Monday, June 23, 2025

DeVos looks to make predatory lending great again

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Slowly but surely, US Education Secretary Betsy DeVos is working on dismantling a key aspect of Barack Obama’s “gainful employment” rules, a move that will, if accomplished, dramatically eliminate key protections students now have against predatory lending practices, the New York Times reports.


Media is distracted by all things Trump. Meanwhile, the house is about to catch fire for students.

After fighting lawsuits from for-profit colleges, many of which collect upwards of 80 or 90 percent of their revenue from student loans guaranteed by the federal government, the Obama administration managed to enact rules known as “gainful employment” just before Mr Obama’s term ended. The basic idea is that the federal government measures the average indebtedness of graduates of the school and divides it by the average income a graduate of the school manages to collect. If the quotient is too high, the program is labeled as “failing,” and two failing ratings within three years would disqualify the school from receiving federally backed student aid.

Here’s the rub: the rules were apparently going to work to weed out programs that gave students a monster debt that they couldn’t be reasonably expected to pay off on time. When they went into default, the taxpayers, not the schools or the lenders, were on the hook to pay off the loans.

Many for-profit colleges took advantage of this federal guarantee, over-selling students on the programs the schools provided while making sure those students knew the federal government would pay off their loans if they should ever go into default.

Let the buyer, or student, beware, the for-profit colleges, business schools, and tech schools told their prospective students. And so those students took on this debt, graduated, got jobs that paid them barely enough to support themselves, let alone a family, other bills, and at the lowest priority level, the student loan debt they had assumed to get a certificate or degree that gave them access to a low-paying job and nothing more.

Prior to the gainful employment rules, there was no real watchdog for these students, but many of the programs that the rules would classify as “failing” have already shut down. That means, the formula of comparing average income to average student loan debt is a good model: it seems to predict the viability of these programs pretty well.

One program, in fact, at Harvard University, was labeled as failing—a theater arts program—and the Ivy League college has already shut the program down so as not to burden graduates with unmanageable debt. But for-profit colleges keep forging ahead with misleading advertising and stellar assistance for their prospective students when it comes to filling out financial aid forms but not so stellar assistance for them when it comes to landing a job that will actually help them pay off those student loans.

I realize there’s more to college, especially in the liberal arts, than earning a high-paying job upon graduation. But first of all, most for-profit colleges don’t hold “learning for its own sake” in high regard, at least not in their development or advertising campaigns that they pitch to prospective students. And second, given my own meager salary, I’d be the last person to suggest a high-paying job is the top goal of getting a college education.

On the other hand, two groups involved here put a lot of value in money:

  • for-profit colleges, business schools, tech schools
  • US taxpayers

When the government has to spend tax dollars to pay off loans on which students have defaulted, it can’t spend that money on other programs. If we can somehow stop the government from guaranteeing loans that we have a pretty good idea are going to cost taxpayers down the road, we can nip this problem in the bud and save us all some money.

For-profit colleges, though, in which Ms DeVos has some personal interest, like the fact that the federal government guarantees lenders they’ll get their money back, because those colleges get the money first, direct from the lenders and backed by the authority of the government.

Why does Ms DeVos want to put taxpayers on the hook for the low-quality programs offered by several for-profit colleges? I have no idea. Many other Trump initiatives seem to make life worse for students while padding the wallets of business executives. For example, when Mr Trump signed House Joint Resolution 57 a few months ago, he essentially made it possible now for states, at their own discretion, to make their schools unaccountable, Education Week reports.

Finally, I’m not one to think there’s a way to govern every aspect of our lives. I like a small government footprint, especially a federal footprint in education. But ultimately, this isn’t a story about education; it’s a story about rich people taking money and leaving poor people, many of whom are seeking advanced training anywhere they can get it in order to better their lives or provide better things for themselves and their loved ones, to pay the bill.

Paul Katulahttps://news.schoolsdo.org
Paul Katula is the executive editor of the Voxitatis Research Foundation, which publishes this blog. For more information, see the About page.

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