Regulations Proposed to Clamp Down on For-Profit Schools

I have committed a substantial portion of my practice to representing victimized students against their for-profit colleges. I am pleased to say that the federal government is taking steps to remedy some of the worst abuses in this shady industry. On June 16th the US Dept of Education proposed new rules to protect students in federal financial aid programs. This marks the first step in a call to the Obama Administration to crack down on for-profit education institutions’ shady student loan practices. The proposed new regulations completely address thirteen issues and partially address one (refer to Dept of Ed. Press Release for full details). The 14 issues covered relate to three primary areas of concerns:

1) Unqualified students are receiving aid: For-profits have a high percentage of students that do not complete degree/certificate requirements because they lack the necessary foundation to succeed. The result is that these students are unable to acquire the higher-skilled careers they initially sought, but still, owe thousands of dollars in debt. Students are considered qualified if they have a high school diploma or pass an Ability-To-Benefit (ATB) test. Unqualified students are often able to acquire financial aid by producing illegitimate high school diplomas from “diploma mills”. These fake diplomas are sometimes awarded by the same institute that the student is applying for admission to. A student may also be deemed qualified if he/she passes an ATB test. Again, there are institutions that are directly involved in altering results in the student’s favor. The Department’s proposals will help eliminate the use of high school “diploma mills” and improve oversight into how ATB tests are approved and administered in addition to including further clarifications.

2) Misleading or overly aggressive recruiting practices: Currently, there are “safe harbors” for providing incentives to recruiters. For-profits have taken advantage of these loopholes armed with empty promises, deceptive financial advising, and sometimes outright lies. Dishonest recruiters encouraged students to take out loans they could not afford and enroll in courses they were not qualified for. Many students enrolled in programs where they felt misled about its accreditation status and their job prospects upon completion. The Department has proposed measures that would close the incentive loophole and strengthen the government’s ability to take action again institutions engaged in misleading tactics.

3) Ambiguity in aid-worthy course work and credit hours: There is no standard definition for a credit hour, which has led to reports of institutions awarding more credits than are deserved. These institutions are able to gain more in federal funds without having to provide actual value as a result. The proposed regulations will attempt to define a credit hour and establish procedures for accrediting agencies to determine whether an institution’s assignment of a credit hour is acceptable.

The lone subject of disagreement involves the definition of “gainful employment.” The Department is proposing that for-profit institutions provide them with each program’s graduation and job placement rates. Student debt levels and incomes after program completion will be used to develop a metric to hold institutions accountable for meeting federal requirements.

The “metric” is where the dispute begins and ends. The Department wants to ensure that students can pay-off student debt with no more than 8% of their income over a ten-year repayment period. Creating this income-to-debt service ratio drew the most pushback from an aggressive lobbying effort by for-profit college officials. The for-profit industry insists that the proposal would be detrimental to the students and the country. They contend that there is an unmet demand for their services due to recent budget cuts at public colleges and universities nationwide and that without them President Obama’s goal of America leading the world in the number of college graduates by 2020 is not possible.

On the surface, this seems like a noble argument to make. Unfortunately, the reality is that the majority of borrowers are collapsing from their excessive debt burden. How does the student or the country benefit if these graduates can’t get the jobs they were assured they’d be qualified for? These companies are almost completely financed by federal funds that they reap incredible profits for bonuses and dividends. Who are they looking out for? The student or their shareholders?

If you attended a for-profit school and suspect your school exaggerated employment opportunities or job placement rates; feel your school misled you regarding its accreditation, the transferability of credits, or the qualifications of its programs; or have questions regarding possible education fraud, then contact the Law Office of Julie Johnson.

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