WASHINGTON (CN) - Education experts are voicing alarm over a new debt-relief plan for students defrauded by for-profit colleges. Billed as a fair compromise for borrowers and lenders, the new tiered system unveiled five days before Christmas is a deliberate departure from the original iteration.
"It is astonishing to me how cold-hearted the formula is," Ben Miller with the Center for American Progress said in a phone interview. "I think it takes no context into account and will result in a lot of students who are really struggling to get at best a fraction of what they deserve back."
Before joining the D.C.-based think tank, Miller was a senior policy adviser in the Obama administration for the the Office of Planning, Evaluation and Policy Development at the Education Department. Under the department’s new calculations, he said, anyone with a job will find it hard to qualify for full debt forgiveness.
That’s because the formula compares a person’s income against the typical earnings of graduates from similar programs that passed what is known as the gainful-employment test.
Finalized in 2014, the gainful-employment rule ties federal funding to the debt-to-income ratio of graduates from career-education programs. In essence, the rule was designed to better convey which programs allow graduates to get jobs with wages high enough to repay their student loans.
The Education Department has delayed key parts of this rule, but is using it as a baseline to divide borrowers into six categories of debt relief that determine the value of the education a borrower received by looking at the median earnings of graduates in other qualifying programs.
At the top tier, borrowers will not get full debt forgiveness unless they earn less than 50 percent of their peers who graduated from programs that passed the gainful-employment test. Students earning 90 percent or more than their peers make up the bottom tier; only 10 percent of their debt will be forgiven.
That's in stark contrast to how the Obama administration wrote the borrower-defense rule, which allowed full debt forgiveness for students misled by for-profit colleges about things such as job-placement rates and guaranteed employment after graduation.
The issue came to the fore after investigations carried out by the Education Department and numerous state attorneys general turned up fraud at more than 100 Corinthian Colleges campuses. Faced with numerous lawsuits and fines from the federal government, Corinthian collapsed in April 2015.
To help defrauded students, the Education Department finalized the borrower-defense rule on Nov. 1, 2016.
Before it could take effect on July 1, however, Education Secretary Betsy DeVos announced that the rule would be delayed pending the outcome of a constitutional challenge from the California Association for Private Postsecondary Schools. Since then, the department has announced a plan to rework the rule entirely, with an expected rollout date in 2019.