If that Ivy League philosophy degree doesn’t result in the career of your dreams, cheer up: You may be able to have your student loans forgiven by claiming you were misled by the university.

A broadly written rule proposed by the Education Department would allow students to discharge their federal loan debt if they can show that they were “defrauded or deceived” by a university’s “substantial misrepresentation,” an added layer of regulation that could leave universities and taxpayers on the hook for billions of dollars.

“We do not need another federal bailout,” American Commitment President Phil Kerpen said in a statement Wednesday.

His group is leading a coalition of 18 taxpayers groups calling on Education Secretary John King to withdraw the rule, which was published June 16 in the Federal Register and wraps up its comment period on Aug. 1.

“The existing rules were designed to permit students to sue for loan forgiveness when they were victims of intentional fraud or another violation of state law,” Mr. Kerpen said. “But these newly proposed rules are so broad and vague that complaints will proliferate based on innocent errors and alleged misunderstandings — with the costs shifted to federal taxpayers.”

An analysis by the Education Department estimates that the cost of the rule would range from $2 billion to $43 billion over the next 10 years, meaning “you can assume the agency actually has no idea what the final price tag will be — but it won’t be cheap,” Mr. Kerpen said.

By all accounts, the expansion of the “borrower defense to repayment” rule is aimed at for-profit colleges accused of overpromising and underdelivering while leaving their graduates saddled with debt. Obama administration officials have cited the 2014 collapse of Corinthian Colleges, which led its students to organize as a debt strike to have their loans forgiven.

“We won’t sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag,” Mr. King said in a June 13 statement. “All students who are defrauded deserve an efficient, transparent, and fair path to the relief they are owed, and the schools should be held responsible for their actions.”

But the rule makes no distinction between so-called career colleges and the nonprofits such as Harvard, Yale and the University of California. The result is that even the most prestigious institutions could find themselves hauled before a department examiner or subject to a class-action filing for placing a too-glossy sheen on their career placement, admissions or graduation rates.

The issue has landed on the radars of congressional Republicans. Last week, Sen. Michael B. Enzi of Wyoming, chairman of the Senate Budget Committee, and Rep. Tom Price of Georgia, chairman of the House Budget Committee, asked the department for a staff briefing to explain the “possible costs and consequences.”

“If people have been truly misled by a college or university, then they should have recourse,” said Rep. Virginia Foxx, North Carolina Republican and a member of the House Education Committee. “But I worry that this is just the tip of the iceberg. What happens if students at public universities start making this complaint? If you read the way the administration is interpreting this, I think they’re opening up Pandora’s box.”

The proposed rule would revitalize a rarely used 20-year-old provision allowing students to seek loan forgiveness in cases of fraud, creating a process for “group-wide loan discharges” and forbidding schools from requiring students to sign class-action and arbitration waivers.

The department also could pursue class-action claims on behalf of an entire group of students, not just those filing complaints.

“Schools will have little recourse to defend against the allegations,” the lawmakers said Tuesday in a letter to Mr. King. “Determination of whether an institution has made a ‘substantial misrepresentation’ to a student or group of students is made unilaterally by an ED hearing examiner.”

‘A huge political move’

The little-noticed rule was proposed amid a furious last-minute push by President Obama to enact by administrative fiat thousands of pages of regulations on everything from carbon emissions to overtime pay before his term ends in six months.

The proposal also comes with Democrats eager to bring student loan forgiveness to the forefront of November election campaigns. With debt from college loans surpassing $1 trillion, the issue is seen as a way to spur left-leaning voters younger than 30 to the polls.

Presumptive Democratic presidential nominee Hillary Clinton recently proposed a “debt-free college” program and promised to enact a three-month moratorium on student loans by executive order after taking office.

Diane Auer Jones, a former George W. Bush administration assistant education secretary who heads AJ-squared Consulting, described the rule as a thinly veiled effort to enhance Mr. Obama’s legacy while weakening for-profit colleges, which are favorite Democratic targets.

