For Profit College and Student Loan News

Education Secretary Betsy DeVos has ordered a "regulatory reset" of rules intended to protect students from predatory for-profit colleges. But critics say the reset puts the interests of for-profit colleges ahead of those of students.

"The message the Trump Administration is sending our students is coming into focus: look out, the fox is guarding the henhouse,” said California Attorney General Xavier Becerra. But Becerra said he was not surprised by the action.

“I cannot say I am surprised that President Trump’s Administration has decided not to protect students from predatory for-profit colleges. It was Trump University that had to pay $25 million for offering sham courses, hiring unqualified instructors, and lying to students about learning secrets to real estate success," Becerra said in an email.

DeVos said the "reset" is intended to allow time for the department "to develop fair, effective and improved regulations to protect individual borrowers from fraud, ensure accountability across institutions of higher education and protect taxpayers."

"My first priority is to protect students," said DeVos. "Fraud, especially fraud committed by a school, is simply unacceptable. Unfortunately, last year's rulemaking effort missed an opportunity to get it right. The result is a muddled process that's unfair to students and schools, and puts taxpayers on the hook for significant costs."

"A craven attempt"

But Julie Murray of Public Citizen's litigation group said the delay is "a craven attempt to avoid the agency’s legal obligations to enforce" the rules enacted during the Obama Administration.

The rules include a prohibition on the use of forced arbitration clauses in many student enrollment contracts. These clauses require students to submit any dispute that might later arise between the students and the institution to binding arbitration, a private process with little right to appeal, instead of a court of law. The rules also provide new protections for students asserting defenses against repayment of their federal loans based on fraud or other misconduct by the students’ schools.

DeVos said the "reset" will not delay the processing of claims by students at now-defunct schools who are seeking to have their loans forgiven.

"Nearly 16,000 borrower defense claims are currently being processed by the Department, and, as I have said all along, promises made to students under the current rule will be promises kept," DeVos said. "We are working with servicers to get these loans discharged as expeditiously as possible. Some borrowers should expect to obtain discharges within the next several weeks."

Colleges raise concerns

DeVos said colleges "of all types" have raised concerns about the new regulations, complaining about "excessively broad definitions of substantial misrepresentation and breach of contract, the lack of meaningful due process protections for institutions and 'financial triggers.'"

Washington Attorney General Bob Ferguson called the decision to delay the new rules "deeply troubling." 

He said the "protections delayed by the Trump Administration and Secretary DeVos" include:

• Prohibitions on schools forcing students to pursue complaints in arbitration rather than in court; 
• Prohibitions on schools requiring students to waive participation in class action lawsuits; and
• The provision of automatic relief and group relief for defrauded federal student loan borrowers in certain circumstances, including following legal actions by state attorneys general. 

“As findings of widespread fraud and misrepresentation by Corinthian Colleges make clear, we need to do more to protect students who took out loans to pay for education they did not receive, and to ensure that there are meaningful avenues for relief when they are left paying for promises that never materialized," Ferguson said. 

With the founder of Trump University in the White House, for-profit education is riding high once again. After years of increasing federal oversight, the for-profit college industry sees President Trump's regulation rollback as its ticket to renewed growth.

The Education Department last week announced it would delay enforcing the "gainful employment" rules drafted by the Obama Administration to crack down on schools that leave their students with huge debts and scant job opportunities.

“This action is taken to allow the Department to further review the GE regulations and their implementation,” the agency said.

The rules cut off access to taxpayer funds for colleges and vocational training institutions if their graduates spend at least 20% of their discretionary income, or 8% of their total earnings each year, paying off student debt.

Regulations challenged

Schools have challenged the data used to make the determinations. 

The industry's lobbying group, Career Education Colleges and Universities, has taken the position that all schools -- public, private, and for-profit -- should be treated equally.

Education Secretary Betsy DeVos is an advocate of private education and said during her confirmation hearings that she would work to promote trade schools as an alternative to four-year colleges. 

President Trump's now-defunct Trump University claimed to offer training in real estate and finance but closed after a series of lawsuits and challenges from regulators and former students who said they got little for their money but sales pitches.

In November 2016, Trump agreed to pay $25 million to settle a class action lawsuit filed on behalf of about 7,000 former students. 

One of the named plaintiffs in the case, Sonny Low, said he still had $9,000 in credit card debt and had to take a job at Home Depot to try to finally pay off the remainder, attorney Rachel Jensen said.

Correspondence schools, which offer distance learning opportunities to students at all levels, can be found across the U.S. The Federal Trade Commission (FTC) has settled with one such school over supposed deceptive claims about its educational programs.

The agency brought charges against Stratford Career Institute in 2016, alleging that it misled consumers about its high school diploma program, which did not meet basic requirements set by most states. The agency said that consumers who tried to use the diploma to further their education were often turned away by college admissions officers.

