With the promoter of the now disgraced “Trump University” at the helm of the federal government for the next 4 years, we are likely to see for-profit companies playing a bigger role in higher education. But history shows us that many for-profit colleges can do lasting damage to poor students and families, as well as taxpayers and communities.
During the Reagan administration, for-profit trade schools rapidly expanded across the country. Federal student aid to for-profit schools jumped from $684 million in 1982 to $4.15 billion in 1988. Fraud and misrepresentation was widespread in the for-profit sector. Recruiters used high pressure tactics to enroll students and targeted low-income students and people of color.
Programs were lightly regulated by the accreditors, and many schools closed before students could complete their degrees. Many of the new programs offered worthless training and credentials and failed to prepare students to find a job in their field of training, and consequently dropout and default rates soared. As Open Secrets has documented, for-profit schools lobbied aggressively for their industry. For example, the parent company to the University of Phoenix was a gold level sponsor of both the Republican and Democratic Attorneys General Association.
Many students victimized by for-profit schools in the 1980s still feel the effects today. Not only did shoddy trade schools offer inadequate programs in fields like radio broadcasting, truck driving school, or computer repair, they failed to live up to their promises for employment upon graduation. Students in such programs were less likely to complete their educational program and much more likely to default on their loans.
Those who default also face extraordinary extra-judicial collection remedies implemented by the Department of Education, including having their federal tax refunds intercepted and social security benefits and wages garnished. For working-class people already living on the edge of poverty, the loss of 25% of their net pay or the earned income tax credit can push them off the cliff of homelessness and poverty.
Compounding the financial spiral is a government-sanctioned deal that gives student loan servicers and debt collectors collection fees of 25% of amounts garnished. Many borrowers find it impossible to get out of default even after suffering from years of collections actions. Even that premium collection fee does not seem to be enough for greedy student loan servicers like Navient, who became the target last week of a lawsuit by the Consumer Finance Protection Bureau and two states alleging that the company purposefully pushed borrowers into repayment plans that benefited Navient’s profits over the best interests of the defaulted borrower.
Under the Obama administration, the Department of Education enacted many new regulations to relieve the burden on student borrowers victimized by trade schools. These include new rules restoring eligibility for Pell Grants to students whose schools closed before they could complete their education and a streamlined process for applying for a loan discharge due to fraudulent misrepresentations by their schools. The Obama administration also created new flexible repayment plans and made it easier for borrowers who are unable to work because of disability to discharge their federal student loans.
The Department of Education also enacted important new rules to protect taxpayers and students from shoddy for-profit schools, including restricting access to federal student aid for programs with high default rates and low salaries compared with the average debt burden. The Department also cracked down on accreditors for for-profit schools, which have failed to ensure that programs provide quality education and training.
Unfortunately, much of this progress is at risk under the Trump administration. “Trump University,” an expensive series of get-rich-quick real estate seminars which was recently the subject of numerous fraud suits by former students, bears many similarities to other for-profit education schemes. The nomination of Betsy DeVos, a charter school advocate with little experience or apparent knowledge of higher education issues, signals a further erosion for public support of higher education. In addition, one of Trump’s first executive orders freezes enactment of new regulations and puts a hold on implementing any that have not yet taken effect. This includes many important Department of Education regulations, such as the new borrower defense and gainful employment rules. It appears that for-profit higher education programs will flourish again under the Trump administration, likely to the detriment of working-class students and taxpayers.
Emily White and Marc Dann
Emily White chairs the Student Loan Defense practice at the Dann Law Firm in Columbus Ohio and has been selected to edit of the Chapter on Student Loan Law in Baldwin’s Ohio Consumer Law Handbook. Marc Dann served as Attorney General of the State of Ohio and now leads the Dann Law Firm, which specializes in protecting consumers from various forms of predatory financing.