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PRACTICAL ALTERNATIVES TO REDUCE STUDENT DEBT

A. Debt Reduction Plans

Proposal: Provide An Alternative Consequence For Programs With High D/E Rates 

That Facilitates Lower Borrowing.1

We suggest that the Department allow institutions with failing programs to take 

steps to reduce or eliminate student debt for incoming and continuing students in those 

programs. Institutions would be able to continue these measures for the period of time 

that reflects the credential level of the program. For example, for a two-year associate 

program, the institution would have to restructure the program and charges so that new 

students would not borrow Title IV or private loans for a period of two years.2 

Institutions that take these steps to benefit students would be able to continue 

those programs with other sources of funding, including other Title IV funds. Rather 

than forcing a loss of eligibility and the closure of the programs, this would encourage 

institutions to adopt practices which assure that students do not take on unmanageable 

debt while they make changes and monitor earnings. In addition, since the regulation 

exempts programs with low earnings and zero median debt, allowing a program with 

good earnings to lower its student debt provides a measure of fairness in the application 

of the GE Rule. 

Similarly, for lower cost programs, this proposal will reduce the likelihood of 

unintended consequences such as encouraging private loans. 

Our suggested changes to the text of the regulation are presented in red below:

NEW Section 668.XXX

(d) (1) In addition, if an educational program would be a failing program based on 

final D/E rates calculated in accordance with 668.404 and if the institution wishes to 

preserve the eligibility of that program for other non-loan Title IV, HEA programs, the 

Secretary shall require the institution to take the following “debt reduction measures”: 

reduce its tuition and fees or take other steps to limit the educational debt (including any 

 

1

This proposals shares similarities with our transition period proposal and is intended to facilitate 

discussion regarding potential debt reduction plans and appropriate consequences.

2

This formula would assure that the program had a zero median debt at the end of the period. 
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form of debt under the Title IV, HEA loan programs, private loans and institutional 

financing) of each new and continuing student enrolled in that program to an amount 

that would reduce (i) the annual debt to earnings rate to 12 percent or less or (ii) the 

discretionary income rate to 30 percent or less based on the higher of the mean or 

median annual earnings for that program in the award year in which the program was a 

failing program. 

(2) In implementing the debt reduction measures, the institution shall continue to 

comply with all Title IV, HEA requirements to make Title IV, HEA loan funds available, in 

adjusted amounts, to qualifying students. 

(3) An institution that commits to these debt reduction measures for any program 

shall notify the Secretary of its commitment within 30 days of the date that it receives 

the Secretary’s determination that such program is a failing program under Section 

668.407.

(4) An institution that notifies the Secretary of its commitment to these debt 

reduction measures for any program shall provide the Secretary with an interim report 

describing the steps it is taking to implement the debt reduction measures within six 

months of the date that it provides such notice to the Secretary, and shall provide the 

Secretary with additional information on this subject as requested. 

(5) An institution that commits to these debt reduction measures for any program 

shall not be required to provide the student warnings or comply with the enrollment 

limits under Section 668.407. 

(6) These debt reduction measures shall only be available for a failing program for 

the period that corresponds to the time necessary for a regular student to complete the 

program in 100% of normal time for students enrolling in the program after the date 

that the Secretary issues the notice that the program was a failing program under 

Section 668.407. 
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B. Loan Forgiveness Programs

Proposal: Provide Institutions Flexibility To Reduce Student Debt By Permitting 

Loan Forgiveness Programs For Students Who Withdraw Early In Their 

Program.

“Ensuring That Student Debt Remains Affordable” is one of the President’s top 

three priorities for higher education. One of the criticisms of the draft GE Rule is that it 

only addresses students who completed their program, while not considering the 

consequences for students who withdraw, are dismissed, or otherwise do not complete. 

In addition, the research on student debt demonstrates that students who drop 

out are four times more likely to default than students who graduate.

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 These students 

often default after spending only a short period of time at an institution and after 

borrowing only a small amount. In fact, according to a study done by financial aid 

consultant Mark Kantrowitz, students who dropped out who borrow less than $5,000 

default at 12.7%.

