The Education Department released new rules to protect student-loan borrowers from unaffordable debt.
They included provisions to hold colleges accountable for abrupt school closures.
They also require colleges to be upfront with a student on the amount of debt they'll take on for a program.
President Joe Biden's Education Department finalized rules to hold colleges accountable for loading student-loan borrowers up with unaffordable debt.
On Tuesday, the Education Department released its final regulations to strengthen oversight over colleges and enhance protections for student-loan borrowers. According to the department's press release, the new rules — scheduled to go into effect July 1, 2024 — establish warning signs when a school starts to exhibit financially risky behavior that could lead to a school closure, along with require colleges to clearly communicate to students how much financial aid they're eligible to receive for the program they're pursuing.
"Today's regulations prioritize students and taxpayers and continue our work to fix a broken student loan system," Under Secretary of Education James Kvaal said in a statement.
"They will help prevent fly-by-night colleges from leaving students and taxpayers holding the bag for shoddy educations," he continued. "They will give students some common-sense protections like clear information on the true cost of college and access to their transcripts when their courses were federally funded."
A senior department official told reporters on a Tuesday press call that financial instability at a college — which could lead to an abrupt school closure — could wreak "utter havoc" on students because they're often left with student debt for an incomplete education.
The final rules address four topics that would help mitigate that harm:
Financial responsibility, making it easier for the Education Department to secure financial protection from the college, like a letter of credit, when it starts demonstrating financial risk. Signs of risk include a school's inability to pay a debt it owes or risk of losing access to financial aid because of high default rates;
Administrative capability, which adds requirements for colleges to be more upfront about the amount of financial aid a student can receive, along with preventing colleges from withholding transcripts for federally funded courses;
Certification procedures, which allow the department to place additional conditions on colleges when they start demonstrating financial risk, like limiting the addition of new programs;
And ability to benefit, which establishes a more streamlined process for access to federal student aid for students who do not have a high school diploma but still want to pursue additional education.
Kelly McManus, vice president of higher education at Arnold Ventures — a philanthropy and research group — said in a statement that "these new oversight rules will be common-sense, reasonable improvements to regulators' ability to take action when schools are teetering on the brink of collapse, lying to students, or abusing the federal financial aid system. There is more work to be done, but this is a much-needed step in the right direction."
Tuesday's announcement is the latest of the Education Department's efforts to ensure student-loan borrowers do not face unaffordable debt from a college degree that doesn't pay off. In September, the department rolled out its final gainful employment rule, which cuts off federal aid for schools that offered programs that left students with too much debt when compared to their likely postgraduation income.
The new version of former President Barack Obama's original gainful employment rule, which was repealed under former President Donald Trump in 2019, is expected to protect about 700,000 students a year from career training programs that left students with too high of a student-debt load compared to their earnings. It also strengthens financial transparency requirements, ensuring students know how much debt they'll take on at the start.
"Too many students have been abandoned by shady colleges that close their doors and leave borrowers with unaffordable debt and little hope of completing their educational journeys and embarking on rewarding careers," Education Secretary Miguel Cardona said in a Tuesday statement.
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