Obama's Department of Education grants automatic loan relief for all students who attended the American Career Institute: A puny effort--too little, too late

Last Friday, the U.S. Department of Education granted automatic debt relief to all students who attended American Career Institute. As Inside Higher Ed pointed out, this is "the first time the department has granted automatic loan relief to all students of a college without requiring individual applications." About 650 former ACI students received closed school discharges; but the rest--about 3,900 students--are getting their loans discharged en masse. In addition, DOE also announced it will grant Borrower Defense discharges to 28,000 student who had attended Corinthian Colleges.

This is a good thing, of course; but why now? And why so small a gesture?

After all, Corinthian Colleges, which closed and filed bankruptcy under allegations of fraud, had more than 300,000 students; and ITT, which also filed bankruptcy, had 191,000 enrollees.  Yet so far, DOE has only grant Borrower Defense discharges to 28,000 former Corinthian students.

As for the small size of the gesture, I think Luke Herrine, legal director of the Debt Collective, got it right. "There's just no coherent logic whatsoever," he said. "The only thing I can think of is it would be deeply embarrassing for them to stop collecting on so much debt." It is one thing to forgive the loans of 4,000 ACI students and a small percentage of Corinthian students; it is quite another to discharge the debt of a half million people.

As for the timing, I think the Obama administration has known for quite a while that the only responsible thing to do about millions of people who took out loans to attend flaky for-profit colleges is to grant massive debt relief to nearly everyone without the necessity of reviewing each case individually. But that is a difficult thing to do politically.

I think DOE waited until a week before Obama leaves officer to offer token relief to ACI students in order to highlight the student-loan crisis when there is no time left for the Obama administration to do something substantive.

Like a retreating army that spikes its cannons before being overwhelmed by the enemy, the Obama administration may have wanted to publicize the student loan crisis to create difficulties for Trump.

Here are my thoughts on DOE's surprising but welcome action:

1) Granting debt relief to ACI students is the first small step toward doing what the federal government will inevitably be forced to do: forgive student debt to nearly all of the millions of people who attended for-profit colleges and received no economic benefit.  Billions of dollars in student loans will eventually be written off.

2) I think Obama's DOE took the action that it did for ACI students because the Obama team thinks Trump, who takes office in a few days, will try to prop up the for profits at the expense of exploited students.

But the Obamacrats may be wrong. After all, President-elect Trump knows how to read a  balance sheet, and he may quickly grasp the fact that the student loan program is a catastrophe. 

And if Mr. Trump realizes the enormity of the student loan crisis, he might actually take decisive action.  Everyone agrees that Mr. Trump understands bankruptcy and its value for distressed debtors.  President Trump might surprise everyone and ease the path to bankruptcy relief for millions of student loan debtors who will never be able to pay back their college loans.

References

Andrew Kreighbaum. Education Department announces thousands of new loan discharges. Inside Higher Ed, January 16, 2017.

The Department of Education strips ACICS of accrediting authority: It's time to pull the plug on the rapacious for-profit college industry

Turn out the lights

The party's over

They say that

All good things must end

Willy Nelson

Turn Out the Lights

Last month, the Department of Education stripped the Accrediting Council for Independent Colleges and Schools (ACICS) of its accrediting authority--basically signing ACICS's death certificate. ACICS will appeal of course, and there may be litigation; but for now at least ACICS is essentially out of business.

ACICS accredited 245 post-secondary institutions, mostly for-profit colleges.  These institutions are scrambling to find a new accrediting agency, which is a life-or-death issue for them. DOE requires colleges to be accredited by  a government-approved accrediting agency in order to receive federal student aid money.  Without regular infusions of federal cash, none of these colleges would last a month.

According to Inside Higher Ed, more than 100 colleges that were accredited by ACICS have applied for accreditation with another accrediting body--the Accrediting Commission of Career Schools and Colleges (ACCSC).  ACCSC also accredits for-profit colleges (more than 300), and many for-profits will probably find a new accrediting home with this agency.

But, as Willy Nelson once observed, when the party's over, someone should turn out the lights. And the party is about over for the rapacious for-profit college industry.  

Corinthian Colleges and ITT have filed for bankruptcy, leaving thousands of students in the lurch. As state and federal regulatory agencies step up the pressure on the predatory for-profit college industry, more for-profit schools will close. DOE has more than 250 proprietary schools on its "Heightened Cash Monitoring" watch list,an indication that the financial viability of this industry is shaky.  Publicly traded for-profits have seen their stock prices plummet as investors bolt for the exits.

Shutting down the for-profit colleges will be messy. The for-profits have been incredibly litigious, and they will certainly sue to protect their interests. But with each passing day, more unsuspecting and unsophisticated young people takes out student loans to attend  for-profit colleges; and many of them never recoup their investments. Indeed almost half of the people who take out federal student loans to attend a for-profit college default within five years of beginning repayment.

It is going to be ugly, and its going to be complicated. But the time has come to turn out the lights on the for-profit college industry, which has harmed so many innocent and unsuspecting American young people.

References

Scott Jaschik. Slight Drop in Colleges in Heightened Cash Monitoring. Inside Higher Education, July 25, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/07/25/slight-drop-colleges-heightened-cash-monitoring?utm_source=Inside+Higher+Ed&utm_campaign=8991789a59-DNU20160725&utm_medium=email&utm_term=0_1fcbc04421-8991789a59-198564813

Paul Fain, Hundreds of colleges, many for-profits, seek a new accreditor. Inside Higher Ed, October 6, 2016. Accessible at https://www.insidehighered.com/news/2016/10/06/hundreds-colleges-many-profits-seek-new-accreditor

Adam Looney & Constantine Yanellis.  A Crisis in student loans? Brookings Institution, September 10, 2015. Accessible at: http://www.brookings.edu/~/media/projects/bpea/fall-2015_embargoed/conferencedraft_looneyyannelis_studentloandefaults.pdf