The Obama Administration's ongoing efforts to regulate the for-profit college industry have yielded a $30 million fine against Corinthian Colleges and threaten to result in similar penalties against other schools.
On April 14, the U.S. Department of Education informed Corinthian
that it intended to fine the for-profit education company's Heald College subsidiary $29.66 million for misrepresenting its placement rates to current and prospective students and to its accreditors, and for failing to complete with federal regulations requiring the complete and accurate disclosure of its placement rates. Heald is a 13-campus subsidiary with schools primarily in California and other western states.
The government claimed that it had identified more than 900 separate instances of The government's sanctions also prohibit Heald from enrolling new students.
"This should be a wake-up call for consumers across the country about the abuses that can exist within the for-profit college sector," Education Secretary Arne Duncan
said in a statement. "We will continue to hold the career college industry accountable and demand reform for the good of students and taxpayers."
As noted by Inside Higher Ed
, the regulation used to punish Corinthian and Heald is a a job-placement requirement adopted in 2010 that "has emerged as a possible tool to crack down on for-profits." The regulation requires colleges to disclose job-placement rates of graduates in programs that fall under "gainful employment."
With respect to Heald's violations of the accurate job-placement reporting requirements, the Education Department's findings were devastating.The Huffington Post reported
that the government had found that Heald’s "inaccurate job placement rates constituted a 'substantial misrepresentation,' a finding that allows the department to prohibit the school from accessing federal student aid such as Pell grants and loans that students would use to pay for tuition."
"For example, Heald allegedly misled prospective students by advertising false job placement rates that omitted the fact that many of its graduates simply weren’t counted. It also told prospective students that it confirmed graduates’ employment with the graduate or her employer. In reality, the Education Department said, the school in many cases simply relied on its own career services staff for confirmation."
"Heald also paid staffing agencies to hire its graduates, the Education Department said, and counted them as officially employed in their field. In one case, the department found a Heald graduate who only was employed for two days moving computers and organizing cables."
The Huffington Post reports
that President Barack Obama will announce this week "sweeping borrower-friendly recommendations to fix the $1.1 trillion federal student loan system."
According to the website, "Obama's 'Student Aid Bill of Rights' includes recommendations for a new Education Department complaint system so grievances filed by students and borrowers are referred to regulators and law enforcement agencies; mandatory disclosures by the Education Department when borrowers' accounts are shuffled between loan companies; and a directive that the Education Department increase its cooperation with White House offices and other government agencies when it comes to understanding borrower behavior, identifying trends in student debt, and improving its interactions with its loan contractors."
The U.S. Department of Education, in a surprise move, has terminated its contracts with five debt collection companies. The reason given: Misleading borrowers at "unacceptably high rates."
As detailed in a recent Huffington Post report
, the Education Department said its move was precipitated by "'high incidences of materially inaccurate representations'to borrowers that it discovered in reviews spanning several months.
The five debt collectors, according to the department, misled borrowers about their options to get out of default, the resulting benefits to their credit reports and collection fees. Misleading borrowers about their defaulted debts may violate federal fair debt collection laws."
"Every company that works for the department must keep consumers’ best interests at the heart of their business practices by giving borrowers clear and accurate guidance," said Education Undersecretary Ted Mitchell. "It is our responsibility -- and our commitment -- to uphold the highest standards of service for America’s student borrowers and consumers."
The debt collection companies affected by the Education Department's actions are: Pioneer Credit Recovery, owned by Navient Corp., the student loan company previously known as Sallie Mae; Coast Professional; Enterprise Recovery Systems; National Recoveries; and West Asset Management.
The Huff Post also reported, "The Education Department said it would transfer accounts from affected companies, including Pioneer, to its other debt collectors, and would officially terminate its relationship with the companies once all accounts have been moved over. The move is the department's most forceful response in years to alleged misdeeds by its student loan contractors."
U.S. Senator Elizabeth Warren (D-Mass.) and Massachusetts Attorney General Maura Healey are among a growing number of national and state leaders urging the U.S. Department of Education to forgive massive student loan debt accrued by former students of Corinthian Colleges, the now-failed for-profit education company.
These leaders claim that Corinthian, through the schools that it operated like Everest Institute, Heald College and Wyotech, engaged in predatory recruitment practices that harmed thousands of working adults now saddled with large debts and no degrees, many of whom were first-generation college students.
