Showing posts with label Corinthian Colleges. Show all posts
Showing posts with label Corinthian Colleges. Show all posts

Thursday, July 26, 2018

Betsy DeVos, the for-profit college industry's best pal, rolls back regulatory protections for students who were defrauded by for-profit colleges

This week, Betsy DeVos, President Trump's lamentable Secretary of Education, proposed new rules for implementing the Department of Education's Borrower Defense to Repayment Program.

The new rules--433 pages long--outline the DeVos regime's procedures for processing fraud claims filed by students who took out federal loans to attend for-profit colleges and were swindled.  The New York Times and Steve Rhode of Get Out of Debt Guy reported on this development, but Rhode's analysis is more comprehensive and insightful than the Times story. Rhode's essay is the one to read.

Millions of Americans have been defrauded by for-profit colleges--literally millions. Corinthian Colleges and ITT Tech filed for bankruptcy, brought down by regulatory pressures and fraud allegations. Those two institutions alone had a half million former students.

Globe University and Minnesota School of Business both lost their authority to operate in Minnesota after a Minnesota trial court ruled they had misrepresented their criminal justice programs.  Last month, the Minnesota Court of Appeals partially upheld the trial court's judgment, finding sufficient evidence to support a fraud verdict on behalf of 15 former students who testified at trial.

In California, DeVry University agreed to pay $100 million to settle claims brought by the Federal Trade Commission that it had advertised its programs deceptively. In the wake of that scandal, the company owning DeVry changed its name from DeVry Education Group to Adtalem Global Education.

The Art Institute, which charged students as much as $90,000 for a two-year associates' degree,
agreed to pay $95 million to settle fraud claims brought against it by the Justice Department, but the settlement is paltry compared to the amount of money borrowed by 80,000 former students.  And there have been numerous small for-profits that have been found liable for fraud, misrepresentation, or operating shoddy programs.

The for-profit scandal is a huge mess. If every student who was defrauded or victimized in some way by a for-profit college were to receive monetary restitution, it would probably cost taxpayers a half trillion dollars.

So how do we fix this problem? The Obama Administration approved rules that would have streamlined the process for resolving student-fraud claims, but Betsy DeVos pulled back those rules just before they were to have been implemented.

The new DeVos rules, summarized by Steve Rhode, put most of the blame on students for enrolling in these fraudulent and deceptive for-profit colleges. According to DeVos' DOE, "students have a responsibility when enrolling at an institution or taking student loans to be sure they have explored their options carefully and weighed the available information to make an informed choice."

DeVos' janky new rules forces fraud victims to continue paying on their student loans while they process their damned-near hopeless fraud claims, while DOE processes those claims--if at all--at a snail's pace.

DeVos nixed the Obama administration's ban against mandatory arbitration clauses that the for-profits have forced students to sign as a condition of enrollment. Sometimes these clauses also bar class action suits. So under Betsy DeVos' administration, many defrauded students will be barred from suing the institutions that cheated them.

Betsy and her for-profit cronies want struggling student debtors to enroll in long-term income-based repayment plans (IBRPs) that last from 20 to 25 years. Payments under those plans are generally so low that student debtors' loan balances are negatively amortizing. Borrowers in IBRPs will see their loan balances go up month by month even if they make regular monthly payments. In other words, most IBRP participants will never pay off their loans.

Some people are predicting the student-loan scandal will eventually lead to a national economic crisis similar to the one triggered by the home-mortgages meltdown. I am beginning to think these doomsday predictors are right. Already we see that student loans have impacted home ownership and may even be a factor in the nation's declining birth rates--now so low that the American population is not replacing itself.

Two things must be done to destroy the for-profit college cancer that is destroying the hopes of millions for a decent, middle-class life:

1) First, the for-profit college industry must be shut down. No more University of Phoenixes, no more DeVrys, no more Florida Coastal Universities.

2) Second, everyone who was swindled by a for-profit school should have easy access to the bankruptcy courts, so they can shed the debt they acquired due to fraud or misrepresentations and get a fresh start in life.

And there is a third thing we need to do. Congress should impeach Betsy DeVos for reckless dereliction of duty and blatant misconduct against the public interest.  Let's send her back to Michigan, where she can enjoy her family fortune as a private citizen and not as a so-called public servant.



References

Mark Brunswick. Globe U and Minn. School of Business must close, state says after fraud rulingStar Tribune, September 9, 2016. 

Christopher Magan. Globe U. and Minnesota School of Business to start closing campusesTwin Cities Pioneer Press, December 21, 2016.

State of Minnesota v. Minnesota School of Business, A17-1740, 2018 Minn. App. LEXIS 277 (Minn. Ct. App. June 4, 2018).

Sarah Cascone, Debt-Ridden Students Claim For-Profit Art Institutes Defrauded Them With Predatory Lending Practices.  Artnet.com, July 23, 2018.

Erica L. Green. DeVos Proposes to Curtail Debt Relief for Defrauded StudentsNew York Times, July 5, 2018.

Claire Cain Miller. Americans Are Having Fewer Babies. They Told Us Why. New York Times, July 5, 2018.

Steve Rhode. A Deep Dive Into the Debtor Blaming 2018 Borrower Defense to Repayment Program. Get Out of Debt Guy (blog), July 25, 2018.

Wednesday, January 17, 2018

Dept of Ed Puts Fraud First Over Students and Common Sense. Essay by Steve Rhode

By SteveRhode, January 3, 2018

Secretary of Education Betsy DeVos seems to be waging a terrible war against student loan debtors who have been defrauded by their schools in order to extract federal student loan money. Since the Trump administration took over the Department of Education has not actually delivered relief to a single Borrower Defense to Repayment claim. Yet they brag as of December 20, 2017 they have just approved “12,900 pending claims submitted by former Corinthian Colleges, Inc. students, and 8,600 pending claims have been denied.”
Under that Department of Education program the student previously would be forgiven from the student loans obtained by deception and the government would claw back the money the school got.
Most of these claims have been submitted by students of for-profit schools who played fast and loose with their marketing.
But it seems the government is turning its back on students who have been misled by schools to get their student loan money. Not only is the Department of Education changing the rules but they are also proposing rules that students who land better jobs after graduation should not be forgiven from the loans they were defrauded by. Either you are or are not a victim of fraud but the proposed policy create a middle ground where victims get to be only partial victims.
Under the deadline of “Improved Borrower Defense Discharge Process Will Aid Defrauded Borrowers, Protect Taxpayers” the government proposes what they say is more fair. Department of Education Secretary DeVos says “No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly.” But then goes on to say relief is conditional based on gainful employment. – Source

While the Department of Education brags about their recent wave of Corinthian College Borrower Defense to Repayment claims they also disclose “rather than taking an “all or nothing” approach to discharge, the improved process will provide tiers of relief to compensate former Corinthian students based on damages incurred.”

