18 States Sue Betsy DeVos to Reinstate Rules Protecting Students from Predatory Private Colleges

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By Steven Rosenfeld, who covers national political issues for AlterNet, including America’s democracy and voting rights. He is the author of several books on elections and the co-author of Who Controls Our Schools: How Billionaire-Sponsored Privatization Is Destroying Democracy and the Charter School Industry (AlterNet eBook, 2016). Originally published at Alternet

Secretary of Education Betsy DeVos and the U.S. Department of Education were hit with multiple lawsuit filings Thursday for their recent actions making it harder for students to seek legal relief for student loan debt from predatory for-profit colleges.

The highest profile lawsuit was filed by 18 state attorneys general in federal court in the District of Columbia. The suit challenges the department’s decision in June to suspend new rules created during the Obama administration for easing federal loan debt for borrowers who were cheated by for-profit colleges that helped secure their loans after making fraudulent promises about careers, job opportunities and potential future salaries.

“The [suspended] Rule was designed to ensure ‘that students who are lied to and mistreated by their school get the relief they are owed, and that schools that harm students are held responsible for their behavior,’” the 18 states’ complaint said. “The Rule deters institutions from engaging in predatory behavior and restores the rights of students injured by a school’s misconduct to seek relief in court.”

Also Thursday, two students sued the Education Department in the same federal court over the delayed rules. Both attended the New England Institute of Art, a for-profit school that ceased enrolling students in 2015. Its parent firm, Education Management Corporation, paid $95 million to settle a lawsuit over illegal payments to recruiters.

The lawsuit by the 18 states described how DeVos abruptly reversed the Department’s protections for students. The pro-borrower policy was supposed to take effect on July 1, but two weeks ago the Department issued a notice postponing parts of it indefinitely. The DOE’s notice said it would issue a replacement policy “without soliciting, receiving, or responding to any comment from any stakeholder or member of the public, and without engaging in a public deliberative process,” the lawsuit claimed, adding that such secretive action violates the federal Administrative Procedures Act on multiple counts.

The suspended rules were summarized by the lawsuit as having six main elements:

  • Creating standards for loan discharge and clarifying the process by which students can seek to have their federal loans discharged on the basis of their schools’ misconduct;
  • Providing students with access to “consistent, clear, fair, and transparent processes to seek debt relief”;
  • “[E]mpowering the Secretary to provide debt relief to borrowers without requiring individual applications in instances of widespread misrepresentations,” (October 2016 Press Release), an important accompaniment to the state enforcement process;
  • “Protect[ing] taxpayers by requiring that financially risky institutions are prepared to take responsibility for losses to the government” when their illegal conduct results in discharges of borrowers’ loans;
  • Requiring institutions with poor loan repayment outcomes to provide warnings about their loan repayment rates in plain language in advertising and promotional materials in order to help students make more informed decisions concerning their educational choices;
  • Prohibiting schools participating in the Direct Loan Program from using mandatory pre-dispute arbitration agreements or class action waivers to resolve claims with students.

The lawsuit named a dozen for-profit colleges that had acted fraudulently in recent years and explained their dubious business model. The institutions are Career Education Corporation (including the Sanford-Brown schools); the Career Institute, LLC; Corinthian Colleges, Inc.; DeVry University, Education Management Corporation (including the Art Institutes and Brown Mackie College); ITT Educational Services, Inc.; Kaplan Higher Education, LLC; Lincoln Technical Institute, Inc.; MalMilVentures, LLC d/b/a Associated National Medical Academy; Minnesota School of Business, Inc. and Globe University, Inc.; the Salter School; Sullivan & Cogliano Training Centers, Inc.; and Westwood College, Inc.

“For-profit schools receive the vast majority of their revenue from the federal government in the form of federal student loans and grants. In 2009, the 15 publicly traded for-profit education companies received 86 percent of their revenues from taxpayer-funded loans,” the complaint said. “Taxpayers invested $32 billion in for-profit schools in the 2009-10 academic year, more than the annual budget of the U.S. Department of Justice and the U.S. Department of State during that time period.”

