Showing posts with label college closings. Show all posts
Showing posts with label college closings. Show all posts

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 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.

Thursday, June 11, 2015

Student Loan Forgiveness for Students Who Attended One of the Schools Owned by Corinthian Colleges: I Recommend Chiang Kai-Shek's Fire Hose Approach

Chiang Kai-shek was the  leader of the Nationalist government of China for many years, but he was also a Methodist of sorts. I read somewhere that he once baptized his soldiers en masse, using a fire hose.  I'm not sure that story is true, but I like to think of all those Chinese soldiers who became Methodists. I'm sure it did them a world of good.

Regardless of the truth of that story, I believe the Department of Education should adopt Chiang Kai-shek's  fire-hose technique when designing a student-loan forgiveness program for all the people who attended one of  institutions operated by Corinthian Colleges--which is now bankrupt.


Chiang Kai-shek(蔣中正).jpg
Chiang Kai-shek: Did he baptize his troops with a fire hose?
The Department of Education is designing a process whereby students who attended a Corinthian campus can apply for loan forgiveness, which at least some of them are legally entitled to do due to Corinthian's shutdown. According to the New York Times, DOE estimates that 350,000 people attended one of the Corinthian  campuses over the past five years. If all of them apply for loan forgiveness and receive debt relief, it will cost taxpayers $3.5 billion.

In the past, DOE has utilized a cumbersome loan-forgiveness process for  students who attended colleges that closed, and DOE says that only 6 percent of students who were eligible for debt relief due to a college closure  actually applied for that relief (as reported in the New York Times).


Secretary of Education Arne Duncan promises a streamlined loan-forgiveness process for former Corinthian students. "We will make this process as easy as possible for them, including by considering claims in groups wherever possible" Duncan said.


But why make Corinthian students jump through hoops to have their student loans forgiven--any hoops at all? Why not adopt Chiang Kai-shek's methods and forgive all those loans en masse? I agree with Luke Herrine, a member of the Debt Collective, who argued that all Corinthian students should be given "blanket relief."


Why give blanket loan -forgiveness to former Corinthian students? First of all, the government is not going to get that money back anyway. In all likelihood, a majority of Corinthian students will either default on their loans or apply for economic-hardship status that will exempt them from making loan payments until they get on their feet financially, which for many Corinthian victims will be never.


Second, the Department of Education is morally responsible for the mess it created by shoveling student-aid money to for-profit colleges that paid their executives lavish salaries while delivering substandard educational programs. A quarter of all student-aid money goes to for-profit colleges, which have the highest default rates. 


The for-profits have kept this shell game going by hiring lobbyists to represent their interests, employing lawyers to file lawsuits to stop DOE's regulatory efforts, and making campaign contributions to strategic members of Congress.  In fact, Corinthian's bankruptcy filings lists its lobbyists as some of its creditors.

No, DOE needs to spray all these students with a metaphorical fire hose, forgiving Corinthian's former students' loans through executive action. These unfortunate folk have been through enough. Duncan shouldn't make them fill out any more forms in order to rid themselves of student-loans they took out to attend one of Corinthian's colleges.



References


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


Help for Victims of College Fraud (Editorial). New York Times, June 10, 2015, p. A24.