Relief from fraud will be dependent on the current earnings of the victims. Victims earning 70% and above of the income of their peers will only receive a 30 percent forgiveness of the fraudulent student loans. So to be clear, that income test is against the other students who were the victims of the same fraud and not the general population.
As a bonus the Department of Education gives fraud victims this carot “to mitigate the inconvenience for how long it has taken to adjudicate claims, the Department will apply a credit to interest that accrues on loans starting one year after the borrower defense application is filed.”
So the Department of Education will take forever to deal with the forgiveness application and then only tack on a year worth of interest while they drag their feet.
Now to add insult to injury the Department of Education is proposing making it much harder for students to prove they were subject to misrepresentation to induce enrollment in an effort to extract money from students loan debtors.
The proposed forgiveness plan is to eliminate any successful judgment against a school by an Attorney General as proof of deception. Instead the individual student would have to obtain an individual judgment against the school. This would require a legal action that nearly all students would never be able to afford to file. Additionally the defrauded student would have to show clear and convincing evidence they were intentionally misled and that misrepresentation let to monetary harm.
“They’ve made it almost impossible for borrowers to meet the misrepresentation standard by requiring them to demonstrate the intent of the school especially when students don’t have the power of discovery” to examine the inner workings of a school, said Clare McCann, deputy director of higher education policy at New America, who worked on the Obama-era policy. “They took every dial and dialed to the far extreme. It really tries to make [the regulation] as useless as possible.”
Pretty soon we are going to need a Department of Education Victim Helpline to assist people soon to be screwed over by a government department that clearly appears to be putting for-profit colleges first.


*****

Steve's essay was originally posted on The Get Out of Debt Guy web site.
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 



Friday, January 12, 2018

Betsy DeVos is trying to nullify a federal law intended to give defrauded students relief from student loans: Our government is shielding crooks

Betsy DeVos is in bed with the corrupt for-profit college industry. Her slavish pandering to the for-profit-college racketeers is truly shocking. Now she is trying to nullify a law that gives relief to students who were defrauded by for-profit colleges.

In 1994, Congress passed a law giving students an avenue for getting their student loans discharged if they were defrauded by the college they attended.  The law was not used much until Corinthian Colleges--a for-profit college group--collapsed and filed for bankruptcy. At the time of its demise, Corinthian had over 300,000 students or former students; and several thousand filed so-called borrower defense applications seeking to get their student loans discharged on the grounds they were defrauded by Corinthian.

The Obama administration adopted regulations for implementing the borrower-defense rule, which provided a regulatory avenue for reviewing fraud claims. But Betsy DeVos nullified those regulations. DeVos said the Obama regulations would allow students to wrongly obtain "free money" at the expense of for-profit colleges.

DeVos launched a new round of administrative review, and DOE said the new regulations would probably not be implemented until 2019. The DeVos DOE's new borrower-defense rules are very different from what the Obama administration had fashioned. In fact, the DeVos regulations, if implemented, will basically invalidate the federal borrower-defense statute altogether.

David Halperin, writing in Huffington Post, observed that "the DeVos-Trump draft borrower defense rules . . . essentially nullify the 1994 law that gives former students who are ripped off by their colleges . . . the right to seek cancellation of their student loans."

As Halperin explained, the DeVos rules erect "numerous and redundant barriers to students getting the benefit of that law." The DeVos draft rules are so draconian that a representative of the for-profit college industry admitted that the new rules "feels a little stacked against the student."

For example, under the rules DeVos proposes, students will have to prove their fraud claims by "clear and convincing evidence." This is a very high legal barrier, especially when you consider that the colleges--not the complaining students--have access to the evidence of fraud.

Of course, state attorneys general have been suing the for-profits for fraud.  Surely a former student could present a judgment for fraud against a for-profit college as evidence that the student herself is a fraud victim. No, DeVos' new regulations will not permit a fraud victim to present a judgment against a for-profit college as part of the student's own fraud claim. As Steve Rhode wrote recently:
The proposed forgiveness plan is to eliminate any successful judgment against a school by an Attorney General as proof of deception. Instead, the individual student would have to obtain an individual judgment against the school. This would require a legal action that nearly all students would never be able to afford to file.
If the DeVos rules go into effect, fraud victims will rarely if ever obtain relief from their student loans. Abbey Shafroth, an attorney with the National Consumer Law Center, said this: "I really think [the DeVos rules] would effectively do away with borrowers' ability to get relief in almost all circumstances."

The DeVos Department of Education's proposed borrower-defense rules demonstrate that it has abandoned all pretense of fairness and decency toward student-loan debtors. DeVos herself is nothing more than obsequious book licker for the for-profit college industry, and Congress seems unable or unwilling to rein her in.

Last July, Eighteen Democratic state Attorneys General sued DeVos and the Department of Education, seeking to force the Department to implement the Obama-era borrower defense rules. I hope they are successful because what DeVos is essentially trying to do is eviscerate a 1994 statute passed by Congress for the express purpose of  providing student fraud victims with well deserved relief from their student loans.




References

David Halperin. Backing DeVos Repeal of Obama Rules, For-Profit Colleges Vilify Students. Huffington Post, January 9, 2018.

Andrew Kreighbaum. Few Details on Tougher Borrower-Relief Standards. Inside Higher Ed, January 9, 2018.

Andrew Kreighbaum. Devos: Borrower-Defense Rule Offered 'Free Money'Inside Higher Ed, September 26, 2017.

Steve Rhode. Dept of Ed Puts Fraud First Over Students and Common Sense. Getoutofdebtguy.org (blog), January 3, 2018.

Editorial: Scamming for-profit schools roar back under Betsy DeVos. Chicago Sun-Times, December 25, 2017.