In one letter
to U.S. Education Secretary Arne Duncan, Senator Warren and 11 of her colleagues urged the government to utilize its authority "to immediately discharge federal student loans incurred by borrowers who have claims against Corinthian Colleges, Inc."
Mother Jones magazine reports
that Senator Warren has devoted considerable energy to the student debt crisis since gaining election in 2012.
"The first bill
she introduced upon her arrival in the Senate in 2013 proposed allowing students to obtain loans at the same low rate the Federal Reserve gives to banks," the magazine writes. "That bill went nowhere, so the following year Warren returned with a second proposal
to allow Americans to refinance their student debt at current interest rate levels. Senate Republicans blocked it. Now Warren is turning to the Department of Education, which, she argues, already has the power to address the problem. The department, which Congress has empowered to administer student loan programs, has broad authority to collect unpaid loans. But in many cases, it also have the authority to reduce or wipe away debts."
In another development in the years-long battle between the Obama Administration and the for-profit school industry, a key industry group is seeking to preclude new federal "gainful employment" requirements from being implemented.
The Association of Private Sector Colleges and Universities -- representing more than 1,400 for-profit schools -- filed
a motion in federal district court seeking to preclude the implementation of new regulations that would apply a debt-to-earnings test with regard to graduates when determining schools' future eligibility to receive federal financial aid.
, a coalition of 28 public interest groups is urging the same court to reject the for-profit industry's arguments and to not delay implementation of the regulations.
are scheduled to become effective July 1, 2015.
Meanwhile, a leading Republican lawmaker, Rep. Virginia Foxx (R-N.C.), had introduced
a bill that would abolish the gainful employment rule and prevent the Obama Administration from implementing a college-ratings system.
The NY Times is calling for stricter federal regulations aimed at colleges that saddle students with crushing debt and few job prospects. In an editorial
, the Times wrote, "The Obama administration’s proposed rules that would deny federal aid to career training programs that saddle students with crushing debt and useless credentials are a clear improvement over the disastrous status quo. But they will need to be strengthened to fully protect students and taxpayers from predatory for-profit schools that rely on federal student aid for up to 90 percent of their revenue and are well versed in the art of evading the law."
The Obama Administration's years-long effort to improve regulation of the nation's for-profit colleges and trade schools with new "gainful employment" rules is nearing completion.
The public comment period for the Administration's final rule-making process ends May 25, and the Administration is expected to enact a final rule later this year.
As set forth in its proposed final rule unveiled on March 14, the Administration is enacting new requirements that will apply to nearly all for-profit colleges and trade schools and many certificate and non-degree programs at public and non-profit institutions of higher education. In order to remain eligible for federal student aid (the lifeblood of many for-profit colleges), the new rules will require schools to demonstrate that their programs are actually preparing students for gainful employment in a recognized occupation. In a press release, the Department of Education explained that under the proposed final rules, "Career programs would need to meet key requirements to establish that they sufficiently prepare students for gainful employment." Among the requirements:
- Institutions must certify that all gainful employment programs meet applicable accreditation requirements and state or federal licensure standards.
- All gainful employment programs must pass metrics to continue eligibility in the student financial aid program, including: the estimated annual loan payment of typical graduates does not exceed 20 percent of their discretionary earnings or 8 percent of their total earnings and the default rate for former students does not exceed 30 percent.
- Additionally, institutions must publicly disclose information about the program costs, debt, and performance of their gainful employment programs so that students can make informed decisions.
Education Department Secretary Arne Duncan has said about the new proposed rules, "Higher education should open up doors of opportunity, but students in these low-performing programs often end up worse off than before they enrolled: saddled by debt and with few—if any—options for a career. The proposed regulations address growing concerns about unaffordable levels of loan debt for students enrolled in these programs by targeting the lowest-performing programs, while shining a light on best practices and giving all programs an opportunity to improve."
The Huffington Post reports
that one of the nation's largest for-profit education companies is attempting to rally opposition to federal regulations proposed by the Obama administration by offering students free pizza slices. According to the report by the Huff Post's David Halperin, the Art Institute of Fort Lauderdale, one of the schools run by Education Management Corporation (EDMC), posted on its Facebook page that students should "Stop by the library all week between 12-1 and 5-6 to sign in to SaveStudentChoice and enjoy a free slice of Pizza. Takes 5 minutes." SaveStudentChoice is a for-profit school industry-backed website aimed at opposing the Obama Administration's proposed federal regulations that would, among other requirements, condition a college's continued eligibility for federal student aid on the institution's ability to meet targets for gainful employment among its graduates. The for-profit school industry is attempting to inundate the U.S. Department of Education with complaints about the regulations before they are scheduled to take effect in late 2014.