Despite this data, the Department has been reluctant to bless any loan 

forgiveness program that eliminates the debt for whole groups of students. This is the 

case even though we are all seeing stories of traditional colleges that are launching 

programs to forgive or reduce their students’ loan burden through assistance with 

repayment.4

We respectfully ask that the Department permit student loan forgiveness 

programs that ensure defined cohorts of students are left debt-free with no adverse 

consequences.5

 

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Specifically, 16.4% of those who dropped out were in default status compared to 4% for the larger 

population of borrowers. At for-profit colleges, 24.4% of those who dropped defaulted on their loans, 

compared to 14.2% for all borrowers.

http://chronicle.com/blogs/ticker/default-rates-worsen-among-dropouts-report-says/40802

4 In Michigan, Adrian College recently announced it would make student loan payments for low-earning 

grads. See http://www.freep.com/article/20130918/NEWS06/309180024/adrian-college-loanrepayment-alma-college-student-loans-debt-college-affordability. September 18, 2013

5 We believe that the Department has been reluctant to expressly approve these programs for fear that 

they can be used to manipulate cohort default rates. This proposal envisions the return and cancellation 

of Title IV loans rather than making payment on such loans. The result is that the loan would be 

removed from the numerator and denominator of the CDR.
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We believe some institutions would be prepared to implement such a loan 

forgiveness program for all students who do not successfully complete the first portion 

of their program, such as the first semester (or equivalent). Some institutions might 

elect to implement such a program for students in certain educational programs.

For purposes of the GE Rule, there would be no apparent effect since these 

students did not complete (unless the Department revives the Loan Repayment Rate). 

The loan forgiveness would have to be included in the institutional reporting under 

Section 668.409. However, we believe the key issue for the Department is to ensure 

that any such loan forgiveness program is clearly disclosed and applied on a consistent 

basis, so we have proposed language for the disclosures in Section 668.410. 

Our suggested changes to the text of the regulation are presented in red below:

NEW Section 668.410(h)

(1) An institution that has implemented a loan forgiveness program shall disclose such 

program in a format and manner similar to the information required to be disclosed 

under Section 668.410. To implement a qualified loan forgiveness program, the 

institution shall be required to take the following steps:

(i) forgive the Title IV HEA loans and private loans of any student who withdraws or is 

dismissed from the program in the first [semester (or equivalent)] that the 

student is enrolled and attending the program by returning all funds advanced 

under such loans to the Department or private lending source; 

(ii) forgive the student of any obligation to make any payments to the institution or 

any other person under such loans (including any interest, penalties or fees of any 

kind);

(iii) forgive the student of any obligations to make any payments to the institution or 

any other person under any institutional financing plans (including any interest, 

penalties or fees of any kind); and

(iv) determine a student’s date of withdrawal under the methodology for determining 

a student’s last date of attendance under Section 668.22. 
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(2) Students who receive such Title IV, HEA or private loans that are returned under this 

section shall be excluded from any repayment rate metric and the D/E Rates calculated 

for that program for any award year. 

(3) An institution that commits to such a loan forgiveness program shall notify the 

Secretary of its commitment 60 days prior to implementing such program. 

(4) An institution that notifies the Secretary of its commitment to such a loan forgiveness 

program shall provide the Secretary with an interim report describing the steps it has 

taken to implement the provision within six months of the date that it provides such 

notice to the Secretary, and shall provide the Secretary with additional information on 

this subject, including lists and details as to the loans that are forgiven, as requested. 

(5) Nothing in this Section 668.410(h) shall relieve the institution of the requirement to 

provide the student warnings or comply with the enrollment limits as otherwise required 

under Section 668.407. 

(6) Any Title IV, HEA loan that is forgiven under this provision shall not be considered a 

loan for which the institution (or any of its owners, agents, contractors, employees or 

other affiliated entities or individuals) made a payment to prevent a borrower’s default 

under 34 CFR Section 668.183(c)(iii).