Lawsuit settlements should pay student loan debt

Shady for-profit operators shamefully prey on returning vets

THE ONCE BOOMING for-profit college industry has experienced a year of reckoning. The recent announcement of a $95.5 million multistate settlement with Education Management Corp. (EDMC) followed numerous state and federal investigations that have shuttered dozens of campuses, sent enrollment numbers and stock prices plummeting, and forced Corinthian Colleges, one of the industry’s largest chains, into bankruptcy. EDMC, the second-largest for-profit education company in the country, will not be the last to collapse, so we must do more to protect the students left behind in the fallout.

Recent action by Massachusetts Attorney General Maura Healey is a step in the right direction. Massachusetts will recover approximately $75,000 from the False Claims settlement, and Healey plans to use this money to pay down the state loans of students who were swindled by the New England Institute of Art, an EDMC school in Brookline.

The attorney general is also calling on the Department of Justice to use its share of $52 million in recoveries to do the same for students nationwide.  She has also petitioned the Department of Education to forgive the loan debt of students duped by Corinthian.

These actions would send a strong message to the for-profit industry and act as a public indictment of an unscrupulous business model devoted almost entirely to gaming the taxpayer-funded financial aid system.

The industry has invested heavily in deceptive marketing and recruiting campaigns instead of quality educational programs. They’ve inflated job placement numbers, lied about accreditation status, and blurred the lines between financing and aid in order to sign up potential students quickly.

We’ve made great strides in ferreting out these bad actors, but problems – and other loopholes – remain. In what is possibly the industry’s most deplorable act, for-profit colleges have been targeting our returning soldiers’ hard-earned Post-9/11 GI Bill education benefits to offset a cap they otherwise face on federal education dollars.

An unfortunate loophole in the federal law requiring that these colleges receive no more than 90 percent of their revenue from federal aid doesn’t recognize veteran and military education benefits as such. This loophole basically incentivized for-profits to exploit this technicality and categorize taxpayer-funded GI Bill benefits as a private funding source. As a result, many of these schools ramped up their aggressive recruiting practices, setting up shop on military bases and branding themselves as “military friendly” colleges. In doing so, they essentially cornered the market on taxpayer-funded GI Bill education benefits.

While the move was lucrative for the for-profit industry, veterans and service members were deceived about nearly every element of the education they thought they would receive – from accreditation and job prospects to tuition and educational quality. In exchange for their GI Bill benefits, veterans earned worthless degrees and high amounts of federal and private student loan debt because their education benefits didn’t cover the exorbitant tuition charged by for-profits (a fact the schools conveniently left out during the recruiting process).

For-profit colleges, on average, cost more than four times as much as community colleges and significantly more than in-state tuition at public four-year colleges. They are known to implement arbitrary tuition increases that have no justifiable link to academic expenses but often coincide with increases in financial aid. And the student loan default rate is three times higher at for-profits than traditional schools.

These misleading business practices have fueled the current backlash against the industry. Congress has moved to strengthen oversight and transparency, and is considering legislation to close the 90/10 loophole. The Department of Education has instituted gainful employment rules requiring schools to either prioritize graduation and job placement or lose federal funding. And the Federal Trade Commission, Department of Justice and the Consumer Protection Bureau are all investigating the disparities between for-profits high costs and their substandard education offerings.

Meet the Author

To date, 37 state attorneys general, including Healey, have launched investigations and lawsuits for shady business practices.

We hope these investigations and lawsuits will finally put an end to this industry’s profiteering. Meanwhile, students who haven’t already taken the path to a for-profit college should stop to consider their options. They would be well advised to continue their education at traditional community and public colleges where education is prioritized and students receive a diploma that will provide them with bright futures, rather than loans they cannot repay.

Matthew Boulay is the executive director of the Veterans’ Student Loan Relief Fund and an Iraq War veteran.