UC Davis Chancellor Linda Katehi accepted compensation from a textbook publisher: She should be fired

Both hands in the cookie jar . . .

Linda Katehi, Chancellor of UC Davis, received $70,000 for serving on the corporate Board of DeVry Education Group, the owner of a for-profit college being scrutinized by the U.S. Federal Trade Commission. In addition, her DeVry position entitled to her to $100,000 in stock, according to the Sacramento Bee.  Not bad for part-time work.

Since then, the public has learned that Katehi received $420,000 in income and stock for serving on the board of John Wiley & Sons, a textbook publisher.  All of this is in addition to her Chancellor's salary of more than $400,000 a year.

What an outrage! And what is Chancellor Katehi's response to the uproar? She resigned from both her DeVry position and her Wiley position, and she promises to donate her Wiley stock to a student scholarship fund.

Katehi: "sincerely regret . . ."

And then of course Katehi released the standard mea culpa press release in which she said this:

I take my responsibilities as Chancellor of UC Davis, and the entire University of California, very seriously and sincerely regret having accepted service on boards that create appearances of conflict with my deep commitment to serve UC Davis and its students.

Note that she admits to accepting service on corporate boards--not that she accepted money.  And she expresses regret, which is far different from apologizing. And she acknowledges the appearance of a conflict--not an actual one. Yeah, I'd say a university president who takes four hundred grand from a textbook publisher has an appearance of conflict.

This lady needs to be fired. In fact, she should have been fired after the UC Davis pepper spray incident of 2011, when university police officers pepper sprayed a group of seated and nonthreatening student protesters. Katehi said she didn't know police were going to use pepper spray on the students, which is something of an excuse, I suppose.

But UC Davis police officers were sued  for firing pepperballs at student bystanders at an outdoor drinking bash that took place in 2004. One victim lost the use of an eye. The Ninth Circuit ultimately ruled that the police had used an unconstitutional level of force against the students.

So if there is anything this overcompensated clown should have gotten right while serving as UC Davis's chancellor it was control of the campus police. Yet an independent report found that UC Davis police were not authorized to use the specific type of pepper spray that they inflicted on students in the 2011 incident and were not trained to use it correctly.

Blah, blah, blah from UC President Napolitano

Incredibly, Katehi's venality is not exceptional. According to a fine article  written by Diana Lambert and Alexei Koseff for the Sacramento Bee, nine UC chancellors accepted $1.5 million in cash compensation from outside corporations during the  years 2012-2014--and that doesn't include stock options or deferred  compensation!

What does UC President Janet Napolitano have to say about Katehi's behavior? "I deeply value Linda's strong record in helping to make UC Davis a world-class center of scholarship and research, and continue to believe in  the value of her contributions to the University."  Blah, blah, blah.

What Napolitano is really saying is this: The University of California protects its insiders.

It is a pity that UC chancellors are not treated like UC students. If there were any justice in the world, all nine moonlighting UC chancellors would be put before a hand-picked squad of untrained UC Davis police officers and assaulted with pepper spray.

References

Diana Lambert and Alexei Koseff. UC Davis chancellor apologizes, will donate textbook stock to student scholarships. Sacramento Bee, March 4, 2016. Accessible at http://www.sacbee.com/news/investigations/the-public-eye/article64041327.html

Nelson v. City of Davis, 685 F.3d 867 (9th Cir. 2012).  Accessible at http://cdn.ca9.uscourts.gov/datastore/opinions/2012/07/11/10-16256.pdf

Teresa Watanabe. UC Davis chancellor apologizes for controversial moonlighting activities. Los Angeles Tims, March 5, 2016. Accessible at http://www.latimes.com/local/lanow/la-me-ln-uc-davis-chancellor-20160304-story.html

Christopher Edley & C. F. Robinson 2012). Response to Protests on UC Campuses. University of California. http://campusprotestreport.universityofcalifornia.edu/documents/protest-report-091312.pdf

