Wednesday, May 29, 2024
HomeEconomyA New Era for Student Loans: Biden Administration's "Strongest-Ever" Plan

A New Era for Student Loans: Biden Administration’s “Strongest-Ever” Plan

The Biden administration recently unveiled its much-anticipated proposals to protect student-loan borrowers and ensure transparency for students before they enroll in a program. Announced by the Education Department, the new “strongest-ever” gainful employment rule aims to create accountability for colleges and prevent students from graduating with unaffordable debt.

Originally established by then-President Barack Obama in 2014, the gainful employment rule cut off federal student aid for schools offering programs that left students with overwhelming debt compared to their probable post-graduation earnings. The rule was repealed by former President Donald Trump in 2019, and President Biden delayed its reinstatement until July 2024 at the earliest.

Education Secretary Miguel Cardona emphasized the importance of holding colleges accountable and safeguarding students from programs that fail to deliver real value and upward mobility. The proposed rule will apply two metrics to evaluate whether for-profit degrees and certificate programs across all institutions are providing value to students:

  1. Graduates must be able to afford their student loan payments, ensuring their debt-to-earnings ratio is equal to or less than 20% of their discretionary earnings.
  2. At least half of a program’s graduates must have higher earnings than a typical high school graduate in the labor force who never pursued higher education.

Some critics argue that the gainful employment rule unfairly targets programs at proprietary institutions and doesn’t account for the challenges faced by students and communities that career-oriented programs serve. However, the rule is designed to prevent fraudulent behavior that has plagued many for-profit schools, such as misleading borrowers about the true costs of a program and leading them into unmanageable debt.

In addition to the gainful employment proposal, the Education Department announced plans to increase transparency on college pricing by collecting and publishing information on all colleges and programs, including their costs and typical borrowing amounts. The department also intends to create a watch list of the least financially valuable postsecondary education programs, focusing on those that burden graduates with unaffordable debts.

The proposed regulations are open for public comment for 30 days and are expected to be finalized by November 1, with implementation on July 1, 2024.