The Obama administration’s proposed “defense to repayment” regulations, released last month, make no secret of targeting the for-profit college sector. The collapse of Corinthian Colleges, which has cost the government $170 million and counting in loan forgiveness, has inspired the administration to identify the for-profit college sector as the root of higher education’s problems and regulate it accordingly. Yet focusing exclusively on for-profit colleges is misguided: the problems are in the whole system, not one particular sector.
The proposed regulation makes it easier for former students to request federal loan forgiveness when they are victims of fraud or misrepresentation by colleges. The rule also creates a number of new conditions that institutions must satisfy or risk losing access to federal financial aid. (I discussed these in more detail in two previous columns.) The ostensible purpose of these provisions is to identify bad apples before they rot, potentially reducing the number of future loan forgiveness requests and thus saving taxpayers money—not to mention protecting students from poor-quality schools.
The catch is that these conditions only apply to for-profit and private nonprofit colleges. Public institutions are exempt. If the administration truly wanted to protect students and taxpayers, it would not create different rules for different schools.
The administration justifies its uneven regulation with the claim that for-profit schools are much more likely to experience problems, such as high student loan default rates, that put taxpayer money at risk. This is true: 4.5 percent of for-profit colleges have default rates of 30 percent or higher (the regulations’ threshold for losing aid access), compared to just 2.8 percent of public colleges, according to Department of Education data.
However, the administration should keep in mind the distinction between the share of schools and the share of students attending those schools. The latter is more important—a single poor-quality public school with 10,000 students is a much greater risk than ten mediocre for-profit schools with just 100 students each. To paint a complete picture of which higher education sectors present the most problems, regulators should look at where the students actually are.
Among institutions with a default rate of 30 percent or higher, 69 percent are for-profits. But among students attending institutions with a default rate of 30 percent or higher, just 11 percent go to for-profits—and 85 percent attend public schools. These 85 percent represent nearly 200,000 full-time equivalent students.
The administration argues, rightly, that schools with excessively high default rates should not have access to federal aid money, or else should be required to put up significant resources to insure taxpayers against losses. How can the administration claim to be defending taxpayers from losses, and protecting students from bad colleges, when it exempts 85 percent of the problem?
The cynical answer is that the new rule is more about targeting for-profit colleges than protecting students and taxpayers. (Former Obama administration officials have cashed in on floundering for-profit schools before, and the new regulations will likely present more such opportunities.) Certainly, the for-profit college sector is ridden with problems and merits more scrutiny. But the idea that those problems are rarer in the public sector—as is the basis for the asymmetrical rules the administration has promulgated—is preposterous.
This article originally appeared on Forbes.
Preston Cooper is a policy analyst at the Manhattan Institute. You can follow him on Twitter here.
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