Protecting students in an anti-regulatory environment

December 22, 2016

It’s not easy to predict exactly what federal higher education policy will look like under the Trump administration.

The idea that student loans should revert to the private sector would likely face an uphill battle, given the costs involved. Reducing the amount of time before unpaid balances are forgiven under income-driven repayment from 20 or 25 years to 15 years, as the president-elect proposed in a campaign speech, seems unlikely in light of the recent Government Accountability Office report indicating that forgiveness under the current, less generous provisions will be much more expensive than anticipated.

But the oversight of the for-profit sector of higher education into which the Obama administration put so much energy appears likely to be undone. The statements of the president-elect and his spokespeople, as well as his cabinet appointments, point to a world in which business interests prevail over consumer protection.

It is hard to argue that the gainful employment regulations or the debt relief for students who borrowed to attend colleges that went out of business are perfect. But the evidence about the number of students whose lives have been damaged by unscrupulous for-profit colleges and about the impact of the for-profit sector on excessive student borrowing and student loan defaults is compelling. If the administration does away with these efforts at consumer protection, it is imperative that they be replaced with effective alternative policies.

The for-profit sector of higher education does not represent the free market. The vast majority of revenues in the sector come from federal student aid programs. Middle-income families are not sending their 18-year-olds off to for-profit institutions. The sector is populated by low-income adults, disproportionately African American, who have limited information and limited options. More than one-third of the defaulters on federal student loans in fiscal year 2013 were from the for-profit sector, which enrolled about 10 percent of students.

There are high-quality and low-quality institutions in every sector of higher education. But the for-profit sector has much more than its share of the latter. This is not surprising, since unregulated markets do not operate well when consumers cannot reliably evaluate the quality of what they are buying. The difficulty students face in making judgments based on the effectiveness of education they have not yet experienced invites institutions to appeal to them through marketing ploys rather than through the quality of what they offer.

Consumers rely on the government to ensure that the meat they buy is not tainted, that their cars are safe, and that the drugs they take will not harm them. They also depend on the government to protect them from “colleges” that collect tuition revenues without delivering educational services that meet students’ needs.

Picking a college is not easy. No matter how sophisticated the websites with information about the graduation rates, student debt, and earnings associated with individual institutions, too many students—particularly those without a support system of family and friends who have graduated from college—will end up enrolling in institutions that focus on advertising and false promises. They will waste their valuable time and energy, have their dreams shattered, and accrue unmanageable debt unless the federal government—which is providing the funds they need to enroll—does a good job of protecting them from fraud and guiding them into productive pathways.

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