The Obama administration’s Department of Education recently proposed new rules to enable more students to sue universities that defrauded them. While the government should punish blatantly deceptive institutions, these proposed rules promise to penalize many high-quality colleges.
The rules will enable students of a university to sue and recoup their tuition if the university offered a “substantial misrepresentation” of elements like the employability of its graduates or the nature of its educational programs. This is a lower standard than mens rea, the legal principle in fraud cases that a crime requires intent. Troublingly, students can successfully sue whether or not the college intended to lie, meaning that universities will be subject to lawsuits over clerical errors.
This could be crippling. My alma mater, the University of Colorado at Boulder, brings in almost one-third of its revenue from tuition. If just one class of 5,000+ students were reimbursed for their tuition, the university with a substantial shortfall. This could mean cuts to valuable services. Because the University of Colorado is a public institution, taxpayers could also be called upon to make up the difference.
And, because there’s no statute of limitations on suits, colleges could be punished for mistakes they made many years ago.
The rules also serve as a subsidy for lawyers and students who sue. There were 20 million Americans enrolled in college in 2015, and total student loan debt is $1.2 trillion. This means the payoff for trial lawyers could be immense. Students will have a large incentive to sue in order to have that debt waived. Even if a case loses, the act of suing itself can defer loan payment. According to the administration, “All borrowers, including FFEL borrowers, who apply for defense to repayment under the proposed regulations, would be able to have their loans placed into administrative forbearance or stop collection while their claims are being evaluated.”
The incentives this rule creates encourage frivolous lawsuits, which will burden colleges with substantial legal costs as they try to defend themselves. Worst of all, universities will probably try to defray these costs with higher tuition. Ironically, the students this will hurt most are those who aren’t interested in suing.
The plan also leaves taxpayers on the hook for much of the student loan debt that will be recompensed. The Huffington Post notes that 90% of student debt is either owed to or guaranteed by the Department of Education. When students default on this kind of loan, taxpayers are left holding the bag.
According to the Department of Education, the total cost to taxpayers could be between $1.9 billion and $42.6 billion over the next ten years.
Ultimately, this entire plan threatens to coddle college students. College is an inherently risky option. While some universities are fraudulent, most universities offer value on a continuum: you get out what you put in. Some degree of expectation, reasonable or not, usually goes into the decision to enroll.
My generation was told that having a four-year degree was all that mattered. Many Millennials proceeded to major in History or Women’s Studies and now work at Starbucks. Were they duped into going to college? Or did they, as thinking adults, simply make a poor decision?
By allowing students to simply pass off the risk of their decisions to someone else, the Department of Education prevents these students from learning a lesson more valuable than anything in Sociology 101. Namely, decisions have consequences. This is a lesson that we prevent them learning to their detriment.
It’s important to go after fraudulent colleges, but this proposed rule is overly broad and promises to punish institutions that don’t intend to do anything wrong—and leave taxpayers with the bill.
Julian Adorney is a Young Voices Advocate and University of Colorado alumnus. He’s a 2016 Thorpe Fellow with the Foundation for Economic Education.