 Richard Fossey. Nelson v. City of Davis: Campus Police Officers Who Injure Nonthreatening Student with Pepper Spray May be Committing a Constitutional Offense. Teachers College Record Online, October 5, 2012. Accessible at: http://www.tcrecord.org/content.asp?contentid=16894

Gordon, L. (2012, September 13).
UC to pay settlement in Davis pepper spray case. Los Angeles Times (online edition). http://articles.latimes.com/2012/sep/13/local/la-me-uc-pepper-spray-20120914

Steve Gorman. University of California cop who pepper sprayed student protesters awarded $38,000. Reuters, October 23. Accessible at: http://usnews.nbcnews.com/_news/2013/10/23/21105239-university-of-california-cop-who-pepper-sprayed-student-protesters-awarded-38000

Judy Lin. Linda Katehi, UC Davis Chancellor, Apologizes for Pepper Spray Incident. Huffington Post, November 22,2013.  Accessible at: http://www.huffingtonpost.com/2011/11/22/linda-katehi-uc-davis-cha_n_1107303.html

Jennifer Medina. Campus Task Forces Criticizes Pepper Srpaying of Protesters. New York Times, April 11, 2012. Accessible at http://www.nytimes.com/2012/04/12/us/task-force-criticizes-pepper-spraying-of-protesters-at-uc-davis.html?_r=0

Cruz Reynoso. UC Davis Taskforce Report, March 12, 2012.  Accessible athttp://ahed.assembly.ca.gov/sites/ahed.assembly.ca.gov/files/hearings/1.%20Reynoso%20Task%20Force%20Report.pdf

Smith, D. (2012, September 20). Yolo DA won’t file charges in UCD pepper-spraying. Sacramento Bee (online edition).  http://www.sacbee.com/2012/09/20/4836866/yolo-da-wont-file-charges-in-ucd.html#mi_rss=Our%20Region

Stripling, J. (2012, April 11). Scathing report on UC-Davis pepper-spray incident faults chancellor and police.Chronicle of Higher Education (online edition). http://chronicle.com/article/UC-Davis-Pepper-Spray-Report/131496/

Rising Student-Loan Default Rates and Ridiculously High Tuition Costs: The Big Short

We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball... What bothers me isn't that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and short sighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did

Mark Baum (played by Steve Carell)

The Big Short 

The Big Short, the Academy-Award winning movie on the home-mortgage crisis of 2008, shows movie goers how greedy banking institutions created a housing bubble that burst in a shower of home foreclosures and trillions of dollars in financial losses.

A similar bubble has emerged in the federal student-loan program. And although the housing bubble is more complicated than the student-loan bubble, there are some eerie similarities between the collapse of the housing market a few years ago and the student-loan crisis. For example:

Hiding risk. The Big Short includes a scene in which  Mark Baum, a skeptical investment banker played by Steve Carell, quizzes a representative of one the bond rating agencies--Moody's or Standard & Poor. The rating-agency representative admits that  the agency gives mortgage-backed securities  the highest rating--AAA--even  though the agency knows that many of the instruments are packed with risky home mortgages that are headed for foreclosure.

Something similar is happening in the federal student-loan program. Although the Department of Education recently announced that student-loan default rates went down last year--especially in the for-profit sector, that's not really true.  The for-profits have been aggressively signing up their former students in economic-hardship deferment programs that excuse borrowers from making loan payments without being counted as defaulters.

When we look at the five-year default rates in the for-profit sector, the numbers are scary. Almost half the people who took out student loans to attend a for-profit institution default within 5 years of beginning the repayment phase on their loans. And two years after beginning the repayment phase, 3 out of 4 of these students are seeing their loan balances go up--not down--due to accruing interest that is not being paid down.

In short, about half the people who take out student loans to attend for-profit colleges don't pay back their loans. Clearly, this sector of the student-loan program is a train wreck.

Unsustainable rising costs.  As many people still remember, the cost of housing went up rapidly during the early 2000s, with people buying homes and flipping them for huge profits over a matter of months or even weeks. Everybody was making money in real estate--until the housing market collapsed.