“The motive is for the department to be able to essentially shut down a school and not face the tremendous political blowback that would come from students who owe money and feel like the department just shut down their school,” said Ms. Jones. “It’s also a way for an exiting president to leave office a hero having played Santa Claus and forgiven all these students of their loans. It’s a huge political move. And an exiting president doesn’t have to worry about the cost of it. I give him credit; it’s a clever political maneuver.”

On the other side is David Halperin, former senior vice president of the Center for American Progress, who has accused opponents of fearmongering and argued that well-run nonprofits have nothing to fear from the proposal.

“The new rules won’t damage honest, effective schools,” Mr. Halperin said in a post July 14 on his website, RepublicReport.org.

But Ms. Jones argued that practices now seen as typical reputation-enhancement strategies could become actionable under the proposed rule. She ticked off examples such as admitting students with the best grades and scores in the fall to boost selectivity measures and then waiting until the spring to enroll applicants with less-than-stellar numbers.

“What about the schools that advertise their Nobel Laureate faculty, and then as an undergraduate you can’t actually take a class with that Nobel Laureate?” said Ms. Jones. “What about schools that have a pre-med program and haven’t gotten a kid into medical school for three years? What about all the law schools that have admitted to embellishing their placement rates?”

A former college administrator, Ms. Foxx said the rule conceivably could extend loan forgiveness to students who, for example, wind up on the five-year plan because a required course isn’t offered their senior year.

“I don’t think the administration thinks through these things a lot of times,” said Ms. Foxx, who heads the House subcommittee on higher education and workforce training. “I think they put a target on certain groups and they go after that group, and they don’t understand the fallout sometimes. They’re so ideologically driven.”

Other foes of the proposed rule include the Career Education Colleges and Universities, an advocacy group for for-profit colleges, and Donald Graham, the former Washington Post publisher who now owns Kaplan University.

The rule has received a mixed reception from the Debt Collective, a group fighting student loans that has organized a comment-writing campaign while pushing for the department to go even further.

“Make no mistake: the fact that this rule contains any good news is the result of the collective work of debtors who have refused to give up the fight,” the Debt Collective said in a statement. “But we continue to believe that the Department is making it far too difficult for students to get the relief they are entitled to by law. The bottom line is that they have given us no reason to trust them.”

Average debt burden

So far, nonprofit universities, academics and their advocacy groups have stayed out of the fray, which Ms. Jones described as naive.

“I believe that the nonprofits don’t understand or don’t see this as a threat,” said Ms. Jones. “I think they feel fairly certain that the department isn’t going to use this against them. But there are a lot of students out there looking for a way out of their loans, and there are people out there who are perfectly happy to help them get that loan forgiveness if there’s something in it for them.”

One prominent academic who has challenged the rule is Julianne Malveaux, former president of Bennett College, who said it could have an “outsize negative impact” on historically black colleges and universities.

“Unfortunately, if this rule is implemented in its current form, opportunities for black students to receive the education they need to compete in the 21st century could decline,” Ms. Malveaux said Tuesday in a op-ed in Inside Higher Ed. “HBCUs would be forced to funnel their already limited monetary resources into unnecessary legal counsel instead of into the classrooms where they belong.”

About 69 percent of students graduating from four-year institutions in 2014 had student-loan debt, with an average debt burden of $29,000, representing a 4 percent increase from 2004, according to the Institute for College Access and Success.

The institute said that students at for-profit colleges typically take on more debt than those at public or nonprofit institutions.

“Traditional higher education faces a critical choice with respect to these new rules,” said Mr. Halperin. “When the history of this debate is written, do they want it said that they aided and abetted widespread for-profit college fraud, and undermined the futures of millions of Americans, by helping to block reasonable rules?”

The rule is scheduled for final approval Nov. 1, which would allow it to go into effect in January.

Sign up for Daily Newsletters Manage Newsletters

Copyright © 2020 The Washington Times, LLC. Click here for reprint permission.