Thursday, January 4, 2018

Forget the Russians: Democrats should focus their energy on removing Betsy DeVos from Trump's Cabinet

Almost 44 million Americans are student-loan debtors, and every single one of them should see Betsy DeVos as their mortal enemy. Since President Trump appointed her as Secretary of Education, DeVos has done nothing to ease the suffering of college borrowers. On the contrary, she has done everything she can to prop up the venal and corrupt for-profit college industry, which has preyed on vulnerable and naive students, many of them minority members or just plain poor.

We have known for years that the for-profit college racket is a cancer. Senator Tom Harkin's 2012 report on the for-profits made that fact absolutely clear. And we know that a high percentage of people who take out student loans to attend these shyster colleges default on their loans. Nearly half of a recent cohort of borrowers who attended for-profit colleges defaulted within five years. It was recently reported that more than half of the students who took out student loans to attend 1,000 colleges and schools had not paid down one dime of their student loans seven years into repayment. Most of those 1,000 institutions are for-profits.

Minorities have been especially injured by the for-profit colleges. Three quarters of African Americans who take out loans to study at a for-profit college and then drop out eventually default.

In my view, the Obama administration did not do a great job of reining in the for-profit racketeers, but it did make an effort. The combined efforts of the Obama Department of Education and several state attorney generals brought down two bad actors: Corinthian Colleges and ITT Tech. These two organizations had a total of a half million students and former students at the time they closed and filed for bankruptcy.

And the Obama administration put regulations in place to process students' fraud claims--claims against Corinthian in particular. But Betsy DeVos derailed those regulations and appears intent on protecting the for-profits from fraud claims. She's cooked up a bogus formula for resolving fraud claims, awarding only partial compensation to victims.

As Steve Rhode noted in a recent essay, the DeVos DOE has not provided relief to a single student borrower who was defrauded by a for-profit college, although it has approved around 13,000 claims by former Corinthian students (while rejecting 8,600 pending  claims).

DeVos also nullified an Obama-era regulation that would prohibit the for-profits from forcing their students to sign covenants not to sue as a condition of enrollment.  In addition, DeVos is slow rolling the Public Service Loan Forgiveness Program (PSLF), which provides debt relief to people who devote ten years to public service. Indeed, the Trump administration proposes to do away with the PSLF program.

And if that weren't enough, the Republicans sent a bill out of the House Education Committee that would do away with student-loan forgiveness altogether. DeVos has not formally endorsed this bill, but she called it a "starting point."  The bill, if it becomes law, would give student borrowers only two options--pay off their loans in ten years or go into a perpetual income-based program that would not end until the loans are paid off or the student borrower dies. Oh yes, and the bill would eliminate the authority of state attorney generals to police the student loan industry.

And what have the Democrats done in response to DeVos' shockingly obsequious behavior toward the for-profit college racketeers? Not a friggin' thing. Senator Elizabeth Warren--self-proclaimed consumer advocate, writes stern letters to DeVos and other government bureaucrats, but she can't point to a single accomplishment in terms of student-loan relief.

I give the Democrats grudging credit for at least introducing legislation that addresses the student-loan crisis. The Delaney-Katko bill (co-sponsored by 25 Democrats and one Republican) would open the bankruptcy courts to deserving student borrowers, which is really the only comprehensive solution to the crisis. But that bill will never make through a Republican dominated Congress that is totally beholden to the financial industry.

In my mind, the litmus test for Congress in terms of student-loan relief is the Warren-McCaskill bill that would bar the federal government from garnishing the Social Security checks of elderly student-loan defaulters. Passing this bill would at least alleviate the suffering of the 114,000 older Americans who are seeing their Social Security income reduced due to unpaid student loans.

 It is not enough for Senators Warren and McCaskill to simply file this bill; they need to get it to a vote. What Republican would vote against that bill? Can't Senator Chuck Schumer and Representative Pelosi walk across the aisle and get Warren-McCaskill bill signed into law with bipartisan support?

Frankly, if there is not enough good will between Republicans and Democrats to enact the Warren-McCaskill Social Security relief bill, which only provides puny student-debt relief, then student debtors should say the hell with both parties and form a third political party.

In the meantime, Democrats should focus on getting Betsy DeVos out of Trump's cabinet. I don't know if her slavish catering to the for-profit-college gang amounts to high crimes and misdemeanors for impeachment purposes, but this I know: Betsy has got to go.

Image credit: GQ Magazine


References

Douglas Belkin, Josh Mitchell, & Melissa Korn. House GOP to Propose Sweeping Changes to Higher EducationWall Street Journal, November 29, 2017.

Jillian Berman. House Republicans seek to roll back state laws protecting student loan borrowers. Marketwatch.com, December 7, 2017.

Danielle Douglas-Gabriel. GOP higher ed plan would end student loan forgiveness in repayment program, overhaul federal financial aidWashington Post, December 1, 2017.

Danielle Douglas-Gabriel. Dems raise concern about possible links betwen DeVos and student debt collection agencyWashington Post, January 17, 2017.


Danielle Douglas-Gabriel. Elizabeth Warren wants the Education Dept.'s use of earnings data investigated. Washington Post, January 2, 2018.

Paul Fain. Half of black student loan borrowers default, new federal data showInside Higher Ed, October 17, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than BelievedWall Street Journal, January 18, 2017. 

Andrew Kreighbaum. DeVos on Higher Education Act Rewrite. Inside Higher Ed, December 15, 2017.

Jack Moore. Betsy DeVos may be Gearing Up to Screw Over Public Service Workers Who Expect Student Loan Forgiveness. GQ.com, August 3, 2017.

Representative John Delaney press releaseDelaney and Katko File Legislation to Help Americans Struggling with Student Loan Debt, May 5, 2017.

Senator Claire McCaskill Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors.

Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors

Steve Rhode. Dept of Ed Puts Fraud First Over Students and Common Sense. Getoutofdebtguy.com, January 3, 2017.

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).

United States Health, Education, Labor and Pension Committee. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. July 2012. Accessible at: http://www.help.senate.gov/imo/media/for_profit_report/PartI.pdf













Tuesday, October 31, 2017

140 people a day die from opioid overdoses, but 3,000 people a day default on their student loans

Approximately 52,000 Americans died from opioid overdoses in 2015. That's an average rate of  around 140 deaths a day. In fact, opioid overdose is now the leading cause of death for Americans under age 50.  If we continue at this rate, a half million Americans will die from drug overdoses over the next ten years--roughly nine times as many Americans as were killed in the Vietnam War.

