By Ben Kaufman | May 4, 2023
For decades, private sector firms have treated the higher education system like a piggybank, looting the government’s coffers and saddling students and families with increasingly large and unaffordable debts. These companies include those that operate colleges, teach students on behalf of schools, run the technology that makes the higher education system function in person and online, and more.
Regulators have historically been slow to acknowledge that this shadowy corner of the private sector plays a systemically important role in delivering American higher education. Fortunately, Biden administration officials have signaled that change is coming—and that government may finally be prepared to regulate these firms with the vigor necessary to protect students, colleges, and itself from predatory industry conduct.
Over the first three months of 2023, federal officials undertook a variety of pivotal rule-changes, policy reformulations, and other administrative actions aimed at restoring the public promise of higher education. From an overhaul of the design of income-driven repayment (IDR)—a key protection for low-income federal student loan borrowers—to a first-of-its-kind effort to weed out low-value postsecondary programs, the Biden administration has been busy patching gaps and prodding at pitfalls across the student financing and higher education landscapes. SBPC has offered comments on several of these measures.
One-by-one, the Biden administration’s actions can be taken as reflecting an all-of-the-above approach to reforming postsecondary learning and how we pay for it. But taken together, President Biden, Secretary of Education Cardona, and Consumer Financial Protection Bureau (CFPB) Director Chopra’s actions in early 2023 point to a unified set of ideals for fixing our student loan and higher education infrastructure. Those ideals include the following:
- Predatory companies will face accountability, full stop. Successive presidential administrations have either failed to meaningfully deliver or have actively subverted efforts to hold bad actors in higher education and student financing accountable. This combination of regulatory half-measures by some and whole-hearted attacks on student protections by others has produced endemic consumer harm and a culture of lawlessness within the industry. The Biden administration has made clear that it intends to break this vicious cycle. Actions such as the CFPB’s dual proposals to create registries where firms will be required to disclose both past court or agency orders and the contract terms they use to restrict borrowers’ rights will help finally expose corporate misconduct past and present to disinfecting sunlight. Combined with additional actions such as the Department of Education’s (ED) proposal to hold schools liable in part for the discharge of federal loans that students take on under fraudulent pretenses, as well as its novel effort to establish and broadly publish robust measures of program-level efficacy, the Biden administration has set out a vision for clearly defined, comprehensive, and automatically applicable corporate responsibility.
- Loopholes that empower bad actors will close. The higher education and student financing industries have worked hard over the past several decades to win carve-outs from scrutiny over and recourse for bad practices. Now, where past administrations have either welcomed opportunities to cut holes in student protections or have shied away from eliminating these exceptions, the Biden administration is sending a clear message: it is time to slam shut the backdoors by which corporate interests have been empowered to take advantage of students. Recent actions such as ED’s proposal to close carveouts to the vital ban on harmful incentive-based compensation for school recruiters are manifestations of this commitment. Other cases will test whether ED has the fortitude to fight for this vision of student protection over the long term. For example, ED recently proposed to restore the original vision of regulations around so-called “third-party servicers,” the companies to which schools are increasingly outsourcing core functions. The education industry is now fighting tooth and nail against these changes—a certain sign that the Biden administration is doing something right. However, ED gave these companies minor wins in recent months by twice walking back and already narrowing its proposal. ED will now have to prove that its moves were strategic retreats aimed at winning a larger victory, and not a flight at the first sign of resistance.
- Students deserve a robust safety net across the entire value chain of postsecondary education. The decision to attend college is among the most financially consequential that most students will make in their lives. Accordingly, the pathway from recruitment to enrollment and through student loan repayment can consequently be perceived of as a “value chain” along which students travel throughout and after their pursuit of postsecondary education. At every step along this chain, students stand to generate profit for at least some participant in the business of American college attendance, leading them to face a range of unique and varied risks. The Biden administration has made clear not just that it takes this understanding of the higher education experience seriously, but that it intends to protect students at every step along this path. For example, ED recently proposed to engage in long-overdue data collection on topics related to Title IV, which could help shine a light on basic but hereto unknown facts about the experience of taking on and repaying federal loans. In addition, ED has put forward a massive expansion of the protections that borrowers enjoy after leaving school through a proposed overhaul of IDR, the core safeguard for borrowers who find that loan repayment imposes an intolerable financial burden.
Through the actions cited above and a range of others, the Biden administration has charted a new vision for principles-based student protection. With these changes in place, and with the additional revisions and expansions to them that SBPC has proposed over the past several months, those who pursue higher education might finally enjoy the safety they deserve.
Ben Kaufman is the Director of Research & Investigations at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau where he worked on issues related to student lending.