loans for most borrowers and increase risks of private loan borrowing. More here.
  • Changes to loan repayment would simplify the system, but at the cost of raising monthly payments for all, and increasing the risk of default and weakening a crucial safety net for the lowest income borrowers. More here.
  • Loan counseling and consumer information enhancements are steps in the right direction, but more complete data are needed, and consumer testing will be critical to helping students and families make the most of it. More here.
  • Discarding reasonable accountability standards will lead to a rise in unmanageable debt and more waste, fraud, and abuse in higher education. More here.
  • Narrowing of borrower defense eligibility, limiting of closed school discharge, and preemption of state consumer protections would harm student borrowers attending low-quality or even fraudulent for-profit colleges. More here.

Each of our posts last week focused on provisions in the PROSPER Act that would impact student debt and repayment, highlighting our recommended alternatives along the way (many of which already have bipartisan support). But it is also important to highlight that meaningful investments in the Pell Grant are also urgently needed to lower the burden of student debt, and such investments are noticeably absent from the PROSPER Act. Allowing the grant’s annual inflation adjustment to expire after this year, and freezing the guaranteed maximum award amount (as the PROSPER Act does) will mean that the grant’s already historically low purchasing power will continue to decline, and the already disproportionate burden of debt carried by Pell Grant recipients will continue to grow.

As the process to reauthorize the Higher Education Act moves forward and the Senate continues to shape its own proposal for how it should be improved, we hope Congress will ultimately work together to craft student-centered solutions to today’s problems of college affordability, access, and student success.

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This blog post is one in a series that explores how the House proposal to overhaul the Higher Education Act would impact student debt. This bill, the PROSPER Act, was passed out of the Committee on Education and the Workforce in December 2017. Here we focus on the PROSPER Act’s changes to protections for students who have been mistreated by their schools or attended schools that closed.

In recent years, a surge in documented cases of deceitful and predatory practices at colleges has harmed tens of thousands of borrowers. Many are now seeking protection from the compounding damage caused by outstanding student loan debts. Rather than strengthening protections that would prevent and address this damage, however, the PROSPER Act makes it more difficult for students to be made whole after they took out student loans under deceptive or other unfair circumstances. Specifically, it narrows the borrower defense rule, makes closed-school loan discharges more difficult to obtain, and preempts states’ rights to legislate student loan protections, each of which leaves student loan borrowers more vulnerable to abuse.

Narrowing borrowers’ eligibility for relief sets unrealistic and harmful standards for mistreated students.

The borrower defense rule authorizes the Department of Education to discharge and refund student loans used to attend colleges that broke their contractual promises or engaged in predatory practices. Under the rules finalized by the Education Department in 2016, borrowers can assert one of three categories of claims: those based on certain types of judgments against their college, a broken contract, or a “substantial misrepresentation” made by the college. The 2016 rule also protects students from predatory behavior, while deterring unscrupulous conduct by giving the Department the explicit ability to hold colleges accountable for the cost of loan relief rather than the taxpayer.

The public overwhelmingly supports providing relief to mistreated students: 78% of Americans say they support loan relief for borrowers whose schools provided deceptive information about their programs or outcomes, including 87% of Democrats and 71% of Republicans. While the PROSPER Act maintains the three categories of claims, it makes it far more difficult for wronged students to get debt relief in several ways.

First, the PROSPER Act requires borrowers to apply within three years of the time an institution engages in misconduct. But this period is unrealistically short. Many students may not even be aware of the school’s misconduct within three years, and applications supported by successful court judgements are especially unlikely to be completed within three years.

Imagine a student who finished a bachelor’s degree in four years, only to realize that the school lied to them during their recruitment, when they were unable to find a decent job in their field of study. They would have already lost the opportunity to apply for borrower defense with a three year statute of limitations. When the Education Department investigated Corinthian Colleges’ misrepresentations, it uncovered serious, widespread abuse stretching back over five years.

In 2016, based upon a survey of similar state laws, the Department of Education concluded that no statute of limitations was appropriate for cases based on certain judgments or broken contracts. Claims based upon substantial misrepresentations could be brought within six years of the date the borrower reasonably could have discovered the misrepresentation.