But let's compare the opioid crisis to the student-loan disaster.  Last year, 1.1 million Americans defaulted on student loans; that's an average rate of 3,000 people a day.  Obviously, defaulting on a student loan is not as serious as dying from a drug overdose. Nevertheless, the consequences of student-loan default are catastrophic.

First of all, a student-loan default triggers penalties and fees that are attached to the unpaid debt, making it less likely that the debtor will ever pay off his or her student loans. Secondly, student-loan defaulters cannot take out more student loans to obtain additional education or training. Third, unlike most unsecured loans, student loans are very difficult to discharge in bankruptcy.

In short, people who default on their student loans run a good chance of becoming lifetime debtors who will never improve their economic circumstances. In other words, a student-loan default is often the equivalent of an economic death sentence.

People who attend for-profit colleges have the highest student-loan default rates. A Brookings Institution report documented that almost half of the people in  a recent cohort who borrowed money to attend a for-profit school defaulted within five years.  Another analysis reported that three out of four African Americans who attended for-profit colleges eventually default on their loans.

In my opinion, a good case can be made that the student-loan catastrophe is causing more harm than the opioid epidemic.  Around 44 million Americans have student-loan debt; that's about one American in five. College-loan indebtedness is hampering people's ability to buy homes, save for retirement, and purchase health insurance. Without question, millions of Americans would have been better off if they had never pursued postsecondary education because the indebtedness they took on degraded the quality of their lives rather than enhanced it.

And Secretary of Education Betsy DeVos has has made the student-debt crisis worse. Again and again, she has made decisions that favor the corrupt for-profit industry at the expense of struggling student loan debtors, even debtors who were defrauded by for-profit colleges.

To its credit, the Obama administration crafted regulations whereby students could apply to the Department of Education to have their student loans forgiven if they were defrauded by the college they attended. Thousands of students have applied for loan forgiveness based on fraud claims, including students who borrowed money to attend two bankrupt for-profit institutions: ITT Tech and Corinthian Colleges.

The Obama regulations were to have taken effect on July 1, 2017, but Betsy DeVos stopped the implementation of these regulations, saying she feared students would get "free money." She then appointed a panel of experts to draft new regulations, which won't be approved until next year. In fact, under the DeVos scheme, defrauded students will not be able to move forward on their claims until 2019 at the earliest.

And it appears that many students will not get complete relief from their loans even if they can prove they were defrauded.  DeVos is talking about giving partial relief based on a formula that will compare the defrauded student's earnings to the average earnings among people who participated in similar educational programs.

The cynicism of this approach is shocking. First of all, by delaying the administrative process until 2019, DeVos is giving fraud victims only three options for handling their oppressive student debt. First, they can continue making loan payments on educational experiences that are worthless to them. Second, they can enter income-based repayment plans that will set monthly payments so low that the interest on their debt will continue to accrue, making their total indebtedness grow larger. Or third, they can default on their loans, which will ruin their credit and cause their debt to grow larger from fees and penalties that the debt collectors tack on to their original debt.

DeVos's tactic is nothing more than sneaky manipulation to aid the for-profit industry, which does not want fraud claims to be examined. If Congress had a moral compass and some courage, DeVos's behavior would lead to a formal resolution calling for her resignation.

Unfortunately, Congress is as beholden to the for-profit colleges as Betsy DeVos. The for-profits have used lobbyists and strategic campaign contributions to buy Congress's silence; and at least a few of our federal representatives (Senators Olympia Snowe and Dianne Feinstein, for example) have personally profited from ties to the for-profit college industry.

And thus our elected representatives are willing to allow millions of lives to be destroyed and the integrity of higher education to be degraded rather than reform the federal student-loan program.  In sum, Congress is willing to tolerate human suffering that may exceed the harm caused by opioid addiction.



References

Maria Danilova. DeVos may only partially wipe away some student loansDetroit News, October 28, 2017.

Josh Katz. Drug Deaths in America are Rising Faster Than Ever. New York Times, June 5, 2017.

Tamar Lewin. Questions Follow Leader of For-Profit CollegesNew York Times,May 26, 2011.

Ben Miller. New Federal Data Show a Student Loan Crisis for African American Borrowers. Center for American Progress, October 16, 2017.

Bob Samuels. The For-Profit College Bubble: Exploiting the Poor to Give to the RichHuffington Post, May 25, 2011.

The Wrong Move on Student LoansNew York Times, April 6, 2017.

Thursday, October 26, 2017

Like a Galapagos tortoise, Education Department ponders debt relief for students victimized by the for-profit colleges

Corinthian Colleges filed for bankruptcy in 2015, and ITT Tech went bankrupt a year later. Together, the two for-profit college companies left more than half a million students and former students in the lurch. Thousands of these victims filed so-called borrower-defense claims with the Department of Education, asking DOE to forgive their student loans on the grounds that they were defrauded.

The Obama administration approved regulations for processing these claims, but Betsy DeVos put them on hold. She was concerned, she said, that the Obama rules might give undeserving students "free money."

Now DOE has approved a panel of 17 experts to overhaul the Obama regulations. According to a story in Inside Higher Ed, the DeVos Department anticipates the new rules won't go into effect until 2019. Under that timetable, defrauded borrowers won't even have an avenue of relief until four years after Corinthian filed for bankruptcy.

Meanwhile, hundreds of thousands of student borrowers who attended one of the Corinthian schools, ITT Tech, and dozens of other dodgy for-profit colleges will be making monthly loan payments for worthless education experiences. Hundreds of thousands of others will put their loans into deferment, which will relieve them from making loan payments but will cause their loan balances to go up due to accruing interest. And thousands more will simply default, which will allow the federal government's sleazy loan collectors to slap on penalties and fees to their loan balances.

But DeVos doesn't give a damn about the carnage wreaked by the corrupt for-profit college industry. In fact, she is doing everything she can to prop it up.

And so, Betsy DeVos, Amway heiress and for-profit co-conspirator, lumbers along like a Galapagos tortoise, oblivious to the misery experienced by millions of student debtors--who are now defaulting at the rate of 3,000 a day.

The DeVos Education Department ponders student-loan debt relief.
References

Danielle Douglas-Gabriel. Former ITT Tech students fight for some money in the company's bankruptcy case. Los Angeles Times, January 3, 2016.

