Department of Education's Heightened Cash Monitoring List: Students should check to see if their college is in financial trouble

Steve Rhode performed a valuable public service last month when he published the U.S. Department of Education's most recent Heightened Cash Monitoring List.  This is DOE's list of schools that have various financial concerns, including accreditation problems or missing audits, as well as schools that are on financially shaky ground.

DOE does not make the list easy to review. I could discern no organizational pattern. Public schools, private nonprofits, proprietary schools, and foreign schools are all listed together. In total, there are more than 500 schools on the list.

Not surprisingly, more than half the schools with financial concerns are proprietary schools--a total of 275 for-profit institutions.  A good share of these schools are devoted to hairstyling or beauty. Forty-six schools on DOE's HCM list have the word Beauty or Cosmetology in their names; and there are three massage schools on the list.

The list also includes a large number of private, nonprofit colleges or universities: 128 schools in all. A fair number have religious affiliations. Seven schools on the list have the word Baptist in their name, and three school names include the word Wesleyan, indicating a Methodist affiliation.  Twelve colleges have the word Christian in their titles, and there were several other schools with names suggesting a religious connection: Bethel, Bethany, Bible, Seminary, etc.

DOE listed 35 foreign colleges and universities on its Heightened Cash Monitoring List. You might find it surprising that the federal government is funding foreign study at the same time the national parks are closed, but it does. Among the 35 foreign schools with various financial concerns are Hebrew University of Jerusalem, Universiteit Van Amsterdam in the Netherlands, University of Aukland in New Zealand, Centro De Estudios Universitarios Xochicalco in Mexico; and Poznan University of Medical Sciences in Poland.

DOE's list includes a category of schools with high student-loan default rates. Schools with a three-year default rate of 40 percent and schools that have a three-year default rate of at least 30 percent for three years are ineligible for federal student-aid money. 

Remarkably, none of the 500 plus schools on DOE's HCM list were flagged for having a high student-loan default rate. How could that be when Secretary of Education Betsy DeVos herself said that only 24 percent of student borrowers were paying down the principal and interest on their loans?

In my view, DOE's HCM list under reports the number of American colleges and schools that are in financial trouble. Nevertheless, the list is useful. 

First, the list confirms that a large number of small, private nonprofit colleges are in trouble, including many with religious ties. 

Second, we can see from the list that the largest share of financially troubled schools are for-profit institutions.

Finally, the list is a reminder that the U.S. Department of Education is loaning money for Americans to go to school overseas, which seems insane given the excess capacity in American higher education.

Of course not all schools on DOE's HCM list are experiencing serious financial problems. Some are on the list due to accrediting issues, inadequate administrative support, or audit irregularities. Nevertheless, all  postsecondary students should check the list to see if their school is on it. And parents who are helping their children decide where to go to college should also check the list. No one wants to enroll in a college that may close before the student graduates.

References

Rhode, Steve. Schools on the Warning List by the Department of Education--December 2018. Get Out of Debt Guy (blog), December 26, 2018.

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.

 References

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.