Similarly, America has seen college tuition costs rise faster than the inflation rate for many years. The cost of attending law school, obtaining an MBA, or studying at an elite private college has gone through the roof.  I graduated from University of Texas Law School in 1980 and only paid $1,000 a year in tuition. If I enrolled at UT Law School today, it would cost me 36 times as much--$36,000 a year for Texas residents!

Of course, these tuition hikes can't be justified any more than the dizzying cost of a split-level home in Coral Gables, Florida in 2005.  And of course, those costs must eventually come down.  Already, law school enrollments have plummeted and the schools have lowered admissions standards to attract students.  And the elite private colleges are now giving huge discounts on their posted tuition rates; the average freshman now pays about half the college's sticker price.

Hidden costs and fees. Finally, the home mortgage bubble was fueled by greed and fraud. The bankers who packaged mortgage-backed securities were not taking any risks--they took their fees from the transaction costs.  The banking industry was selling toxic financial instruments to gullible investors, including pension funds and people invested in mutual funds.

Similarly, the college industry is charging a gullible public more than a liberal arts degree is worth, and the suckers enroll because, hey, going to Barnard or Brown or Amherst must be a good investment. And the colleges aren't assuming any risks. Their pliant students are borrowing from the federal student loan program, and the government guarantees the loan. Ivy League U doesn't care if its graduates default on their loans any more than Goldman Sachs cared what happened to the investors who bought their mortgage-backed securities.

And the fees! People who default on their loans get assessed huge collection fees and penalties. People are routinely going into the bankruptcy courts trying to discharge student-loan debt that is two or even three times the amount they borrowed due to accrued interest, penalties, and fees.

So if you haven't seen the Big Short, go see it. And as you watch this riveting drama, think about the student-loan program. A bubble is about to burst at a college near you.

"I thought we were better than this."

Linda Katehi, DeVry University and the UC Pepper Spray Incident: Chancellor Katehi should be fired

UC Davis Chancellor Linda Katehi, who presided over UC Davis's scandalous pepper-spray incident, got caught with her hand in the cookie jar. Yesterday, she announced she was resigning from the corporate board of DeVry Education Group, owner of DeVry University. DeVry is currently being sued by the U.S. Federal Trade Commission for making false claims about its job placement rates.

Katehi is making at least $400,000 as boss of UC Davis, more than the Governor of California. But apparently that wasn't enough for her.  According to a CBS report, DeVry paid Katehi $70,000 to be on its corporate board.

Why do suppose DeVry put Katehi on its board? Did it appreciate the great judgment she showed after  UC Davis police officers pepper-sprayed peaceful and nonthreatening students who were participating in an Occupy Wall Street demonstration?

Did DeVry admire the way Katehi handled the pepper-spray incident, denying she knew the police were going to use pepper spray and then allowing the university to file charges against the student victims?

Or perhaps DeVry appreciated Katehi's crisis management skills. After all, she hired a a PR flack in the wake of the pepper-spray incident at a salary of $260,000--more than a quarter of the amount UC Davis paid the pepper-spray victims to settle their lawsuit.

Or maybe DeVry was impressed by Katehi's transparency.  UC Davis refused to turn over the names of the police officers who were involved in the pepper-spray assault for more than two years. In fact, it did not release the names of the officers until it lost a court battle with the Sacramento Bee.

No, we all know why for-profit universities put high-profile figures like Chancellor Katehi on their governing boards. They do it to buy influence, credibility and political cover.

In my opinion, the University of California should fire Katehi for gross misjudgment. Everyone knows that America's for-profit colleges are ripping off vulnerable and unsophisticated students, that they charge too much, and that their student-loan default rates are shockingly high.  For Katehi, who bungled UC Davis's pepper-spay scandal and who is overpaid, to glom on to an extra 70,000 clams by serving on DeVry University's board is disgraceful.