Andrew Kreighbaum. Education Dept. Borrower-Defense Negotiators. Inside Higher Ed, October 26, 2017.

Shahien Nasiripour. Corinthian Colleges files for bankruptcy. Huffington Post, May 5, 2015.

The Wrong Move on Student LoansNew York Times, April 6, 2017.

Thursday, June 15, 2017

Federal court orders the Department of Education to rule on Everest College student's request for debt cancellation: Sarah Dieffenbacher v. Betsy DeVos

Dieffenbacher v. U.S. Department of Education: A Student Borrower seeks debt relief on grounds of fraud

From 2007 to 2012, Sarah Dieffenbacher attended Everest College-Ontario Metro, a for-profit college located in Ontario, California. She took out $50,000 in federal student loans to fund her studies.

In March 2015, Dieffenbacher filed a "borrower defense" application with the U.S. Department of Education, petitioning to have her loans cancelled on the grounds that Everest had engaged in fraudulent conduct in violation of California law.

In August 2015, Dieffenbacher defaulted on her loans. Educational Credit Management Corporation, her loan servicer, sent her a notice stating that it intended to begin garnishing her wages.

Dieffenbacher filed a timely objection and a request for a hearing. This objection consisted of a 29-page letter accompanied by 254 pages of exhibits. These exhibits included Diefenbacher's sworn statement and records from the California Attorney General's Office showing documented misconduct by Everest and its parent company, Corinthian Colleges.

On January 20, 2017, Dieffenbacher's attorney received a letter from the Department of Education stating that DOE was denying Dieffenbacher's objection to having her wages garnished. DOE said its decision was conclusive and that Dieffenbacher's only recourse was to file a lawsuit in federal court.

This Dieffenbacher did. In her lawsuit, Dieffenbacher claimed that DOE's decision was arbitrary and capricious and violated the Administrative Procedure Act.

Without admitting fault, DOE filed a motion to remand Dieffenbacher's case back to the Department so that its decision could be "reconsidered and re-issued in a way that would not be arbitrary, capricious, or contrary to law."

Judge Virginia Phillips' decision

Last week, Judge Virginia Phillips, a California federal judge, denied DOE's request for a voluntary remand. In Judge Phillips' view, the Department "[had] not established a substantial or legitimate concern guiding its request for a remand."

The judge pointed out that Dieffenbacher's application for loan forgiveness had been pending for more than two years and that the Department had made contradictory arguments about what it intended to do.

Indeed, Judge Phillips' suggested that the Department of Education was attempting to get Dieffenbacher out of court so that it could garnish her wages. "The Department's request for remand appears to be an attempt to evade judicial review so that it can retain the ability to garnish [Dieffenbacher's] wages without a conclusive ruling as to the enforceability of her loans," the judge observed. "Under such circumstances, the remand request appears both frivolous and in bad faith" [emphasis supplied].

Judge Phillips concluded her opinion by ordering DOE to rule on Dieffenbacher's loan cancellation application within 90 days. If the Department fails to comply, the judge added, she would proceed to hear Dieffenbacher's claims on the merits.

The Dieffenbacher case: More Evidence of the Department of Education's Stall Tactics

The Dieffenbacher case is the latest example of the Department of Education's efforts to avoid dealing with student borrowers' legitimate applications for loan forgiveness.

In the Price case, which I wrote about recently, DOE took six years to rule on a University of Phoenix graduate's application for loan forgiveness based on her claim that Phoenix falsely certified that she had a high school diploma when she began her studies. Ultimately, DOE disallowed the claim. A federal court in Texas countermanded DOE's ruling and discharged the debt.

Last January, DOE sent a letter to 23,000 former students at Corinthian Colleges, assuring them that their loans had been approved for cancellation and that the loans would be forgiven within the next 60 to 120 days. Almost six months later, DOE has not kept its promise, which prompted a protest letter from 19 states' attorneys general.
So what's going on?

I think Betsy DeVos's DOE pencil pushers have added up the costs associated with discharging students loans under DOE's own rules and regulations and have found those costs to be enormous. DOE is trying to put the brakes on its administrative loan forgiveness process. The Department announced this week that it is rewriting the "borrow defense" regulations that Dieffenbacher relied on.

BUT IT IS TOO LATE. DeVos's efforts to slow down the loan forgiveness process will not withstand scrutiny in the federal courts, as the Price case and the Dieffenbacher case demonstrate.

The Consumer Financial Protection Bureau said in a recent report that eight million student borrowers are in default, with nearly 1.1 million defaulting in 2016 alone. As CFPB pointed out, people are defaulting at the rate of 2 borrowers every minute!

Two things must be done to bring the federal student loan program under control. First, the federal government must stop sending student aid dollars to for-profit colleges, which have shockingly high student-loan default rates.

Second, Congress must amend the Bankruptcy Code to allow distressed student borrowers to discharge their student loans in bankruptcy like any other unsecured consumer debt.

But Betsy DeVos's Department of Education refuses to face reality while it stalls for time. In the end, this approach is going to enrage millions of student borrowers. These borrowers are also voters, and they will vote for any politician who promises real debt relief to the legions of student borrowers who will never pay back their loans.

References


Dieffenbacher v. U.S. Dep't of Educ., ED CV 17-342-VAP (KK) (C.D. Cal. June 9, 2017).

Seth Frotman & Rich Williams. New data documents a disturbing cycle of defaults for struggling student loan borrowers. Consumer Financial Protection Bureau, May 15, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than BelievedWall Street Journal, January 18, 2017.

Andrew Kreighbaum. Court Orders Education Department to End Delay in Ruling on Loan Discharge. Inside Higher ED, June 9, 2017.

Andrew Kreighbaum. Education Department to hit pause on two primary Obama regulations aimed at for-profitsInside Higher ED, June 15, 2017.

Andrew Kreighbaum. State AGs Want Action on Student Loan DischargeInside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Price v. U.S. Dep't of Educ., 209 Fed. Supp. 3d 925 (S.D. Tex. 2016). [Link is to U.S. Magistrate's opinion, which was affirmed by a U.S. District Judge.]
 


Tuesday, June 6, 2017

Department of Education is slow to forgive loans of student borrowers defrauded by Corinthian Colleges: State Attorneys General urge DOE to move more quickly

Yesterday, nineteen state attorneys general and the Director of the Hawaii Office of Consumer Protection delivered a letter to Betsy DeVos, U.S. Education Secretary, urging the Department of Education to quickly process fraud claims brought by former students of Corinthian Colleges.

