The Department of Education (ED) published a final rule revising its regulations concerning the Federal Direct Loan Program on November 1, 2016. This rule attracted a great deal of input during its notice and comment period; ED notes that it received comments from over 50,000 parties. One would think reviewing and responding to that many comments would be a daunting task, but ED completed it with remarkable speed; this rule’s comment period closed on August 1. Timetables for agency review after receiving public comment vary significantly, but three months is still a speedy turnaround—particularly considering that this rule could end up costing taxpayers up to $3.5 billion per year, according to ED’s own estimates. This “midnight” rule (issued in the final quarter of President Obama’s 8-year term) will be effective as of July 1, 2017.
The final ED rule makes several amendments to the regulations governing its Federal Direct Loan Program. Among the most significant changes are 1) an expansion of the conditions wherein ED would forgive borrower’s loan balances, 2) additional provisions that broaden ED’s ability to recover losses directly from academic institutions, and 3) the addition of conditions that automatically trigger additional reporting requirement for postsecondary schools. Schools are required to comply with these provisions to retain their eligibility to be paid by borrowers using federal funds appropriated under title IV of the Higher Education Act (HEA).
A considerable number of comments received by ED, including our own, voiced concern about several unintended consequences or otherwise problematic or regressive aspects of the rule as it was proposed. These included: an unfounded determination by the department that the rule’s benefits justify its costs, no plan for retrospectively reviewing the rule’s actual effects on students and taxpayers, and poorly reasoned targeting of several requirements likely to result in regressive effects for “non-traditional” borrowers—namely, those of low income, minority groups, and women. It is worth noting that the Department published its final rule without making any substantive changes as a result of the public input it received.
Education reform was always part of the Obama administration’s top priorities. However, this rule’s fate—along with several other last-minute efforts to solidify the administration’s remaining regulatory priorities—may hinge on the outcome of the upcoming elections. As we detail in our report on rulemaking during presidential transitions, both the incoming President and Congress have tools, albeit limited ones, for revising midnight regulations. This new ED rule, with its high taxpayer cost, shaky analysis and abbreviated opportunity for public comment, may be a priority for review after midnight.