Linda Katehi, Chancellor of UC Davis 

References

Brad Branan. UC Davis cuts PR post that drew criticism for its $260,000 salary. Sacramento Bee, September 26, 2015. Accessible at http://www.sacbee.com/news/investigations/the-public-eye/article36715044.html

Paul Collins. That's Rich.  The chancellor of UC Davis is a bona fide 1 percenter. Slate, March 5, 2012.  Accessible at: http://www.slate.com/articles/life/moneybox/2012/03/uc_davis_chancellor_linda_katehi_s_salary_makes_her_a_member_of_the_1_percent_.html http://www.truth-out.org/news/item/6021:forprofit-kaplan-university-pays-executives-a-quarter-billion-dollars-courtesy-of-students-and-taxpayers

Larry Gordon (2012, September 13). UC to pay settlement in Davis pepper spray case. Los Angeles Times (online edition). http://articles.latimes.com/2012/sep/13/local/la-me-uc-pepper-spray-20120914

Scott Jaschik. Davis Will Drop Charges Against, Pay Medical Bills of Pepper Spray Students. Inside Higher Ed, November 23, 2011. Available at https://www.insidehighered.com/quicktakes/2011/11/23/davis-will-drop-charges-against-pay-medical-bills-pepper-spray-students

Sam Stanton. Bee wins legal battle for names of UC Davis officers in pepper spray incident. Sacramento Bee, August 21, 2014. Available at http://www.sacbee.com/news/local/crime/article2607394.html

Danny Weil. For-Profit Kaplan University Pays Executives a Quarter Billion Dollars, Courtesy of Students and Taxpayers. Truth-out.org, January 14, 2012. Accessible at http://www.truth-out.org/news/item/6021:forprofit-kaplan-university-pays-executives-a-quarter-billion-dollars-courtesy-of-students-and-taxpayers

The Student-Loan Bubble: Will the rising level of student-loan indebtedness lead to a national economic catastrophe?

This is the way the world ends

Not with a bang but a whimper.

T.S. Eliot                       

The Hollow Men            

In recent years, I have heard speculation that the federal student-loan program is similar to the real estate bubble that developed in the early years of this century and which ultimately led to the national financial meltdown of 2008.  Does the student loan program have the potential for running our economy into the ditch?

I once discounted this notion. After all, the home-mortgage crisis involved a lot more money than the federal student-loan program.  It is true that Americans now owe about $1.3 trillion in student loans, which is not chicken feed. But compared to the national debt--about $19 trillion--the student-loan program doesn't seem like a big deal. After all, the government's quantitative easing program involved the creation of $1 trillion a year when it was in full swing.

But I'm beginning to think differently about the student-loan crisis based on these considerations:

Enormous growth in student-loan debt. First of all, total student-loan indebtedness has grown enormously over the past 10 years. According to a recent report by the Federal Reserve Bank of New York, total outstanding indebtedness grew from  around $400 billion in 2007 to more than $1.2 trillion in 2015. In other words, total indebtedness tripled in less than 10 years.

Indeed, as has been widely reported, student loans now comprise the second largest category of consumer debt, surpassed only by home mortgages.  Student -loan indebtedness is now larger than both automobile loans and credit card debt.

More student-loan debtors.  Second, the total amount of student-loan borrowers keeps growing--43 million people now have outstanding student loans. That's almost 18 percent of the nation's adult population.

High loan default rates. Third, student-loan default rates are distressingly high. Although the U.S. Department of Education reported recently that three-year default rates are dropping, the drop is deceptive. Three-year default rates are dropping because the Department of Education and the college industry are encouraging students to obtain economic-hardship deferments or other form of forbearance that excuse former students from making monthly loan payments. But the fact remains that a high percentage of borrowers in the repayment phase of their loans aren't making payments,

In fact, as the Brookings Institute reported, 5-year default rates are 28 percent.  In the for-profit sector, the five-year default rates is an eye-popping 47 percent! Given the catastrophic consequences of default, it is astonishing that almost half the people who attend for-profit colleges eventually default on their loans.

Discounted tuition rates. Finally, private colleges are discounting their tuition rates more and more, an indication that American families simply refuse to pay the sticker price for a college education.  According to an article in Inside Higher Ed, private colleges are now discounting tuition for freshman students by an average of 48 percent!

