Taxpayer Groups Call for ‘Rigorous’ Analysis of Obama’s $43 Billion Student Loan Rule

Former OMB executive: President’s priorities could outweigh good government concerns

Students eating pizza on college campus
Students eating pizza on college campus / AP
October 4, 2016

Several taxpayer groups will meet with Obama administration budget officials on Friday to voice concerns about the cost of a proposed student loan regulation that the Department of Education estimates would cost up to $43 billion.

The regulation, which would allow student borrowers to sue for debt relief if they claim they were victim to a "substantial misrepresentation" by their school, has been submitted to the Office of Management and Budget for review.

The taxpayer advocate groups requested the meeting with OMB in a letter last week. They said the rule had not undergone sufficient analysis and that Congress should be consulted on a change that carries a possible price tag of $43 billion.

"Such an enormous commitment of federal taxpayer dollars should not be made through agency rulemaking without an express directive from Congress, and it certainly should not be made without a far more rigorous analysis and estimate of what the costs to taxpayers will end up being that the Department of Education has conducted to date," the groups wrote in a letter to OMB official Howard Shelanski.

"We formally request that a new analysis of the proposed regulation be conducted, independent of the Department of Education, in order to more precisely determine the expected economic impact of this rule, and that finalization and implementation of the regulation be delayed until such an analysis is completed," the groups wrote.

The letter stated that the threshold for debt forgiveness was too vague and predicted it would "create a stampede to file claims." The regulation permits class-action claims and could bankrupt institutions with smaller endowments, including many historically black colleges.

Phil Kerpen, one of the authors of the letter who will meet with OMB on Friday afternoon, told the Washington Free Beacon that he plans to "forcefully advocate for taxpayers who would be forced to pay for the scheme."

Kerpen has said that the cost of the regulation could exceed estimates due to various uncertainties.

"There are a lot of sources of uncertainty—they don’t know how many claims are going to come in and they don’t know how many approved claims they are going to be able to recover from the school or how many will fall on the backs of the taxpayers," Kerpen said.

The possibility of school failure could dramatically increase the cost of the rule, said Kerpen.

"The rule is going to put schools out of business," Kerpen said. "When they cause failures they are going to have a zero recovery rate from the institutions."

The for-profit college ITT Tech, for example, has shut its doors since the Department of Education released an initial cost estimate. The college's students are being told to keep an eye out for the new student loan rule.

"The failure of ITT Tech means that they aren’t getting any money from them, so all the ITT Tech claims are now coming from taxpayers," Kerpen said.

A former OMB official told the Free Beacon that the agency should conduct a "rigorous uncertainty analysis" due to the cost of the proposed rule.

"OMB considers rules to be major if they have an impact of $100 million or more," said Susan Dudley, who headed the agency’s Office of Information and Regulatory Affairs from 2007 to 2009. "This is an enormous rule."

"For rules over $100 million, you should do a full-blown analysis and for rules over a billion, you are supposed to do a rigorous uncertainty analysis," Dudley said.

Dudley added that the "huge range" of the Department of Education’s $2 billion to $43 billion cost estimate "is a sign that they haven’t done rigorous analysis."

Kerpen said OMB should not give the regulation its stamp of approval without conducting its own analysis.

"In my judgment, OMB cannot with a straight face accept the Department of Education’s cost analysis that confidently predicts it will be somewhere in the range from $2 billion to $43 billion," Kerpen said. "If this doesn’t fail OMB review, what rule ever should? The point of doing regulatory review at OMB is they’re supposed to prevent rules exactly like this one."

Dudley, however, said that good government concerns will likely lose out to political pressure to approve the rule before the end of Obama’s presidency.

"The OMB team is probably raising red flags about the analysis of this rule but then you might have other people saying that this is a high priority of the president," Dudley said. "When the president’s priorities and good government analysis conflict, most of the time the president’s priorities will win."

Dudley, who now heads George Washington University’s Regulatory Studies Center, said that the quality of regulations decreases in the "midnight period" of presidential administrations.

"The evidence is that there are a lot more regulations issued at the end," Dudley said. "With shorter time for public comment and shorter time for analysis, the quality of the regulation tends to be lower."

"I don’t see how this could possibly survive OMB review if they’re being honest about it, but who knows if they’re going to be honest about it," Kerpen said.