The states said these schools prey on the most vulnerable student populations: young people who are the first in their families to attend school; often women from non-white communities, as well as veterans and the unemployed.

“For-profit schools typically advertise themselves to students with modest financial resources who are eligible for federal funds in the form of grants and loans,” the suit said. “Many such students are the first in their families to enroll in an institution of higher education. For-profit schools have directed their marketing toward low-income and minority students, particularly low-income women of color… Additionally, for-profit schools recruit people who are unemployed and thus eligible for federal workforce retraining monies, and veterans who are eligible for federal veteran benefits.”

The for-profit colleges are much more expensive than public community colleges and universities, the lawsuit said. “For-profit programs are typically expensive for the students who attend them. The [recent U.S.] Senate Report found that the average certificate programs at a for-profit school cost 4.5 times more than a comparable program at a community college. The tuition charged by for-profit schools is often a product of company profit goals, rather than anticipated academic and instructional expenses.”

The lawsuit went on to describe how these schools spend only a fraction of their revenues on teaching: “Profit goals also drive and the types of expenses incurred at for-profit schools. For-profit schools spend relatively little on education; the Senate Report found that only 17.2 percent of for-profit schools’ revenue was spent on instruction, less than the amount allocated for marketing, advertising, recruiting, and admissions staffing, and less than the amount allocated as profit.”

“Despite the high costs of for-profit programs, students attending for-profit institutions often fail to realize the returns on their investment in education—facing high default rates on their loans and high unemployment rates after leaving school,” the complaint continued. “Nearly a quarter of students who attend for-profit schools default on their loans within three years of graduation, and approximately half of such students will default over the lifetime of their loans. Overall, students at for-profit schools nationally accounted for about half of all federal student loan defaults in 2009. Furthermore, students who attend for-profit schools are more likely to face unemployment after leaving their schools.”

No one should be surprised that the Trump administration and DeVos are siding with the some of the most exploitive players in the private educational sector. The suit by attorneys general from mostly blue states is an attempt to draw a legal line by calling out the administration for secretively promulgating rules outside of established procedures.

While even conservative federal judges are likely to be sympathetic to the state’s legal argument, DeVos and the administration may eventually be able to repeal and replace the pro-borrower rules before the next presidential election. If that’s the case, students and families who have been taken advantage of by these schools should follow this lawsuit closely, as the 18 states are seeking for the rules to take effect. If they succeed, that possibly opens a narrow window for students to discharge outsized debts.

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  1. greenie

    Why are non-profit colleges spared? Is it because many of those non-profits are rackets owned by the state governments, and state attorney generals would not go after them?

    “Taxpayers invested $32 billion in for-profit schools in the 2009-10 academic year, more than the annual budget of the U.S. Department of Justice and the U.S. Department of State during that time period.”

    Why such stale statistics? I am interested to know whether the non-profits now receive the majority of the money. Anyone has the data?

    1. Yves Smith Post author

      Have you not been following the story? Not for profits engage in much more egregious misrepresentation as to the value of their degrees, and load up generally lower socio-economic status borrowers with proportionately more debt relative to their earnings potential. Shorter: they screw them over way way more. This isn’t controversial and I don’t know why you are contesting it.

      Generally, for profit colleges are a scam.

      1. newyfablab

        Is there a typo in your reply? It would seem to make more sense, as a whole, if “For profit colleges engage in much more egregious misrepresentation…”

      2. Anonymous

        Exactly this – and traditional, well-known law schools (other than the most elite 15 or so) may be the worst offenders of all as far as this goes.

      3. schmoe

        Was this a typo: ” Not for profits engage in much more egregious misrepresentation . . .”? As written it supports greenie’s comment.

      4. Grumpy Engineer

        “Generally” is not “always”. There are a great many for-profit colleges out there, and they yield a wide range of student outcomes. Some actually do a decent job. Many do not.

