Bill Would Hold Executives of Deceptive For-Profit Colleges Accountable for Student Debts

Bill Would Hold Executives of Deceptive For-Profit Colleges Accountable for Student Debts
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October 2, 2015

A federal bill introduced this week aims to protect students from deceptive practices by for-profit colleges.

The Students Before Profits Act of 2015 would ensure students have access to important and accurate information, strengthen oversight and regulation, and holds schools, and their executives accountable for violations and poor performance.

The bill was introduced this week by Democratic U.S. Senators Dick Durbin, Chris Murphy, Elizabeth Warren and Sherrod Brown, many of whom have previously come out against the high cost of higher education.

The vast majority of students enroll in nonprofit public or private school. For-profit colleges, like University of Phoenix and the now-defunct Corinthian College only enroll 10 percent of all postsecondary students, but account for 44 percent of all student loan defaults.

When the Consumer Financial Protection Bureau (CFPB) sued Corinthian Colleges in September 2014 it estimated that between July 2011 and March 2014 about 130,000 student loans had an outstanding balance in excess of $569 million. About 60 percent of students defaulted on these high interest loans when promises of better skills and job placement never panned out.

After Corinthian closed its doors, its new owners forgave $480 million in student loan debt owed to the college and the U.S. Department of Education forgave $40 million in publically-backed loans. Thousands of students, however, are still waiting to have their forgiveness applications processed.

Taxpayers are currently on the hook for those forgiven loans, but the bill would make college executives share the risk. The bill gives the Department of Education broader discretion to hold owners and executives personally liable for finances losses associated with Title IV funds.

In a statement, Durbin said,

When one of these schools collapses under the weight of its own wrongdoing, as was the case with Corinthian, students are displaced, taxpayers are left on the hook and company executives scatter to the winds. Well, this bill would change that. Among other things, it would make executives – like Corinthian CEO Jack Massamino who made more than $3 million a year – personally liable for the taxpayer losses they create by taking advantage of students. This will bring real fairness to students who have been victimized and to taxpayers who have been fleeced by bad acting for-profit colleges.

To handle default rate manipulations, the bill would require the Secretary of Education to use corrected data to recalculate student default rates to determine if a college should be disqualified from participating in financial aid programs.

The bill also authorizes enhanced civil penalties on intuitions and their executive officers if it is determined that the school misrepresented its cost, admission requirements, completion rates, employment prospects, or default rates. Penalties would be used to start a relief fund for defrauded students.

The bill would also keep bad apples from returning to the education business. Board members and executive officers whose intuitions saw federal enforcement actions would be prohibited from serving in leadership positions at another college.

A release from Durbin's office says that a Senate HELP Committee investigation found that, on average, for-profit colleges allocate only 17 percent of their revenue to academic instruction. Twenty-three percent is allocated for recruiting and marketing, and 19 percent is profit.

For-profit colleges, like University of Phoenix, have been under heavy scrutiny lately, especially for their handling of public funds. University of Phoenix has received the most taxpayer funds through the post Sept. 11 GI Bill.

The Center for Investigative Reporting writes that with traditional marketing along with sponsoring events for service members, University of Phoenix took in $345 million in GI Bill funding to educate about 50,000 veterans last year. Since 2009, the school took in $1.2 billion.

University of Phoenix came under fire for spending $154.4 million to secure naming rights on a football stadium.