The state AGs asked DeVos to approve "swift automatic group discharge" to students in Corinthian cohorts where fraud has been found. Alternatively, the AGs asked DeVos to process individual fraud claims faster.

Corinthian Colleges closed and filed for bankruptcy in 2015, leaving behind more than 350,000 former students who took out loans to pay Corinthian's tuition. Many of these student borrowers were induced to attend Corinthian through fraud, and the nineteen AGs claim there are defrauded Corinthian students in all 50 states.

So far, DOE has discharged 27,000 borrowers from their federal loan debt, but that number is a small fraction of the former students who are entitled to debt relief. Thousands have filed "borrower defense" claims, asking DOE for loan forgiveness, but DOE is not processing these claims quickly. Meanwhile, many Corinthians students are still paying on their loans or defaulted and are subject to having their wages garnished and their credit ruined.

According to the state AGs, DOE notified 23,000 Corinthian student borrowers in January that their loan forgiveness applications had been approved and that "forgiveness should be completed within the next 60-120 days." It's been nearly 180 days since that announcement, and these loans have still not been discharged.

What's going on?

I think the Department of Education is simply overwhelmed by the meltdown of the student loan program. Almost half the people in a recent cohort of students who attended for-profit colleges defaulted within five years. According to a recent article in the Wall Street Journal, half the students who attended more than 1,000 colleges and schools have not paid down one dime of their student loans seven years after their repayment obligations began.

In addition, the first beneficiaries of the Public Service Loan Forgiveness Program will be eligible for debt relief before the end of this year, and DOE has no idea how many people are eligible to have their loans discharged under that program.

Personally, I think Secretary DeVos should adopt the AGs' suggestion and grant swift automatic group discharges to all Corinthian students who were in DOE's "Designated Fraud Cohorts." Or better yet, I think DOE should forgive the loans of all 350,000 former students.

Admittedly, there are probably some people who completed a Corinthian program and actually got a good job, but I'll bet there aren't many. Undoubtedly, the default rate for Corinthian students is extraordinarily high largely due to the fact that Corinthian's students did not get well-paying jobs at the conclusion of their studies.

I recognize there are risks associated with a mass loan forgiveness program. If all 300,000 of Corinthian's former students are granted a discharge, then ITT Tech's former students will ask for blanket loan forgiveness. ITT Tech also closed and filed for bankruptcy, and it has 200,000 former students.

It is shocking to contemplate, but millions of Americans will never pay back their student loans. In addition to the for-profit college students, there are the law graduates who accumulated mountains of debt and can't find law jobs. And then there are the poor saps who got liberal arts degrees from expensive liberal arts colleges; many of them will never pay back their loans.

The 19 state AGs are right to urge Secretary DeVos to grant automatic group discharges for thousands of former Corinthian students. But Corinthian Colleges is the tip of the iceberg. Millions of student borrowers will never pay back their loans, and the ultimate loss to taxpayers will be in the billions.



References

Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.

Tamar Lewin. Government to Forgive Student Loans at CorinthianNew York Times, June 9, 2015, p. A11.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default ratesWashington, DC: Brookings Institution (2015).


Andrew Kreighbaum. State AGs Want Action on Student Loan Discharge. Inside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Friday, March 10, 2017

763 colleges and schools closed last year, and most of their former students have student loan debt

As reported by Bloomberg, 763 colleges and schools closed last year--the highest number since 2012, when more than 900 schools were closed. In fact, since 1984, more than 13,000 post-secondary schools have shut down,  including more than 300 foreign schools. And all these institutions--including the foreign institutions--were beneficiaries of the federal student aid program at the time of their demise, which mean they got Pell grant funds and federal student-loan money while they were operating.

However, a close look at the Department of Education's closed schools list, however, reveals that the numbers are not as alarming as they might first appear. First of all, most of these schools were small propriety trade schools, barber schools, schools of cosmetology, etc, which had relatively small numbers of students.  For example, Ruth's Beauty College and the Hollywood Script Writing Institute are on that list, along with Paul's Academy of Cosmetology.

Moreover, many schools on the list were simply branches of institutions that are still thriving. University of Oklahoma, for example, closed a campus at Kunsan Army Base and another one at Rhein Air Base. In fact, mainline universities all over the United States have been shutting down unprofitable satellite campuses, and these closings have swelled the list of total closures.

Nevertheless, sprinkled among the beauty schools, barber colleges, and satellite campuses on the closed school list, are a significant number of free-standing colleges that have shut their doors.  A few recent examples have made the national news: St. Catharine College in Kentucky, Dowling College in New York, St. Joseph's College in Indiana, Virginia Intermont College, and Virginia's Sweet Briar College (which later reopened).

And more are sure to follow. Moody's Investors Service predicted in 2015 that the number of annual college closures would triple in the years to come to about 15, and this estimate is probably too low. In my view, no college with an enrollment of  less than 1000 students can survive long; and there are a lot of schools in that category.

Here are some things to think about as the closure rate for postsecondary institutions accelerates:

I. Expedited loan forgiveness for former students of for-profit colleges

 First, all these schools--all 13,000 of them--participated in the federal student loan program, and a great many of them left their former students in the lurch. ITT Tech and Corinthian Colleges alone had a total of half a million former students, and both institutions are in bankruptcy.

The Department of Education needs to develop an expedited loan forgiveness process for student-loan debtors who attended closed schools--particularly the for-profit schools that close at the rate of several hundred a year. In fact, all students who to took out loans to attend a closed for-profit college should have their loans automatically forgiven--no questions asked.

II. A central records repository to maintain student transcripts of closed colleges

Second, a central records repository needs to be established to maintain the transcripts of students who attended these closed institutions. This should be a federal responsibility since many of these schools were created primarily to capture federal student aid money.

III.Shutting down the for-profit sector and foreign participation in the federal student loan program

Finally, we've simply got to shut down the for-profit college sector, and we've got to quit subsidizing foreign colleges that are receiving federal student aid funds.  Let's face it: a great many of the defunct for-profit schools  were created for the primary purpose of feasting from the federal larder of easy student-loan money.