        And likewise, there are a great many non-profit colleges out there, which also have a wide range of student outcomes. The statistics here are certainly much better than they are with the for-profits, but there are still plenty of non-profit schools out there that offer poor value for the dollar.

        Establishing different rules for non-profits and for-profits is the wrong approach. A better approach would be to establish the same metrics and requirements for student success on both the non-profits and for-profits, and let the chips fall where they may. Or even better, do it by academic department. A single large university can have dozens of academic departments that feature a huge spread in actual educational value. Why do we lump them all together when evaluating student loan policy?

        Now please note… I believe we need regulations and standards for student loans. Indeed, I’ve ranted here multiple times about the harmful effects of issuing oversized loans for a low-value education. But simply looking at non-profit vs. for-profit is too coarse an approach. We need to be finer-grained.

        1. different clue

          Some academic departments are not meant to be vocational-technical/ professional training schools. Some academic departments are meant to help students get educated in the broad-brained culture/history/humanities sense.

          If we decide to say that history/languages/literature/etc. should be de-supported because few of their majors get money-paying jobs, then we accept that pure education is limited to heirs of rich families who will be so rich that they never have to get a job. And the rest of us should accept that we will get a vo-tech professional job training rather than an education.

          1. Eric377

            Well, yes, if you rely on debt to fund the education and there is to be specific debt relief based in some manner on the income the course of study is expected to result in. Provided a student pays their debt, study whatever suits is ok with everyone.

            1. different clue

              Or also, if we went back to a system of State Citizen Taxpayers (both natural and corporate persons) paying enough tax to restore support to State Colleges and Universities to pre-Tax-Revolt levels, to permit the re-lowering of tuition and dorm-fees back to pre-Tax-Revolt levels; so that the Bachelor of Bio-Nukular Engineering and the Bachelor of Basket Weaving faced equally modest costs; then again anyone could study whatever suited them.

              But as long as State Citizen Taxpayers choose to elect Legislatures who vote to boycott their State Colleges and Universities, then students will have to pay the full high cost themselves and only the very rich would dare major in Greek or Latin or Philosophy or Basket Weaving.

      5. perpetualWAR

        Non-profit colleges are a scam too. No way should a college degree cost a student $40,000.

        I am ashamed of my country.

        1. different clue

          Why are non-profit colleges a scam? Why shouldn’t a college degree cost $40,000?

          The problem is that before the Great Tax Revolt Era, state legislatures supported their state colleges and universities with tax money which paid most of that $40,000 cost. The student hermself only had to pay a small per cent of that cost. The theory was that the state society benefited if all the good-grade-earning/ good-test-taking children of citizens of whatEVer income/taxpaying level had an equal chance of getting into the state college or university.

          The $40,000 became a problem for the student when the state legislatures all began boycotting their state colleges and universities, leaving them unsupported and with no where to turn for the money but to the students themselves.

          If someone says it was building booms and Administrator bloats which raised the cost, it would be good to see how much the actual cost of the education went up between the start of the Great Tax Revolt and now and what part of that actual growth was caused by the building and the Administrating. That still doesn’t change the fact that when the states boycotted their colleges and universities, the colleges and universities charged the full unsupported costs to the students.

          1. Eric377

            Keep in mind that many state budgets did not truly contract, but shifted available funds to other areas. And frequently these other areas had federal mandates or court decisions establishing their priority over universities. If you want percentage support like in 1970, then many other priorities will need to be cutback. Medicaid, K-12 funds, special education, support for developmentally challenged adults (outside Medicaid) state employee compensation are such areas. Few states just cut and held on to the cash…maybe none, really.

            1. different clue

              That’s an interesting point if it turns out to be correct. A forensic sector-by-sector analysis of every state’s budget over time would tell the tale and more granularly inform the discussion.

    1. BenLA

      The MO is a bipartisan effort. Only the democrats are much better at it because some people believe they care.

