Follow government ‘recommendations’ on transgender bathrooms, for instance, or lose federal funding.
This week, the Obama administration issued a finalized regulation that will allow the Department of Education (DOE) to cancel the debt of students who claim that their colleges have made a “substantial misrepresentation,” such as false or misleading statistics on promotional materials. The DOE can then recover any forgiven balance from the colleges themselves — a major, possibly fatal, financial burden for institutions.
The rule, known as the “defense to repayment” rule because it allows borrowers to defend themselves against repaying their student loans, is another installment in a long saga of government officials using student-aid programs to wield influence over American higher education. Whoever writes the checks makes the rule, and the DOE uses its power to advance an agenda far beyond merely ensuring that taxpayers’ money is put to good use.
During the 2015–16 academic year, the DOE disbursed $28 billion worth of Pell Grants and $95 billion worth of student loans. All of the DOE’s “Title IV” programs represent nearly 1 percent of GDP in taxpayer-funded largesse for our higher education system. Many colleges and universities would not be able to survive without these federal funds: nine in ten for-profit colleges get more than half their revenues from Title IV programs.
While a few institutions, such as Hillsdale College in Michigan, do not take federal funding, for most it constitutes an indispensable revenue stream. In addition to disbursing Pell Grants that keep many for-profit and community colleges afloat, the DOE also originates 90 percent of student loans made in America.
Nominally, many of America’s colleges and universities are private. But the federal government has an effective monopoly over college finance. As a result, institutions must obey the demands of the Department of Education — an unelected bureaucracy with a penchant for aggressive regulations.
Take the defense-to-repayment rule: Processes already exist to deal with cases in which institutions perpetrate fraud, but the new regulations go much further and define “misrepresentation” so broadly that even perfectly innocent advertisements for schools could be considered deceptive. No doubt, an army of trial lawyers will come up with plenty of creative ways to use colleges’ past statements against them.
For instance, Arizona Law School advertises that its graduates’ unemployment rate is 2.8 percent. As my Manhattan Institute colleague Max Eden pointed out in US News & World Report in August...
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Preston Cooper is a fellow at the Manhattan Institute's Economics21. Follow him on Twitter here.
This piece originally appeared in National Review Online