January 23, 2017

HIGHER EDUCATION BUBBLE UPDATE: Obama’s Student-Loan Fiasco: A ‘coding error’ helped justify a punitive new education regulation.

President Trump has promised to restore trust and accountability in government. How about auditing the Education Department? During its final days the Obama Administration slipped the news that its College Scorecard repayment rates were inflated, and on closer inspection the mistake doesn’t look innocent or innocuous.

In early January the department disclosed that it had discovered a “coding error” that incorrectly computed College Scorecard repayment rates—that is, the percentage of borrowers who haven’t defaulted and have repaid at least one dollar of their loan principal. The department says the error “led to the undercounting of some borrowers who had not reduced their loan balances by at least one dollar.”

The department played down the mistake, but the new average three-year repayment rate has declined by 20 percentage points to 46%. This is huge. It means that fewer than half of undergraduate borrowers at the average college are paying down their debt.

The rest have either defaulted, sought forbearance or enrolled in income-based repayment plans, which are causing many borrowers who are only making minimum payments to owe more debt due to accrued interest. These income-based repayment plans allow borrowers to reduce their loan payments to 10% of their discretionary income and discharge their remaining debt after 20 years (10 if they work for government or a nonprofit). . . .

The other scandal is that the Obama Administration used the inflated Scorecard repayment data as a pretext to single out for-profit colleges for punitive regulation. The punishment was tucked into a rule finalized in October allowing borrowers who claim their college defrauded them to discharge their debt. It requires for-profits in which 50% or fewer borrowers are paying down their principal to post the equivalent of a surgeon general’s warning in all promotional materials.

When proposing the regulation, the department claimed that its analysis of Scorecard data showed that a large number of for-profits have repayment rates below 50% while very few public or nonprofit schools do. The department said it would not be fair to “burden” public and nonprofit colleges with a regulation that would apply to so few. Yet based on the updated data, 60% of two-year public colleges and nearly all historically black institutions have repayment rates below 50%.

Traditional higher-ed is a major source — perhaps the single biggest source — of donations and footsoldiers for the Democrats. Hence, special treatment.

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