Obviously, the federal government can't go on forever lending ever larger quantities of money and expecting students to passively take out larger and larger loans for the privilege of going to college.

So yes, there is a student-loan bubble; and the bubble is going to burst. When? I don't know, but I think we will see growing turmoil in the for-profit-college industry and the private-college sector. Within five years, we will see a significant number of non-elite private colleges bite the dust. And we will see increasing pressure on the for-profit colleges.

But when the bubble bursts, I don't think we will witness a spectacular meltdown in the economy that we saw in 2008. To borrow a phrase from T. S. Eliot, the federal student loan program is not going to explode with a bang, but with a whimper.  And the people who will be whimpering most are the millions of people--probably 20 million--who simply cannot pay back their student loans and who cannot discharge them in bankruptcy.

In my opinion, everyone in the higher education industry should be praying for more compassionate bankruptcy judges who are willing to discharge billions of dollars in student-loan debt and give millions of distressed borrowers a fresh start. If distressed student-loan borrowers don't obtain some form of tangible relief, we are going to see a shrinking middle class and a class of lifetime student-loan debtors who have been pushed to the sidelines of the national economy by student loan debt from which they cannot shake free.  In other words, as I have said before, we are hurdling hell-bent toward a sharecropper economy.

References

Jesse Bricker, Meta Brown, Simona Hannon, and Karen Pence. How Much Debt Is Out There? FEDS Notes, August 7, 2015. Accessible at http://www.federalreserve.gov/econresdata/notes/feds-notes/2015/how-much-student-debt-is-out-there-20150807.html

Kelly Woodhouse. (2015, November 25). Discount Much? Inside Higher Ed. Accessible at: https://www.insidehighered.com/news/2015/11/25/what-it-might-mean-when-colleges-discount-rate-tops-60-percent?utm_source=Inside+Higher+Ed&utm_campaign=389f6fe14e-DNU20151125&utm_medium=email&utm_term=0_1fcbc04421-389f6fe14e-198565653

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 rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Karyne Williams. Federal Reserve Bank of New York Takes On Student Debt Crisis in New Blog Series. Generation Progress, February 27, 2015. Accessible at http://genprogress.org/voices/2015/02/27/35083/federal-reserve-bank-of-new-york-takes-on-student-debt-crisis-in-new-blog-series/

Student Loan Debtors and the Presidential Race: Hillary still has an opportunity to win over young voteers

Hillary Clinton devastated Bernie Sanders in the South Carolina Democratic Primary election. As Bernie candidly admitted, the Sanders team was "decimated." The only good news, he said, was this: Bernie beat Hillary among voters age 29 and younger.

Hillary talks herself hoarse telling voters how much she has done for them and much more she will do if she is elected President. But young people don't buy it. Essentially, they see her as an elderly political hack who sucks up to the banks.

But Hillary can still make headway with young voters if she would only promise some tangible and substantive reforms to the student-loan program. After all, there are 43 million Americans with outstanding student-loan debt; and most of them are young.

What could she promise? How about this:

1) "If elected president, I will instruct the IRS to draft regulations specifying that forgiven student-loan debt is not taxable."  

Under current law, about 4 million people are in income-based repayment plans, and most of them are seeing their total debt grow larger with each passing month due to accruing interest. When they complete their long-term repayment plans (after 20 or 25 years), their loan balances will be forgiven, but the forgiven amount will considered taxable income by the IRS. This is a real problem for people in income-based repayment plans. Why not just fix that problem with an IRS regulation?

2) "If elected president, my Department of Education will enact regulations that will cut off federal funding to any for-profit college that forces students to sign a promise not to sue the college for fraud or misrepresentation. And I will instruct the Department of Justice to cooperate with State Attorney Generals who are investigating and suing for-profit colleges that exploit students."

This promise demonstrates nothing more than common decency and would be well received by young people.

3) "When I am your president, the government will stop garnishing Social Security checks of elderly student-loan defaulters. And my administration will not oppose bankruptcy relief for elderly student-loan defaulters who are living below the poverty level."