Second, the House proposal adds language that stipulates students must submit individual applications for borrower defense. This means that even in instances where the Department has evidence that an institution engaged in widespread misconduct that negatively affected entire cohorts of borrowers, the Department would be precluded from granting them relief as a group – needlessly adding burden and expense to this process. For example, given the overwhelming evidence of widespread malfeasance, the Department granted former students of American Career Institute in Massachusetts automatic loan discharges, without placing the burden on each borrower to apply and justify their application. Because the most socioeconomically distressed borrowers are least likely to be aware of the availability of relief and the least comfortable with navigating individual applications, it is those borrowers who stand to be most harmed by eliminating the Department’s authority to provide group discharges.

Finally, as a condition of applying for relief, the PROSPER Act requires borrowers to convert their existing student loans to the new ONE loan it creates. This requirement would force borrowers to forfeit benefits like interest-free deferment during periods of unemployment and lower monthly payments in order to pursue a borrower defense discharge.

Any steps forward in the bill regarding borrower defense are overshadowed by large, new obstacles to providing full and immediate relief where the Department has evidence to act, and creating a process that is least burdensome for mistreated borrowers, and offering a pathway for group relief.

Codifying new limits on closed school discharges will make it harder for students to get a fresh start when their schools close.

Currently, students who are enrolled in a school within 120 days of its closure may either transfer their credits to a comparable program or seek a discharge of their student loans.  There are several reasons why students might prefer a discharge rather than transferring their credits. A student may have gotten halfway through their program but realized the school was providing a low-quality education by the time the school closed, and prefer to start over. Available comparable programs that will accept all of the students’ credits may have poor student outcomes, and more reputable options may only accept a small fraction of the students’ credits.  

The PROSPER Act would curb the ability of students in these situations to receive discharges, by requiring students to show that they attempted, but were unable, to complete the program elsewhere – even if they had not gained necessary relevant knowledge from the time they spent in a substandard program. When Corinthian closed, many schools did in fact refuse to take students’ transfer credits because of concerns about the quality of that education.

Students who are unfortunate enough to have their schools close deserve a fresh start. Congress should retain the provision in the borrower defense rule finalized in 2016, which would provide automatic closed school discharge to students do not enroll again within three years, with no requirement to attempt to transfer credits.

Preempting states from creating improved protections against misconduct in student loan servicing and debt collection will leave borrowers vulnerable.

The Consumer Financial Protection Bureau (CFPB) has received over 60,000 complaints from borrowers about student loan servicers. These complaints describe loan servicers providing wrong and inconsistent information, losing documents, and charging borrowers random or unexpected fees. The CFPB has even found that through their own misconduct, servicers drive borrowers into default. Unfortunately, the Department of Education recently withdrew its existing policy memoranda to improve student loan servicing, adding even more confusion to loan servicer oversight while the Department undergoes an overhaul of servicing and other student aid systems in its NextGen financial services environment.

In light of lax federal standards currently in place, some states have felt compelled to put in place minimum standards for servicers, and as a result state standards can be more robust than federal protections. For example, several states, including California, Connecticut, and the District of Columbia have given their local agencies authority to assess whether student loan servicers are complying with federal laws.

Yet the PROSPER Act would gut states’ ability to protect student loan borrowers from servicer misconduct. This provision would allow the federal government to preempt state laws governing student loan servicing and debt collection and would also bar states’ ability to govern licensing of these companies. Without the ability of states to create important state-based protections, and with an unclear picture of the future of federal policy on loan servicing, this would create additional opportunities for misconduct on the part of loan servicing companies. States must be allowed to continue to protect borrowers from poor servicing and debt collection practices.

The reauthorization of the Higher Education Act could mean the difference between relief for mistreated borrowers and students attending closed schools, or an increase in the number of borrowers struggling to repay student debt. Instead of making it harder for students to get a fresh start at a high quality, affordable education, Congress should provide meaningful, student-centric pathways for debt relief.

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