Offering freebies to students at for-profit schools in exchange for help with lobbying or an address or phone number of someone that a school can recruit for enrollment is a practice that regularly occurs at for-profit schools, where aggressive efforts to sell programs to adults and problems with graduating students finding employment often can arise.
In an editorial, The New York Times has criticized efforts by the for-profit college industry to weaken new proposed federal regulations while urging the Obama Administration to enact even tougher standards aimed at reining in the predatory practices at many colleges and trade schools that have sent millions of adults into heavy debt with minimal job prospects. In its editorial, The Times wrote: "The for-profit college industry is pressuring the Obama administration to water down proposed new rules that would deny federal student aid to career training programs that saddle students with crippling debt while giving them useless credentials. That’s a potent threat from the government, given that for-profit schools can get as much as 90 percent of their revenue from federal student aid programs. But it doesn’t go far enough. The administration should actually strengthen the rules to put the worst actors in this industry under tighter scrutiny. The proposed rules require career training programs to meet two reasonable standards to remain eligible for federal aid. The estimated annual loan payment of the typical graduate should not exceed 20 percent of discretionary earnings, or 8 percent of total annual earnings. And the default rate for former students should not exceed 30 percent. The overall approach is sound. But the percentage of people who are actually paying down their loans should also be taken into account to make sure that students are earning enough money to meet their responsibilities. If the repayment rate is left out of the picture, schools might escape sanctions by putting students in temporary forbearance programs that push loan defaults into the future. The for-profit industry is fighting hard against even the more limited proposed rules, and it is lobbying Congress to stop them. It claims that the new federal requirements would limit educational opportunity, particularly for poor minority students who might not qualify for traditional private or public colleges. The facts, however, show that for-profit schools often hurt the poor by luring them into questionable programs that cost considerably more than comparable courses of study at community colleges. According to federal data, graduates of two-year, for-profit career training programs average a loan debt of $23,590. By contrast, most community-college graduates owe nothing.The Department of Education recently reported that, of the thousands of for-profit programs it analyzed, an astonishing 72 percent produced graduates who, on average, earned less than a high school dropout who worked full time. This means that the most debt-ridden students are unlikely to earn enough to ever repay their loans. While students at for-profit colleges are 13 percent of the total higher education enrollment, they account for nearly half of all student loan defaults.The department’s analysis, which covered both for-profit and nonprofit career programs, found that 98 percent of the students enrolled in the lowest-performing programs are in for-profit schools. And among the certificate programs most commonly found to be substandard are the ones that typically advertise on buses and subways in cities all over the country, targeting less sophisticated audiences; these include programs that claim to train cosmetologists, medical assistants, paralegals and other fields. For the sake of poor students and their families all over the country, the Obama administration needs to issue strong rules that will push substandard programs to improve and force predatory schools out of business."
The Los Angeles Times
the call among major newspapers for regulatory reform that would require colleges and trade schools -- particularly those for-profit schools selling career programs -- to demonstrate that the expensive programs that they market actually result in gainful employment. Praising the Obama Administration's recent proposal for new federal rules on the subject, the newspaper wrote in part, "For-profit colleges that wildly exaggerate their graduates' success and talk prospective attendees into taking on extraordinary debt are not only harming their students but costing taxpayers billions of dollars on wasted Pell grants and defaulted federal student loans. After an earlier court defeat, the Obama administration is trying again to set rules to stop schools from overpromising to attract students. This time, the rules should stick. The administration has spent years looking for ways to crack down on the bad actors within the for-profit college industry, which accounts for just 13% of college enrollment but almost half of all federal student loan defaults. The misrepresentations made to prospective students have been widely documented; culinary schools, for instance, have been known to count janitors at fast-food restaurants as graduates who have secured work in their chosen field. But so far, aggressive lobbying and legal complaints by the schools have stymied reform. The new rules, announced this month, don't only target for-profit colleges but apply to any non-degree program that promotes itself as a gateway to "gainful employment." Applicants to such schools would not qualify for federal grants and loans if the default rate for the program they plan to attend is more than 30% and if loan payments regularly exceed a certain percentage of graduates' incomes. It is expected that the rules will overwhelmingly affect for-profit colleges."