Do we need postsecondary training in the trades? Yes, we do, but that mission should be assigned to public community colleges and not to flaky outfits like Bubba's Welding Academy.


References

Another Small Private Closes Its Doors. Inside Higher Ed, June 1, 2016.

Paul Fain. The Department and St. Catharine.  Inside Higher Ed, June 2, 2016.

Lyndsey Layton. Virginia Tech pays fine for failure to warn campus during 2007 massacre. Washington Post, April 16, 2014.

Rick Seltzer. Closing out a college. Insider Higher Education, January 5, 2017.

Kate Smith. Here's What Happens to Endowments When Colleges Close. Bloomberg.com, March 6, 2017.

Susan Svrluga. Alumnae vowed to save Sweet Briar from closing last year. And they did. Washington Post, March 3, 2016.

Kellie Woodhouse. Closures to Triple. Inside Higher Education, September 28, 2015. 

Friday, January 20, 2017

Department of Education inflated student-loan repayment rates for nearly every school and college in the United States! Playing for Time

The Wall Street Journal published a story a few days ago that is truly shocking.  Based on WSJ's analysis, the Department of Education has inflated student-loan repayment rates for 99.8% of all colleges, universities, and trade schools in the United States.

Earlier this month, DOE acknowledged that a "coding error" had caused the Department to mistakenly under report the student-loan default rates at many schools and colleges. But the magnitude of the error wasn't generally known until the Journal published its own analysis.

According to WSJ, at least half the students who attended more than a thousand colleges and trade schools had either defaulted on their student loans within 7 years of beginning repayment or failed to pay down even one dollar of their student loan debt.

This news is shocking, but not surprising. DOE has been misleading the public for years about  student-loan default rates.  Last autumn, for example, DOE reported a 3-year default rate of about 10 percent, a slight decrease from the previous year. But that figure did not take into account the people who had obtained forbearances or deferments and weren't making payments.  The five-year default rate for a  recent cohort of  student debtors is more than double DOE's three-year rate: 28 percent.


And last September, DOE mislead the public again. The Department  identified 477 schools where more than half the students had defaulted or failed to pay down their loan balances 7 years into repayment. But we now know the figure is more than double that number: 1029.

The implications of this new data are staggering. Obviously, the federal student-loan program is a train wreck. Millions of people have student loans they will never pay back. Eight million have defaulted and millions more are making payments so low that their loan balances are growing due to accruing interest.

Several large for-profit colleges have closed under allegations of fraud.  Corinthian Colleges and ITT together have a half million former students. DeVry, which just reached a settlement with the Federal Trade Commission, has a total of more than a quarter of a million students who took out federal loans to finance their studies. Accumulated debt for DeVry students alone is more than $8 billion.

Like the inmate musicians of Auschwitz, DOE's response to this calamity has been to play for time. It has encouraged millions of people to sign up for income-drive repayment plans (IDRs) under terms such that IDR participants will never pay off their loans.  And DOE has set up a cumbersome procedure whereby students who believe they were defrauded by a college can apply to have their student loans forgiven.

But there is only one way out of this nightmare: bankruptcy relief. Ultimately Congress will have to repeal the "undue hardship" provision in the Bankruptcy Code, which has made it virtually impossible for overburdened student debtors to discharge their loans in bankruptcy.

Until that happens, President Trump's Department of Education should modify its harsh stance toward bankrupt student loan debtors. DOE must stop insisting that every bankrupt student borrower should be pushed into an IDR that stretches loan payment periods out for 20 or 25 years.

Student loan debtors who are honest and broke should be able to discharge their student loans in the bankruptcy courts. Within a couple of years that simple truth will be apparent to everyone. Why not start now to relieve the suffering of millions of Americans who got in over their heads with student loans and can't pay them back?

And let's not sell the Trump administration short. Liberals have assumed that Donald Trump will protect the for-profit colleges because of his history with Trump University. But I am not so sure. President Trump knows how to read a financial statement and he understands the value of bankruptcy. He might just do the right thing and turn this calamity over to the federal bankruptcy courts. 

Playing for Time


References

Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.

Tuesday, January 17, 2017

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.



Friday, January 6, 2017

Globe University and Minnesota School of Business are closing: We need federal legislation to manage college shutdowns

Globe University and Minnesota School of Business (MSB) began closing their campuses last month. The two for-profit institutions once operated in three states--Minnesota, South Dakota, and Wisconsin; but a series of regulatory and court actions brought them down.

In September, a Minnesota court ruled that Globe and MSB committed fraud by inducing students to enroll in their criminal justice programs.  Not long after, the Department of Education cut them off from federal student-aid funding. No for-profit college can survive a month without federal student-loan revenue, so DOE's action amounted to a death sentence for both institutions.

The demise of Globe and MSB follow in a train of college shutdowns over the past couple of years. The casualty lists includes Corinthian Colleges and ITT, two for-profits that declared bankruptcy. St. Catharine College and Dowling College also shut their doors, along with Virginia Intermont College.

DOE has more than 500 colleges on its "heightened cash monitoring" watch list, and many of these schools will shut down within the next three or four years. In a 2015 report, Moody's Investment Services predicted colleges would close at the rate of 15 per year commencing this year.

Now is the time for Congress to pass legislation to protect colleges' former students when the institution they attended shuts down. At a minimum, Congress should do the following:

I. Congress should pass legislation requiring every defunct college to deposit all student records in a central federal depository.

First student records at failed colleges must be preserved. Former students will need access to their official transcripts for decades after their alma mater closes, but how will they get those transcripts 25 years after the institution they attended shut its doors?

Currently, some closing colleges are voluntarily making arrangements to preserve student records. Dowling College, for example, which filed for bankruptcy in 2016, sent its student records to nearby Long Island University.

But not all closing colleges will act as responsibly as Dowling. In particular, colleges that are accused of defrauding their students have no incentive to preserve student records because those records might be used against them in legal proceedings.

Congress needs to adopt legislation that requires every college that receives federal funds to send all student records, including transcripts, to a federal records depository in the event of a closure. And colleges should be required to digitize their student records according to a standardized protocol so that the process of transferring records after a college closes can be done quickly and efficiently.

II. Non-operating colleges should forgive any loans owed to them by former students.

Most nonpublic colleges depend on federal student aid money for the bulk of their revenues, but some also lend money directly to their students.  For example, Globe and MSB loaned money to their students at interest rates as high as 18 percent. According to a Minnesota court decision, the two institutions  loaned money to approximately 6,000 students between 2009 and 2016.

