Showing posts with label Kaplan University. Show all posts
Showing posts with label Kaplan University. Show all posts

Saturday, April 20, 2019

Dicent v. Kaplan University: An unhappy student sues a for-profit university, but the Third Circuit forces her to arbitrate her claims

Maria Dicent enrolled in an online legal studies program at Kaplan University in 2014. She did not have a good experience. In 2017, she sued Kaplan in a federal court, accusing the for-profit university of making false claims and disseminating false advertisements.

According to Ms. Dicent, Kaplan lured her into enrolling in Kaplan's online program by using deceptive tactics. She said she had not been informed that she would need 180 hours to graduate, far more hours than a typical four-year degree program requires and that she had not been able to keep her eBooks, which she apparently paid to use. She also said Kaplan's financial aid office retaliated against her because she refused to allow her photo to be used to promote Kaplan.

Unfortunately for Ms. Dicent. she signed an arbitration agreement when she enrolled at Kaplan back in 2014. In that agreement, Dicent promised not to sue Kaplan and to arbitrate any claims she might have against the for-profit. She also agreed to waive her right to a jury trial.

Based on the arbitration agreement, a federal trial court threw out Dicent's suit and ordered her to arbitrate her clam. Dicent, who pursued her case without a lawyer, then appealed to the Third Circuit Court of Appeals, which sided with the trial court.

Dicent argued on appeal that she was not aware of the arbitration agreement, but the Third Circuit did not buy her argument. A clearly labeled Arbitration Agreement was included in Dicent's enrollment packet, the court noted; and Dicent admitted having signed the packet with an e-signature.

Dicent v. Kaplan University is an unfortunate decision. The Obama administration recognized that for-profit colleges were using arbitration agreements to prevent students from suing them for fraud or other misconduct. Obama's Department of Education adopted a regulation forbidding the for-profits from forcing their students to sign arbitration agreements.

 Betsy DeVos, President Trump's Secretary of Education, scuttled the Obama ruled shortly after taking office, but a federal court ordered her to implement it. In light of that ruling, Secretary DeVos released new guidance to the for-profit colleges, instructing them to drop enforcement of mandatory arbitration agreements.

In recent years, a few courts have invalidated arbitration agreements on various grounds. Some courts have labeled them adhesion contracts--agreements which a stronger party forces a weaker party to sign on unfavorable terms. Other courts have looked at the inherent unfairness in some of these agreements. For example, a California court refused to enforce an arbitration agreement that required California students to arbitrate their disputes against a medical-training school in Indiana.

Poor Ms. Dicent. Acting without an attorney, she was probably unaware of the legal arguments that can be made against arbitration agreements that for-profit colleges require students to sign as a condition of enrollment. She may not have known that the Obama administration recognized these agreements for what they are--a shyster tactic to protect for-profit colleges from being sued for fraud.

I feel quite certain that Ms. Dicent was telling the truth when she said she did not know about the mandatory arbitration agreement until Kaplan submitted it in district court. Almost all students sign long, turgid documents as a condition of enrollment, and most of them sign without reading. What would be the point? When students enroll at a for-profit college, they are enrolling on the college's terms, and they realize they have no power to negotiate.

What is so bad about arbitration agreements? First of all, the complaining party is usually required to pay half the arbitrator's fees, so arbitration may be more expensive for the student than a lawsuit. Second, arbitration agreements often bar students from banding together to file class actions suits, which is virtually the only way students can obtain justice against the well-funded for-profits with their battalions of lawyers.

Finally, it is well known that arbitration generally favors the corporate party. That is why banks, financial-services institutions, and for-profit colleges force their customers to sign them. The arbitrators know they will see a defrauded student only once, but they will see the corporate party again and again. If they get a reputation for siding with the underdog, the corporations won't choose them to arbitrate their disputes.

The for-profits know they will repeatedly be accused of defrauding their students. The best way to deal with this constant threat is to get the students to promise not to sue before allowing them to enroll. Then when students get defrauded--as many of them will--there will be damn little they can do about it.