      1. Art Eclectic

        Frankly I think the Dems do care because educating people is the right thing to do. However Republicans wont sign off unless some donor or private company can make big bucks. End result is that Dems get to feel good and Reps get to make money meanwhile the intended results for the Dems never materialized. It’s a perfect marriage of incompetence and greed.

        1. Calico Girl

          Dems care? Lol, you can’t be serious. They care only to entrap you into indebtedness, thereafter offering false promises of fantastical solutions in order to secure your future votes. That their solutions never materialize doesn’t matter because it’s always far too late for their victims by then. The Republicans are also repugnant, but the Democrats long ago assumed ownership over America’s education system. That Americans are increasingly dumbed down and clearly more ignorant than ever is a testament to the failure of leftist education policies.

  2. Jim

    The real question is, why do you need student loans at all? Delete the federal protection for student loans and see what happens.

    But of course it would induce carnage and as the impact of the passage of TARP in Oct 2008 on the Nov 2008 election showed, we as a voting population are terrified of carnage (I looked to me like NOT ONE Rep or Senator who voted FOR TARP lost their election in spite of the outpouring of letters against TARP).

    1. Art Eclectic

      We need student loans because in America everything has to be a profit center.

    2. perpetualWAR

      Actually, what infuriates me more than anything about this article is the homeowners were taken to the cleaners, homes stolen, credit scores demolished, lives destroyed and not one of these states have given a rats [family blog] about us.

      Where is the outrage? All the dirty polis wring their hands and talk about skyrocketing rents when they know their dirty politics have produced this after-effect.

      I hate this country.

  3. JEHR

    Education is one of those public services that should never be run for profit along with water services, transportation including bridges, public buildings, healthcare, prisons, collection of garbage, parks, traffic enforcement and police services. Surely the private sector can earn its big profits from financialization which is the majority of GDP now anyway.

  4. walt

    The states are:

    One Ashburton Place, 18th Floor

    Boston, MA 02108


    XAVIER BECERRA, Attorney General

    300 South Spring Street, Suite 1702

    Los Angeles, CA 90013


    P.O. Box 120

    Hartford, CT 06141


    820 North French Street

    Wilmington, DE 19801


    441 4th Street, N.W., 6th Floor

    Washington, DC 20001


    425 Queen Street

    Honolulu, HI 96813


    100 West Randolph Street

    Chicago, IL 60601


    1305 E. Walnut Street

    Des Moines, IA 50319


    200 St. Paul Place, 16th Floor

    Baltimore, MD 21202


    445 Minnesota Street, Suite 1100

    St. Paul, MN 55101-2130


    408 Galisteo Street

    Santa Fe, NM 87501


    120 Broadway, 3rd Floor

    New York, NY 10271


    JOSH STEIN, Attorney General

    114 W. Edenton Street

    Raleigh, NC 27603

    P.O. Box 629

    Raleigh, NC 27602


    Oregon Department of Justice

    1162 Court Street, NE

    Salem, OR 97301


    15th Floor, Strawberry Square

    Harrisburg, PA 17120


    150 South Main Street

    Providence, RI 02093


    109 State Street

    Montpelier, VT 05609


    HERRING, Attorney General

    Barbara Johns Building

    202 N. Ninth Street

    Richmond, VA 23219



    Office of the Washington Attorney General

    1125 Washington Street SE

    P.O. Box 40100

    Olympia, WA 98504

      1. Vatch

        Of course not. Governor Rick Snyder and Attorney General Bill Schuette are both Republicans, and Michigan is the home of the catastrophic privatization project which poisoned the drinking water of the city of Flint. The leaders of Michigan are delighted that people are being cheated by for-profit colleges, because some of the profits can and will be donated to Republican politicians and Koch brothers “charitable” organizations.

  5. Vatch

    Nobody has said it yet in this article’s comments, so I’ll say it:

    Trump University

  6. Calico Girl

    Let us not forget that Obamacare wasn’t the only legislation from which Congress exempted itself. No student loan repayment pressures or any type of financial accountability also not applicable to Congressional family members!

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