There is nothing radical about this proposition. In fact, last month, in Precht v. U.S. Department of Education, DOE agreed to bankruptcy discharge of an elderly person's student-loan debt and stopped garnishing his Social Security check.

4) "My administration will renegotiate all contracts with student-loan debt collectors like Educational Credit Management Corporation. All these entities will be required to disclose the salaries of their executives and employees. They will also be required to disclose their profits. And I will eliminate the penalties and fees that the collection agencies have been charging distressed student-loan borrowers."

The beauty of these promises is this. All the reforms I listed could be implemented by President Hillary Clinton on the day she takes office. None of them require congressional approval.  And even if they did require statutory changes, what federal legislator would say no to these modest reforms if President Hillary asked for them?

If Hillary made these promises, she would demonstrate that she understands the magnitude of the student-loan crisis and that she  plans to take energetic action to grant some relief.  But my prediction is this: Hillary won't promise any substantive reforms of the student loan program because Goldman Sachs and the banks would disapprove. And that--in a nutshell--is why young people are not voting for Hillary.

References

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1. 2014. Accessible at http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

Stephen Burd. Signing Away Rights. Inside Higher Ed, December 17, 2013. Available at https://www.insidehighered.com/views/2013/12/17/essay-questions-mandatory-arbitration-clauses-students-profit-higher-education

Ashley A. Smith. U.S. Urged to Deny Aid to For-Profits That Force Arbitration. Inside Higher Ed, February 24, 2016. Available at: https://www.insidehighered.com/quicktakes/2016/02/24/us-urged-deny-aid-profits-force-arbitration?utm_source=Inside+Higher+Ed&utm_campaign=183bc9e3a3-DNU20160224&utm_medium=email&utm_term=0_1fcbc04421-183bc9e3a3-198565653

Loan forgiveness for college students defrauded by for-profit colleges: Why not simply allow defrauded students to take bankruptcy?

The Department of Education is revising the regulations for handling student-debtor requests for debt relief. Under present regulations, student-loan borrowers  are eligible for debt relief if they can show they were victims of misrepresentation by the institution they attended.

But the old regulations are cumbersome, and DOE has been swamped by debt relief requests after Corinthian Colleges closed last year. Corinthian had 350,000 students or former students.

Apparently, the Department of Education is proposing some sort of hearing process where students who claims to be fraud victim can confront the colleges that lured them into enrolling and taking out student loans.

But how will that work? All the for-profit colleges have teams of lawyers, and the defrauded students who confront them at hearings will likely  have no lawyer at all.  That's a crumby idea.

Second, DOE is contemplating some kind of statute of limitation that would bar a student's fraud claim if not filed by some yet-to-be-defined time limit. Another crumby idea. Student-loan creditors can pursue student-loan defaulters any time they want--30 years after a loan was incurred if they choose. That's because there is no statute of limitation on debt collection of a student loan. So why should students be restricted by a time limit to file misrepresentation claims?

Third, the proposed regulations are cumbersome legalese that many students won't understand. Here is a sample of proposal's text:

For loans first disbursed prior to July 1, 2007, the borrower may assert as a defense to repayment, any act or omission of the school attended by the student that relates to the making of the loan or the provision of educational services that would give rise to a cause of action against the school under applicable State law.

Got that?

If the Department of Education were willing to face facts, it would admit that millions of students who enrolled at for-profit colleges have valid misrepresentation claims.  The for-profit industry as a whole has a 5-year default rate of 47 percent--strong evidence that many of the programs the colleges offered did not lead to well-paying jobs.

Rather than construct an elaborate, expensive, and unworkable administrative process for sorting out student fraud claims, the Department of Education should simply allow all students who attended a for-profit college and who are now broke to discharge their student-loan debts in bankruptcy without having to meet the "undue hardship" standard that currently applies to student-loan debtors in the bankruptcy courts. In other words, an insolvent student-loan debtor who attended a for-profit college should be able to discharge student-loan debt in bankruptcy like any other nonsecured debt.