References

Dicent v. Kaplan University, Civil Action No. 3:17-cv-01488 (M.D. Pa. June 15, 2018), aff,d No-18-2982 (3d Cir. Jan. 3, 2019).

Dicent v. Kaplan University, WL 158083, No-18-2982 (3d Cir. Jan. 3, 2019) (unpublished opinion).

Kreighbaum, Andrew (2019, March 18).  DeVos Tells Colleges to Drop Arbitration Agreements, Inside Higher Ed.


Saturday, September 20, 2014

Time To Stop the Sob Stories About Student Loan Debt, Jeffrey Dorfman Said in a Forbes Article. But Dorfman Failed To Analyze Key Signs of Crisis.

Jeffrey Dorfman wrote an online essay for Forbes this week entitled "Time To Stop the Sob Stories About Student Loan Debt."  Basically, Dorfman argued that there is no student-loan crisis, pointing out that most students have only modest student-loan debt loads, usually smaller than a typical car loan.

Mr. Dorfman is right to point out that the number of people who have borrowed extravagantly to
attend college is relatively small. "In fact," Dorfman wrote, "only four percent of households headed by people between 20 and 40 years old have student loan debt of over $36,000 per person and two-thirds of those have a graduate degree to show for that debt."

But I think Mr. Dorman's article overlooked some key data that are very troubling. First, as Mr. Dorfman pointed out, the three-year student-loan default rate is 14.7 percent, and that number is disturbing by itself.  Student-loan default rates have doubled in just six years.

Moreover, the Department of Education's official student-loan default rate only measures people who default in the first three years of the repayment period.  Many people default on their loans after three years. And the student-loan default rate for people who attended for-profit colleges is more than 20 percent.  That's right--one out of five people who attended for-profit colleges during DOE's latest measurement period defaulted within the first three years of repayment!

And, as Senator Tom Harkin's Senate Committee report pointed out, the for-profit colleges are encouraging their former students to get economic hardship deferments that temporarily excuse debtors from making loan payments.  This strategy helps the for-profits keep their institutional default rates down.

But in reality, many people who obtained economic hardship deferments will never pay back their loans, and their loan balances get larger as interest accrues during the time they are not making loan payments.

In my opinion, the student-loan default rate for people who attended for-profit colleges is probably 40 percent when measured over the lifetime of the loan repayment period, and that should alarm everybody--even Mr. Dorfman.

And Mr. Dorfman did not comment on recent reports that more and more people in their late 20s and early 30s are living with their parents and that more than 40 percent of college graduates hold jobs that don't require college degrees. Nor did he comment on recent efforts by the Obama administration to lure student-loan debtors into long-term income-based repayment plans that will require debtors to pay on their loans for 25 years.  Isn't that a sign that the student-loan program is in trouble?

Finally, although Mr. Dorfman is correct to say that most people with student loans have modest loan balances, even $10,000 is very hard to pay off if you are holding a minimum-wage job.  Many of the people who borrowed money to attend for-profit colleges are from low-income families. If those people dropped out of a for-profit college without getting a degree (and a large percentage of people fall into this category), paying off even a small loan may be impossible.

 The Brookings Institution, which Mr. Dorfman cited, has been downplaying the student-loan crisis even as it advocates for long-term repayment plans.  But the crisis is real.

A lot of people who live in Mr. Dorman's world are making money off the federal student loan program or the private student loan industry. Sallie Mae is making money off of student loans, the banks are making money off of private student loans, the loan servicing companies are making money chasing down student-loan debtors who are in default,and colleges and universities are making money as they raise their tuition every year. Goldman Sachs owns an interest in Education Management Corporation, the entity behind several for-profit colleges, and the Washington Post Company has a stake in Kaplan University.

But millions of Americans are suffering under unsustainable student-loan debt, and the crisis grows larger every day. Mr. Dorfman is living in a fantasy world if he thinks otherwise.


