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’ complaintsaid. “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.