Thursday, August 1, 2013

President Obama Vows to Help the Middle Class: He Should Tackle the For-Profit Trade Schools

President Obama would like to help the middle class.
In a recent interview for the New York Times, President Obama promised to direct his energies to helping the middle class. "I will seize any opportunity I can find to work with Congress to strengthen the middle class, to improve their prospects, to improve their security," the President vowed.

That's great news.  And I have a suggestion for how President Obama and Congress can work together to clean up the federal student loan program by stopping unscrupulous for-profit trade schools from injuring middle-class and working-class Americans.

Emily Rueb recently wrote an article for the Times about some of the victims of New York City's for-profit beauty schools. Three of these schools were shut down in the 1990s "after accusations and indictments that they misused federal student loan money." These schools targeted lower-class women, including immigrants, promising them lucrative careers in the beauty and hair-care industry. Students recruited by the schools took out federal student loans to pay their tuition. The Times reported that at least  35,000 people borrowed money to attend these for-profit schools at just 10 locations.

Unfortunately, many of the women who attended these schools received little or no value for their tuition money. For example, Maria Machado, an immigrant from El Salvador, who spoke no English and had only a sixth-grade education, took out a federal student loan to attend a beauty-school program at Wilfred Academy, a for-profit trade school. According to Ms. Machado, the school did not prepare her to take New York City's licensing exam, which she needed to practice her new profession; and she never passed it.

Eventually, Ms. Machado abandoned her plans to pursue a career in the beauty business. She did not discover that she was several thousand dollars in debt on her student loans until she applied for citizenship and started having her federal income-tax refunds seized by the federal government.

According to the New York Times article, Wilfred Academy went out of business after it was found guilty of falsifying student-loan applications and misusing federal student loan money. But Wilfred Academy's closure had no impact on Ms. Machado's loan obligations.

Fortunately, Ms. Machado and several other victims of for-profit trade schools were able to get their student loans forgiven under the Department of Education's so-called "false-certification discharge" provision, which allows the government to forgive student loans taken out by people who attended a school that falsely certified that people who had not graduated from high school or obtained GED  certificates could benefit from the school's training program.

But get this. Ms. Machado remained liable on student loans taken out to attend a defunct trade school that provided her with little or no benefits for 23 years before she finally managed to get her loans forgiven. During that period, the government seized several of her federal income tax refund checks, and of course her credit was severely damaged.

Ms. Machado was fortunate to have gotten legal assistance from the New York Legal Assistance Group, a public-interest legal assistance organization. Otherwise, she would probably still be liable for her student loans

Obviously, Maria Machado had been treated unfairly by the Department of Education. DOE obviously knew that Wilfred Academy had been found guilty of misusing federal student loan money and falsifying student loan applications.  And DOE had the names of all the schools' students who had taken out federal student loans.

But DOE used the information it had on Wilfred Academy's former students to unleash debt collectors on these hapless  women and seize their income tax refunds rather than inform them they had a right to seek a discharge of their loans under the government' own "false-certification discharge" program. As Ms. Conner put it, "They [DOE] have this information, which they use for collection, but when it comes time to educate debtors, they don't."

This brings me to President Obama's recent promise to work with Congress to help the middle class. Helping people like Maria Machado is an obvious way to fulfill that promise. President Obama should actively work for passage of legislation that would kick the for-profit colleges and trade schools out of the federal student loan program.  Working class and middle class people should not even have the opportunity to go into debt to attend a for-profit post-secondary institution or trade school when there are so many public educational institutions and nonprofit colleges that are capable of meeting their educational needs at a lower cost.

Of course the for-profit institutions are politically powerful. They employ lobbyists and make strategic campaign contributions to powerful members of Congress.  President Obama and Congress may not have the political courage to shut down the for-profit education industry.

But President Obama and Congress should at least act to make sure that students who were victims of unscrupulous for-profit trade schools are relieved of their student-loan obligations just as soon as DOE knows that they have been victimized. Victims of worthless for-profit training programs should not be hounded by government-sponsored debt collectors for 20 years.

Surely, President Obama agrees with me about this, and surely he has the power to correct the injustices that were outlined in Ms. Rueb's recent New York Times article.

If President Obama doesn't agree or if he is powerless to help people like Maria Machado, then he should stop talking about helping the middle class.  Because if President Obama  can't fix this obvious problem with the federal student loan program, he can't fix anything.


Jackie Calmes and Michael D. Shear. Obama Says Income Gap is Fraying U.S. Social Fabric. New York Times, July 27, 2013.

Emily S. Rueb. Promised Better Life By Beauty Schools, Graduates Have Little Training and Lasting Debt. New York Times, July 29, 2013, p. A12.

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