After all, the bankruptcy courts have the expertise and the resources to sort out valid bankruptcy claims from invalid ones.  But DOE won't expedite the loan forgiveness process because it knows that millions of people took out student loans for worthless college experiences. If every student who was huckstered by a for-profit college obtained student-loan debt relief, the cost of loan forgiveness would amount to hundreds of billions of dollars.

References

Michael Stratford. Obama Crackdown on College Fraud. Inside Higher Ed, February 9, 2016. https://www.insidehighered.com/news/2016/02/09/education-department-creates-new-office-crack-down-fraud-colleges?utm_source=Inside+Higher+Ed&utm_campaign=8bca58981a-DNU20160209&utm_medium=email&utm_term=0_1fcbc04421-8bca58981a-198565653

Michael Stratford. New Criteria For Debt Relief. Inside Higher Ed, February 17, 2016. Available at: https://www.insidehighered.com/news/2016/02/17/us-plan-would-cancel-federal-loans-borrowers-misled-their-colleges?utm_source=Inside+Higher+Ed&utm_campaign=60a80c3a41-DNU20160217&utm_medium=email&utm_term=0_1fcbc04421-60a80c3a41-198565653

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

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 rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Arbitration and For-Profit Colleges: Public Citizen, a consumer group, asks the Department of Education to bar for-profits from forcing students to arbitrate their fraud claims. What a good idea!

Public Citizen, a consumer rights group, formally petitioned the U.S. Department of Education to cut off federal student-aid money to for-profit colleges that force their students to sign arbitration agreements that bar students from suing the colleges for fraud or misrepresentation or from filing class-action lawsuits. Julie Murray, spokesperson for the group, explained Public Citizen's position. "Taxpayers should not have to subsidize predatory schools that deny their students a day in court," Murray said in a press release.

What a good idea! Everyone knows that thousands of low-income and minority students have been lured into enrolling at expensive for-profit colleges by misrepresentations and high-pressure recruiting tactics.  The for-profits have very high student-loan default rates, high dropout rates, and high percentages of students who are seeing their loan debt growing larger because they are forced into economic-hardship deferment programs due to the fact that their post-studies income is not high enough to pay off their student loans.

In fact, as Stephen Burd pointed out in an Inside Higher Ed essay, a for-profit institution's shareholders can sue a for-profit college for misrepresenting job-placement figures while the students themselves cannot.

Arbitration clauses always favor the for-profit industry because the for-profits pick the arbitration company, which gives the arbitrators an incentive to rule in favor of the colleges or at least to go easy on them in order to get "repeat business."  Discovery is often limited in arbitration proceedings, and arbitration can be expensive, since the student must bear part of the arbitrator's cost.

I agree with Mr. Burd, who wrote:

Congress should eliminate this injustice by barring colleges that participate in the federal student aid program from including binding arbitration clauses in enrollment agreements, just as Senators Tom Harkin of Iowa and Al Franken of Minnesota proposed . . . . As [the senators] wrote, "Colleges and universities should not be able to insulate themselves from liability by forcing students to preemptively give up their right to be protected by our nation's laws.

Student-loan debtors--and there are 42 million of you--should ask presidential candidates if they are willing to cut off federal student-aid funding to for-profit colleges that force their students to sign arbitration agreements.   What would Hillary's answer be? Donald Trump's? Bernie Sanders?

References

Stephen Burd. Signing Away Rights. Inside Higher Ed, December 17, 2013. Available at https://www.insidehighered.com/views/2013/12/17/essay-questions-mandatory-arbitration-clauses-students-profit-higher-education

Ashley A. Smith. U.S. Urged to Deny Aid to For-Profits That Force Arbitration. Inside Higher Ed, February 24, 2016. Available at: https://www.insidehighered.com/quicktakes/2016/02/24/us-urged-deny-aid-profits-force-arbitration?utm_source=Inside+Higher+Ed&utm_campaign=183bc9e3a3-DNU20160224&utm_medium=email&utm_term=0_1fcbc04421-183bc9e3a3-198565653