“Many consumers cannot use their Stratford diplomas to enroll in four-year colleges and universities, community colleges, or vocational schools, or to obtain, keep, or advance in a job,” the complaint states. “According to [Stratford] records and other evidence, prospective employers and admissions counselors decline to accept Stratford’s diploma and tell consumers that they cannot use it as they would a diploma from a traditional high school.”

Under the new stipulated order, Stratford is forbidden from making future false claims about any of its educational programs. It is also required to disclose to consumers that its high school equivalency program may not be recognized by some schools and employers as a substitute for a traditional diploma or equivalency credential.

Additionally, the settlement imposes a $6.5 million judgment on Stratford, which will be suspended partially after the organization has paid $250,000. The full amount will have to be paid if Stratford is found to have misrepresented its financial condition to regulators.

Consumers can learn more about the settlement and find additional information here.

The year 2016 was a nightmare for for-profit colleges and their students, as many of the industry's leading players imploded under pressure from federal and state regulators. But there's one striking segment that appears to be continuing to run a land-office business as 2017 dawns -- for-profit graduate schools.

Post-graduate students are rushing to enroll at schools like the University of Phoenix, Capella Univeristy and Walden University, as well as DeVry and Grand Canyon University. The contrast to the troubles of  the undergraduate schools is striking, and many educators say the trend is scary -- for the same reasons that undergrad schools ran into trouble.

Simply put, students at undegraduate for-profit schools tended to take out large government-guaranteed loans but in far too many cases either failed to graduate or, perhaps worse, wound up with a degree that proved to be nearly worthless in the job market.

Could the same thing be happening in the post-graduate sector? It's a little heard to say because the reporting requirements for graduate schools are not as strict as for undergraduate and certificate-granting institutions, meaning that there's no easy way to know whether students studying for master's and doctorate degrees are getting their money's worth.

11 percent

Just 15 years ago, only 3 percent of graduate students were attending for-profit schools. Now the number is closer to 11 percent, raising fears that another taxpayer-financed student debt bubble could be in the making.

One obvious factor driving the surge in enrollment is that many for-profit schools tend to have open admission policies, meaning that just about anyone can enroll, unlike traditional colleges and universities that are much stricter about deciding who is likely to successfully complete an advanced course of study.

Not only are more students enrolling in for-profit graduate schools, they're also taking on much more debt than undergraduate borrowers. The Center for American Progress reports that grad students can borrow up to $138,500 -- more than double the amount undergraduates can take out -- and those who borrow through the U.S. Education Department's PLUS loan program have no pre-set limit and can borrow as much as they need. 

Thus, not only can grad students put themselves in an even deeper hole than undergrads, they can also expose taxpayers to even higher costs if they default on the loans. 

"Given the stakes for students and taxpayers, it is crucial that policymakers and the public better understand how well for-profit institutions are serving their graduate students," the Center's report concluded.

Once you take out a student loan, you have to pay it back. It can't be discharged in bankruptcy, for example.

But there is one scenario where you might be able to walk away. The law allows consumers to discharge some student loans if the school they were attending closed its doors.

It happened last year when Corinthian Colleges shut down, and more recently when ITT went under. As we reported just a few weeks ago, students who were attending ITT when it closed and had not completed a degree program may be able to cancel their student loans by applying for a student loan discharge.

So Sen. Elizabeth Warren (D-MA) was not pleased when she learned that the U.S. Department of Education was working to collect loans from former Corinthian students who might have otherwise been eligible to cancel their debts.

Troubling new data

"These troubling new data suggest that instead of focusing on getting these students the relief they are entitled to under federal law, the Department's student loan bank - working with its loan servicers and debt collectors - is instead intentionally collecting on debt that it knows may be eligible for discharge," Warren wrote in a letter to Secretary of Education John King.

Warren says the evidence suggests that, instead of helping borrowers who might be eligible to discharge their debt, the government is assisting debt collectors who she said are hounding former students for money they might not owe.

The lawmaker said she received information provided by the Department of Education that showed only a small number of former Corinthian students have been able to discharge their student loan debt. But she says it appears as though some 80,000 former students might be eligible for the relief.

Instead, she says most of these students have had tax refunds and other government benefits seized. She suspects many of these former students are unaware of their rights.

Adding insult to injury

"Instead of adding insult to injury for tens of thousands of Corinthian victims by pushing scores of them into debt collection, the Department of Education should stand up for these students as it has promised to do for more than a year and immediately halt all collections on this debt," Warren wrote.

Warren says the government agency should use its existing authority to discharge Corinthian borrowers' debts and make sure that no other students are being hounded for debts they don't owe.

Who's eligible

If you attended Corinthian or ITT using Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans and were enrolled when the school closed, you may be eligible for relief.

First, contact your loan servicer about the application process to discharge a loan. The Consumer Financial Protection Bureau (CFPB) says you may also need to contact your school to obtain your academic and financial records.

You may also need to contact the licensing agency in the state where you attended school to get help in acquiring those records. The documents may help support your discharge claim.

You can get more information about that here.