References

Dorfman, Jeffrey. Time To Stop the Sob Stories About Student Loan Debt. Forbes, September 18, 2014. Accessible at http://www.forbes.com/sites/jeffreydorfman/2014/09/18/time-to-stop-the-sob-stories-about-student-loan-debt/

Ashlee Kieler. For-Profit Colleges: Good For Investors. . . Not-So-Good For Students. Consumerist, April 24, 2014. Accessible at: http://consumerist.com/2014/04/24/your-college-education-might-be-a-better-investment-for-goldman-sachs-than-it-is-for-you/









Tuesday, August 27, 2013

The For-Profits "Are Making Out Like a Bandit": Will Sheriff Obama Round Up those Bad Boys?

In a question-and-answer session with college students at SUNY at Binghamton, President Obama made clear that he understands what's wrong with the for-profit colleges.

 [T]here have been some schools that are notorious for getting students in, getting a bunch of grant money, having those students take out a lot of loans, making big profits, but having really low graduation rates. Students aren’t getting what they need to be prepared for a particular field. They get out of these for-profit schools loaded down with enormous debt. They can’t find a job. They default. The taxpayer ends up holding the bag. Their credit is ruined, and the for-profit institution is making out like a bandit. That’s a problem.
President Obama also said he understands that some for-profits are exploiting our military veterans:
[T]hey’ve been preyed upon very badly by some of these for-profit institutions.... Because what happened was these for-profit schools saw this Post-9/11 GI Bill, that there was a whole bunch of money that the federal government was committed to making sure that our veterans got a good education, and they started advertising to these young people, signing them up, getting them to take a bunch of loans, but they weren’t delivering a good product.
 Indeed, Senator Tom Harkin's Senate Committee report on the for-profits found that the for-profits soaked up a huge share of the money made available to military veterans under the Post-9/11 GI Bill, a law designed to extend educational benefits to veterans of the Afghanistan and Iraq wars.

Some for-profits are "making out like a bandit"
According to the report, the for-profits trained 25 percent of the participating veterans but received 37 percent of the Post-9/11 GI Bill money during the first two years the program was in place.  Eight of the top 10 education providers during that two-year period were for-profits, including the owners of the University of Phoenix, DeVry University, and Kaplan University (pages 27-28 of Harkin report).

Among the top ten participating institutions in this veterans program, the eight for-profits had the highest student withdrawal rates.  Apollo's student withdrawal rates for bachelor's degree programs was more than 50 percent. Kaplan Higher Education Corporation (owner of Kaplan University) had a 68 percent withdrawal rate for its four-year programs (page 29 of the Harkin report).

Will the Obama administration and Arne Duncan's Department of Education rein in these bad boys? I'm not sure. President Obama made it abundantly clear that he is willing for the federal government to continue funding for-profit colleges--the largest of which are publicly traded corporations or institutions owned by private equity groups.

 "For-profit institutions in a lot of sectors of our lives obviously [are] the cornerstone of our economy," President Obama said at the Binghamton gathering. "And we want to encourage entrepreneurship and new ideas and new approaches and new ways of doing things. So I’m not against for-profit institutions, generally."

President Obama's approach to for-profit colleges is basically in harmony with the Harkin Committee's viewpoint.  Like President Obama, the Harkin Committee acknowledged a place for the for-profit sector in higher education.  The Committee expressed the view that the public sector and nonprofit private colleges do not have the capacity to educate all the postsecondary students who want to be educated.

Personally, I disagree.  Why should the federal government pump $30 billion a year into the for-profit colleges in the form of federal student aid, when it is absolutely clear that the for-profit colleges have an overall poor record of performance and catastrophically high student-loan default rates? Shouldn't that money be going to the public institutions--particularly our community colleges?

So far, President Obama has been unwilling to take aggressive action to clean up or close the for-profit college industry.   For the time being at least, the for-profits will continue to "make out like a bandit," and President Obama will continue to critize them but do little or nothing to bring them under control.

References

Paul Fain & Scott Jaschik. Obama on Non-Profits. Inside Higher Education, August 26, 2013. Accessible at: http://www.insidehighered.com/news/2013/08/26/obama-speaks-directly-profit-higher-education-noting-concerns-sector

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

Note: All quotes come from the Inside Higher Education article cited above.