New York Times Calls for Reigning in Predatory Schools

For-profit colleges like Everest, ITT , Kaplan and Sanford Brown have destroyed the education and career dreams of thousands of young people. 

These predatory institutions are gaming the federal financial aid system to line the pockets of their investors and CEOs by luring unsophisticated students to take out exorbitant student loans to attend programs whose credits do not transfer and that do not lead to gainful employment. The students end up with broken dreams and a lifetime of debt.

Senator Tom Harkin (Iowa) and Dick Durbin (illinois) and Representative Elijah Cummings (Maryland) are leading efforts in the United States Congress to hold these schools accountable.   

The Department of Education has been attempting to promulgate commonsense regulations that would protect student consumers from the for-profit's predatory practices. But the for-profit sector is waging a multi-million dollar lobbying effort to derail these efforts and protect their huge profit margins.

Last week the New York Times editorial board urged the Obama administration weighed in urging the Obama administration to resist these lobbying efforts and pass strong student protections. It 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.

Corinthian College Inc. sued in Massachusetts

Massachusetts Attorney General Martha Coakley filed suit Thursday against Corinthian College Inc. alleging it had used aggressive and deceptive marketing and loan tactics to increase enrollments and boost profits.

Corinthian Colleges Inc. and Corinthian Schools Inc., the publicly traded industry giant with about 100 campuses in North America lured students with misleading promises of employment and pay, and left them burdened with heavy debts, according to the complaint filed in Suffolk Superior Court.

Corinthian is the parent company of Everest College, which opened in Milwaukee in 2010 and closed less than a year and half later with a job placement rate of less than 6% and graduation rates below 50%. 

Massachusetts is the latest state to take Corinthian to court. Despite settling with the state of California for almost $7 million in 2007 Corinthian has again been sued by that state's Attorney General, Kamala D. Harris, over similar allegations. 

In Massachusetts Corinthian pushed students to take out subprime loans through the school, which charged interest rates as high as 18 percent, so they could qualify for federal student loans, Coakley alleged in the complaint.

“They are promising both quality in education and employment rates that they just can’t deliver on,” Coakley said in an interview. “The only ones who are doing well in this appear to be the investors on Wall Street.”

Corinthian spokesman Kent Jenkins disputed the facts in the complaint and said after a three-year investigation, Coakley’s office had failed to produce a single complaint from a student at either Massachusetts location.

“The Massachusetts Attorney General’s Office disregards substantial, independent evidence that our two schools in Massachusetts have a strong record of offering students a quality education and treating them honestly and fairly,” the company said in a three-page statement. “We will vigorously defend the record of our campuses in Massachusetts.”

The lawsuit against Corinthian is the latest action against for-profit schools by Coakley, whose office been investigating the industry in recent years. In October, Coakley’s office reached a $425,000 settlement to reimburse former students of Sullivan & Cogliano Training Centers, Inc., a Brockton-based for-profit career school, for allegedly misrepresenting job placement numbers and making misleading statements about its medical field training programs.

The following month, Coakley’s office filed a lawsuit against the Career Institute of Framingham, alleging it falsified student signatures, enrollment records, attendance, and grades to receive proceeds from government-funded student loans. Coakley alleged the schools failed to provide students with course material and training, while leaving them tens of thousands of dollars in debt. The Career Institute, which operated as American Career Institute and shut down last year, denied the allegations. The case is ongoing.

Corinthian is one of the biggest players in for-profit education in the United States, generating $1.6 billion in revenue in 2013, according to its annual report. In Massachusetts, Corinthian operates Everest Institute, which has campuses in Brighton and Chelsea. Corinthian said in its statement that it had stopped enrolling new students at the Brighton campus and is seeking a buyer. Classes there will end in October.

Corinthian subsists largely on taxpayer-backed loans to students and focused on recruiting new students regardless of their qualifications or whether they were likely to complete or benefit from Corinthian’s programs, according to court documents. In Massachusetts, the schools offered training for dental and medical assistants, administration, medical insurance billing and coding, and massage therapy.

The Corinthian case represents the first time Coakley’s office has alleged that a for-profit school, acting as a lender, engaged in a loan scheme. In order to qualify for federal student loans, Coakley said, students had to pay a portion of the schools’ $14,000 to $16,000-a-year tuition themselves. Corinthian offered the students private loans with interest rates as high as 18 percent to help them qualify.

The legal complaint cited unnamed students who said instruction was inadequate. Some students were required to sign a statement that they had landed a job in order to receive their degree, a way for the school to inflate its job placement statistics, according to the complaint.

Toby Merrill, a lawyer at the Legal Services Center of Harvard Law School in Jamaica Plain, said she has offered legal assistance and representation to many former Corinthian students who were dissatisfied with their schooling and unable to repay their loans. She described Corinthian as “a leader in the field” of disgruntled students.

“There’s a lot of high pressure predatory practices and fraud directed at people who are definitionally the least able to understand it, “ she said. “These are people who have not been successful in traditional educational settings.”

Corinthian defended its practices, saying for the last 12 years in Massachusetts, it has provided educational opportunities to nontraditional students such as single mothers by offering flexible class schedules.

About 500 students attend both schools in Massachusetts at any given time, and the company said its graduation rates are about 60 percent, surpassing graduation rates in the state’s community college system. Graduates also land jobs between 57 and 88 percent of the time, depending on the degree.

This post is based on an article by the Boston Globe's Megan Woolhouse.

New Federal Oversight Proposed for For-Profit Colleges

Three Congressional lawmakers are pushing for a new federal committee that would coordinate the government’s oversight of for-profit colleges.

Senators Dick Durbin of Illinois and Tom Harkin of Iowa, both Democrats, plan to introduce legislation Thursday that would create a committee comprising representatives from nine federal agencies that oversee for-profit colleges.

The committee would be tasked with improving the coordination among the various federal and state regulators that are investigating for-profit institutions. It would also publish an annual “warning list” of colleges that have been found guilty of illegal activity or institutions for which the committee otherwise has “sufficient evidence” of widespread abuses.

Representative Elijah Cummings, a Maryland Democrat, plans to introduce an identical proposal in the House, but both bills are likely to face fierce opposition from Republicans, who have been critical of the Obama administration’s efforts to more tightly regulate the for-profit industry.