In another blow for the for-profit college industry, the U.S. Department of Education is withdrawing its recognition of the independent agency that accredits many for-profit schools.

The Accrediting Council for Independent Colleges and Schools (ACICS) is appealing the decision and will continue to operate while the appeal is processed. It accredits about 245 colleges that enroll 600,000 students. Many of its colleges are for-profit schools.

“While we are disappointed in this decision, ACICS plans to continue diligent efforts to renew and strengthen its policies and practices necessary to demonstrate this agency’s determination to come into full compliance with the Department of Education’s recognition criteria and, most importantly, to improve outcomes for the estimated 600,000 students currently attending ACICS-accredited institutions," the agency's interim president, Roger Williams, said in a prepared statement. 

ACICS was the accrediting agency for ITT Tech and Corinthian, both of which collapsed under the pressure of multiple investigations by federal and state agencies. 

Is your school affected?

If the appeal is not successful, schools accredited by ACICS will have 18 months to find a new accrediting agency. Is your school accredited by ACICS? Find out here.

In September 2015, a report by the Center for American Progress faulted ACICS for not taking action sooner against Corinthian Colleges.

“In April 2014—while the Department of Education was actively investigating the company for its questionable job placement rates and just a few months before the department acted to start Corinthian’s closure—ACICS renewed the accreditation of two Corinthian campuses and authorized a new branch campus,” the report noted.

The report also found that one out of every five borrowers at an ACICS-accredited college defaults on his or her loans within three years of entering repayment, 50% higher than the national average. Many of those loans are backed by federal agencies, meaning that the defaults wind up costing taxpayers.

For-profit colleges are barred from receiving more than 90% of their revenue from federal financial aid, but following the collapse of ITT, Corinthian, and other for-profit chains, DeVry says it will accept no more than 85% of its revenue from the feds.

“This is a significant pledge that DeVry Group is voluntarily making for the long term and it underscores our commitment to finding solutions to the issues facing higher education today,” said Lisa Wardell, president and CEO of DeVry Education Group. “This is part of a broader effort to improve our policies and demonstrate the quality and value of our programs.”

DeVry is working with "a variety of stakeholders on those commitments," which will be announced later this year, Wardell said, adding: “As we continue to engage with key stakeholders, we look forward to sharing details of the other commitments when they are finalized.” 

Cracking down

Federal and state agencies have been cracking down on for-profit schools, which tend to enroll large numbers of military veterans and students seeking vocational training. Many such students qualify for federal financial aid, meaning that taxpayers wind up paying for programs that critics say do little to prepare the students for careers.

ITT Institute shut down earlier this month after the Education Department cut off its flow of federal funds. Corinthian College closed down in 2015, leaving many students adrift. It was hit with a $1.1 billion judgment in March, some of which may be available to help students retire outstanding loans.

DeVry has had problems of its own. In January, the Federal Trade Commission sued DeVry, charging it used deceptive advertising to lure students. Last year, the school closed 14 campuses, moving students to its online program.

DeVry Education Group operates schools under several names, including  American University of the Caribbean School of Medicine, Becker Professional Education, Carrington College, Chamberlain College of Nursing, DeVry Brasil, DeVry University and its Keller Graduate School of Management, Ross University School of Medicine, and Ross University School of Veterinary Medicine.

It's been a rough week for students at ITT. On Tuesday they learned their school was closing its doors after the U.S. government cut off the flow of federal funds.

Students who just started a new term suddenly had to find an education alternative. Worse still, many were stuck with student loans.

Fortunately, there may be some options. The Consumer Financial Protection Bureau (CFPB) reports ITT students who were attending ITT when it closed and had not completed a degree program may be able to cancel their student loans by applying for a student loan discharge.

Who's eligible?

Students may be eligible for a complete discharge of Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans if they were enrolled when the school closed, or the school closed within 120 days after they withdrew.

The first step is to contact your loan servicer about the application process to discharge a loan. CFPB says you may also need to contact your school to obtain your academic and financial records. CFPB suggests contacting the licensing agency in the state where you attended school to get help in acquiring those records. The documents may help support your discharge claim.

You can get more information about that here.

You can't transfer the credits

There's another thing to consider. If you are successful in discharging your student loans, you won't owe the money you borrowed to pay ITT, but you won't be able to transfer any credits you earned there either. Essentially, you'll be starting over.

However, that might prove to be a good option since it is highly likely you'll be able to pursue the same course of study at a community college, or online public school at much less cost. In July, we reported on a new program allowing employees of National Federation of Independent Businesses member companies to pursue a degree for $3,000 a year.

Private loans may be a problem

If you were attending ITT using private student loans, you'll find your options are more limited. In most cases, you'll have to pay it back. However, CFPB notes that some states have programs to assist students with private student loans in their college shuts its doors.

The U.S. Department of Education barred federal funds from being used at ITT because it said the for-profit school was not in compliance with accrediting criteria and probably would not be able to get in compliance. Secretary of Education John B. King Jr. said the department acted out of its responsibility to both students and taxpayers.