Last week's loan-forgiveness planfor students who attended Corinthian Colleges’ closed campuses will very likely have ramifications that extend to all of higher education.
The U.S. Department of Education's actions are unprecedented in scope, opening the door to the possibility that thousands of defrauded students could see their federal loan debts wiped away in one fell swoop, at a potential cost to taxpayers of hundreds of millions of dollars.
By many accounts, the move could also change how accreditors, states, and the federal government handle quality assurance of college programs.
"If we are going to be discharging a significant amount of debt, it means we have to pay much more attention," says David A. Bergeron, a senior fellow at the Center for American Progress who long served as an Education Department official.
Pauline Abernathy, vice president of the Institute for College Access and Success, says the move represents a shift in responsibility, making the government, not just the students, financially liable for loans used at colleges that defraud their students.
"The stakes to the students have been very clear for a very long time," says Ms. Abernathy. Now the Education Department, state regulators, and accreditors will face pressure "to all act much sooner" to prevent abuses that could justify a loan discharge, she adds.
Yet it’s hardly clear that any of those actors are equipped or inclined to take on the responsibilities the department’s latest actions could require. Even though attorneys general across the country have undertaken investigations of for-profit colleges, lawmakers in Florida, for instancekilled a bill this week that would have targeted low-quality institutions.
Sticking Taxpayers With the Bill
In some cases, the parties might not believe they are even justified to act.
That was made visible on Wednesday, during a testy face-off at a Capitol Hill hearing that left several Democratic senators exasperated by the stance of one of the accreditation-agency leaders invited to testify.
Sen. Elizabeth A. Warren, in particular, grilled the president of the Corinthian campuses’ accreditor for leaving their accreditations intact "right up to the minute they closed." She also questioned why his agency continued to accredit the campuses of another for-profit-college company, ITT Educational Services, despite the accusations it faces from state attorneys general, the Consumer Financial Protection Bureau, and the U.S. Securities and Exchange Commission.
"How many federal and state agencies need to file lawsuits" before the accreditor takes action? asked Ms. Warren, a Democrat from Massachusetts. "The accrediting agency continued to look the other way, and now students and taxpayers are stuck with the bill."
Albert C. Gray, president of the Accrediting Council for Independent Colleges and Schools, responded that his agency had increased its watch over several of the colleges but had not withdrawn accreditation because "our council makes recommendations based on facts, not allegations."
Although the Education Department has taken several actions against Corinthian, including its decision to restrict loan advances to the company last summer and its imposition of a $30-million fine against its Heald Colleges in April, the company has disputed the many allegations against it by the federal government and other agencies. ITT also disputes the accusations against it.
"Are you saying there was no evidence that Corinthian Colleges lied to their students?" Ms. Warren pressed, while another skeptical Democrat, Sen. Chris Murphy of Connecticut, advised Mr. Gray "there would be much more faith in the accrediting process" if he would have acknowledged that "we missed this one."
Yet while the caution the accrediting agency showed may have been legally proper, accreditation leaders who watched the Senate hearing and who have been following the news cycles acknowledged that accreditors can’t just duck expectations that they play some role in protecting against fraud.
"We need to take a look at whether it ought to be an accreditor responsibility, and if it is an accreditor responsibility, how?" said Judith S. Eaton, president of the Council for Higher Education Accreditation. "How do we get into the appropriate preventative role?"
Potential Costs Are Steep
The details of exactly who will be eligible to have their federal loan obligations wiped away remain to be worked out — to the consternation of both student advocates, who hope the process won’t be too restrictive, and fiscal hawks, who worry that these discharges and future ones will become too costly to taxpayers.
"My concern is that, down the road, being ‘defrauded’ means something different," says Lindsey Burke, an education-policy fellow at the right-leaning Heritage Foundation.
It’s not just those in right-leaning organizations who have that worry. Mr. Bergeron, of the Center for American Progress, says there’s a danger that "if the department goes overboard in forgiving loans, it could undermine the financial and political viability of the student-loan system."
Along with the Corinthian situation and the pending legal actions against ITT, major legal cases are now underway against colleges owned by the Education Management Corporation and Stevens-Henager College (both of which are being sued by the U.S. Department of Justice, among others). Any of those lawsuits could result in findings that justify loan discharges based on fraud.
Strictly speaking, the Education Department hasn’t announced a new policy; it’s just beginning to put in place a process that will allow borrowers to exercise a legal right they’ve had since the early 1990s.
But the department’s action is notable for several reasons. For one, it has agreed to provide loan discharges to thousands of students at Corinthian’s Heald College based on its own finding that the college systematically misled students about its job-placement rates.
It has also put into motion the steps for a discharge process for other students who believe they have been defrauded by their college. And for the first time in history, the department plans to appoint a special master to review claims by students who contend they deserve loan discharges because they were defrauded by Corinthian or other colleges.
"It’s a significant change," says Robyn Smith, a lawyer at the National Consumer Law Center who calls the creation of the process a welcome sign "that the department recognizes there are large numbers of students who have been harmed."
And while some observers have speculated that the policy could also open the door to widespread demands for loan discharges — think disgruntled law students misled by job-placement promises — several higher-education observers call such concerns a red herring. The key problems, they say, come from colleges found to have systematically lied to students. The real question is what standard of proof the department will require to allow a discharge.
For example, several for-profit-college companies have been sued or are under investigation by state attorneys general. And often when such cases are resolved, the settlements include language saying that the college does not admit wrongdoing. Will borrowers from those colleges be able to cite the settlement as grounds for a discharge?
For Eileen Connor, a lawyer with the New York Legal Assistance Group, that's a very real question. The organization represents students who attended colleges owned by the Career Education Corporation, whichsettled a case with the State of New York in 2013 for misrepresenting job-placement rates.
Ms. Smith, of the National Consumer Law Center, says she hopes the Corinthian incident will prod the Education Department to become more assertive against colleges that mislead students — and to try to recover the cost of the loan discharges from the colleges, not the taxpayers.
"They should be seeking as much as they can" before the colleges shut down, she says.
But Mr. Bergeron, the former Education Department official, notes that the organizational structure of the department may work against that, since it is responsible both for ensuring fraud does not occur and for granting loan discharges to borrowers who believe they are victims of it. If the agency is worried about costing the taxpayers money, those two objectives may conflict with each other.
Senator Warren, who has proposed moving the student-loan complaint system out of the Education Department and into the Consumer Financial Protection Bureau, says the department ought to be able to balance the two priorities when it comes to loan discharges for fraud. The department "has power to cut off aid to fraudulent schools long before students are hurt and taxpayer dollars are wasted," she said in a written statement toThe Chronicle. "If they don’t want taxpayers to pay for discharges when students get cheated, [department officials] should invest the time and resources early to make sure predatory schools never cheat those students in the first place."
That may be easier said than accomplished.
Read more at The Chronicle of Higher Education: http://chronicle.com/article/How-a-For-Profit-s-Implosion/230979