Globe and MSB will be defunct in a matter of weeks, but the loans they made to students are debts they may try to collect. Federal law should require every college that loans money to students to forgive those loans if the college closes. As a matter of simple justice, a college that shuts down shouldn't be chasing after students who owe it money.

III. Congress should ease the path to bankruptcy relief for students who attended for-profit colleges.

Finally, Congress needs to streamline the loan-forgiveness process for students who attend for-profit colleges and received no economic benefit from the experience. It is particularly unjust for students to be on the hook for student loans taken out to attend a for-profit college that closed after being found guilty of fraud.

Under DOE regulations, students can apply to have their student loans discharged if they can make one of two showings: 1) they were induced to enroll based on fraud, or 2) they took out loans to attend a college that closed while they were enrolled or within 120 days of being enrolled.

Unfortunately, the administrative process for resolving discharge applications is slow and entirely inadequate to deal with the potential volume of claims. After all, Corinthian Colleges and ITT, which are both in bankruptcy, have around a half million former students between them.

Currently, the Bankruptcy Code bars debtors from discharging student loans in bankruptcy unless they can show that paying back their loans would create an "undue hardship."  Most bankruptcy courts have interpreted the undue hardship standard harshly, making it incredibly difficult for most college borrowers to clear their student loans through the bankruptcy process.

Congress should pass legislation that eliminates the undue hardship standard for all people who took out loans to attend a for-profit college and wound up broke.  The five-year default rate for a recent cohort of students who attended for-profit colleges is 47 percent--a clear indication that a lot of people got no benefit from attending a for-profit institution.

Conclusion: The Nation faces a swelling tide of college closures and needs an orderly process for shutting down higher education institutions.

One thing is certain: colleges are closing at an accelerating rate; and the Nation need an orderly process to minimize the harm to defunct colleges' former students. Student records must be safeguarded, student debt to failed institutions should be wiped out, and Congress needs to amend the Bankruptcy Code to allow former for-profit college students to obtain bankruptcy relief.

Photo credit: Wisconsin Public Radio


References

Christopher Magan. Globe U. and Minnesota School of Business to start closing campuses. Twin Cities Pioneer Press, December 21, 2016.

Rick Seltzer. Virginia Intermont's campus sale begs question of how colleges close accounts. Inside Higher Ed, January 5, 2017.

State of Minnesota v. Minnesota School of Business, 885 N.W.2d 512 (Minn. Ct. App. 2016).

Alia Wong. Farewell to America's Small Colleges, Atlantic, October 2, 2015.

Wednesday, December 21, 2016

Department of Education's fumbling efforts to aid students defrauded by Corinthian Colleges: No relief for the Walking Dead

David Goldman wrote a  highly informative article for Bloomberg yesterday about the Department of Education's fumbling efforts to process Borrower Defense claims filed by people who claim they were defrauded by Corinthian Colleges. I am grateful to Steve Rhode for calling my attention to Goldman's article.

Essentially, here's the story. Corinthian Colleges filed for bankruptcy last year under a cloud of fraud allegations. In fact, the the State of California got a $1.1 billion judgment against Corinthian for its wrongdoing in that state. At the time it filed bankruptcy, Corinthian had 335,000 former students.

DOE has an administrative process whereby it will forgive the student loans taken out by students who were defrauded by for-profit institutions. So far, 82,000 former Corinthian students have filed those claims.  But DOE's process for reviewing those claims is slow. Goldman reported that so far only about 15,000 students have gotten debt relief through the Borrower Defense process.

DOE won't grant blanket forgiveness to all of Corinthian's former students, arguing that not all of them were defrauded.  But in fact, a high percentage were defrauded. As Goldman reported, "Department officials concluded that Corinthian engaged in 'widesperead placement rate fraud' for almost 800 programs at nearly every one of its more than 100 U.S. campuses."

 David Vladek, a former director of the Federal Trade Commission's consumer protection division, said this about Corinthian's former students: "These kids by and large have been scammed, and the Department of Education in some sense is continuing the harm by making them jump through hoops to get the relief to which they are entitled."

But it gets worse. Not only is DOE not processing loan-forgiveness claims quickly, it is actually employing debt collectors to hound Corinthian's former students, even though most of these students are entitled to have their loans forgiven.  Although DOE states on its web site that it will stop all loan collection efforts on Corinthian borrowers, that statement is not true.

Indeed, DOE's debt collection activities are a hell of a lot more efficient than their loan forgiveness process. As Maggie Robb, a consumer-rights attorney, observed, " When the Department of Education wants to collect money, it doesn't stop."

Goldman's story focused solely on Corinthian Colleges' former students, but there are hundreds of thousands of people who took out loans to attend for-profit colleges who have been scammed. I know one woman with a documented claim for fraud against DeVry University who filed a Borrower Defense claim with DOE last August and still hasn't gotten a response from DOE.

In short, people who have been defrauded by the for-profit college industry are the real life representations of the Walking Dead. Fraud victims have debt hanging over their heads, which DOE has not discharged; and if they default on their loans they are subject to abusive debt collection tactics, wage garnishment, income-tax offsets, and ruined credit. Many are continuing to make loan payments on debt they don't really owe; and most did not get fair value for their for-profit college experiences.

In DOE's defense, the Department is simply overwhelmed by the implosion of the for-profit college industry. It does not have the resources to process claims by Corinthian students or to even notify those students that they may be entitled to debt relief. ITT's closure and bankruptcy will bring a deluge of new claims, and other for-profits are sure to follow over the next few months. (Globe University and Charlotte School of Law, for example, have been accused of misrepresentation and many of their students will be filing Borrower Defense claims.)

There is really only one sensible solution: DOE should allow all people who borrowed money to attend for-profit colleges and who are insolvent to file for bankruptcy relief in the federal bankruptcy courts. Whether or not a a particular student debtor can prove fraud should be irrelevant. If they took out loans to attend a for-profit college, the odds are better than even that they were scammed or did not get fair value for their money.

Image result for walking dead'
Students who were scammed by for-profit colleges are the Walking Dead.

Note: All quotations come from Mr. Goldman's article.

References

David Goldman. The U.S. Government Is Collecting Student Loans It Promised to Forgive, Bloomberg News, December 19, 2016.