The Biden Administration promised to help relieve the burden of student loan debt on borrowers, and with initiatives like the Saving on a Valuable Education (SAVE) Plan, repayment on-ramp, and fixes to loan forgiveness programs, there is no shortage of efforts. However, so far, these have all been directed at improving the student loan situation for borrowers.
To address the root of the problem, the administration is now looking at the schools people are borrowing money to attend. While a higher level of accountability was part of the president's student loan relief plan already, we recently learned what the final regulations will look like.
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Why do we need more regulations?
To be fair, financial planners are split when it comes to the question of "Are student loans worth it?" There's a solid argument to be made that the increased earnings power of a college degree can be worth taking on debt, especially when considering things like income-based repayment and student loan forgiveness programs.
On the other hand, many planners feel there's no guarantee that the cost will be justified in the end and that student loan debt makes sense only in certain circumstances (for example, borrowing money to get an engineering degree with a high probability of strong earnings power).
However, virtually everyone agrees that student debt is bad in cases where for-profit colleges provide degrees of little value or, worse yet, close their doors before students graduate. The administration has already approved $127 billion in student loan forgiveness for borrowers whose colleges took advantage of them or closed suddenly.
New student loan regulations
The actual regulations are written in a 695-page document. But we can give a quick summary. The new regulations focus on four key areas:
- Financial responsibility: Designed to establish warning signs that a college might be in trouble before a sudden closure occurs. For example, a warning sign could occur if a school shows sharp fluctuations in federal student aid volume in a short time.
- Administrative capability: Requires colleges to have adequate capabilities to administer federal student aid programs. Also requires colleges to offer adequate career services and imposes several other requirements on colleges to essentially set students up for success both during and after college.
- Certification procedures: Set rules and procedures for the event of closures and allow the Department of Education more flexibility to impose conditions on institutions that show warning signs.
- Ability to benefit: Regulations designed to increase access to federal student aid for more students, such as career pathways for those without a high school diploma.
What is the goal?
The central goal of these regulations is to protect students. It aims to do this by holding colleges accountable for offering student aid programs responsibly, protecting students (and U.S. taxpayers) in the event that a college runs into trouble, and expanding access to student aid for people who need it.
In a nutshell, the Department of Education doesn't want to forgive another $127 billion in student loans because schools took advantage of students or closed down. It doesn't want taxpayers to be on the hook when schools clearly in trouble end up failing. And it wants to ensure that borrowers who take on student loan debt have a high probability of finding a job that will allow them to repay their debt.
