Feds target rogue for-profit schools

Jennifer C. Kerr
Associated Press

The Obama administration is trying to make it easier for students who have been misled or defrauded by their colleges to have their loans forgiven.

The Education Department is proposing a rule that would lay out a clear relief process for borrowers who believe they were lied to about job prospects after college or otherwise deceived in order to get them to enroll at the school. It also aims to hold schools accused of fraud or at financial risk more accountable by requiring them to notify prospective and enrolled students, as well as set aside money that could help cover future claims against the school.

The proposal follows the collapse last year of Corinthian Colleges, one of the largest for-profit college companies.

“A college degree remains one of the best investments anyone can make in his or her future,” Education Secretary John B. King Jr. said on a call with reporters. “But that’s only true if it’s a meaningful degree that helps you land a better job, not if it’s a worthless piece of paper that’s an artifact of deception rather than proof of accomplishment.”

Undersecretary Ted Mitchell said the new regulations, expected to take effect in July 2017, “would replace a complicated, uneven and burdensome standard that varies by state with a new robust federal standard that will allow easy use by students.”

The proposal would streamline debt relief for groups of students if they all experienced the same misconduct by a school, such as instances of wide misrepresentation — meaning they all wouldn’t have to file individual applications for loan forgiveness. The new provisions also would bar colleges from forbidding students from class-action lawsuits as part of enrollment agreements, something Corinthian had done.

The Debt Collective, a New York-based group that has lobbied to have the student loans of Corinthian students canceled, was cautious in its response.

“What the department released today amounts to little more than a loose statement of intention to do right by student debtors after decades of collaboration with corrupt for-profits,” spokeswoman Laura Hanna said in a statement.

The group is concerned the education secretary would have too much power in deciding relief to groups of borrowers.

A whistleblower raised concerns about Corinthian in early 2011, alleging that employees of the for-profit chain fabricated employers to make it appear as though unemployed graduates had secured good jobs in their careers of study. California’s attorney general filed a lawsuit in 2013, alleging rampant lies to students about job placement. Corinthian filed for bankruptcy protection last year, closing schools and leaving thousands of students with hefty debt and frustrated their efforts to earn degrees.

The Education Department continues to vet thousands of requests from Corinthian students for relief from their federal loans. It has erased the debt for more than 8,800 former Corinthian students, totaling more than $132 million. But that’s only a small fraction of the estimated $3.6 billion in federal loans given to Corinthian students.