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When the Biden administration announced $1.1 billion in student loan forgiveness in late August for students who attended the now defunct ITT Technical Institute, it gave relief to thousands of people who were unable to finish their degrees. With no warning to students, in 2016 the for-profit college had suddenly closed all its campuses in 38 states following allegations of financial and recruitment wrongdoing.
Besides assisting students after for-profit schools have exploited them, policymakers should focus on preventing students from being taken advantage of in the first place.
But while much of the focus on curbing abuses in for-profit higher education has centered on actions by the federal government, there is also much that states can do to protect students from bad actors.
Before enrolling, prospective students at too many for-profit colleges face high-pressure sales tactics that prey on their “anxieties, stress, and fear.”
The problems continue past recruitment. For-profit colleges have lower retention and graduation rates compared to public and private, not-for-profit institutions.
Despite providing students inferior educational and employment opportunities, many for-profit colleges charge high tuition.
In addition, recent research shows that students attending for-profit schools are less likely to be employed after graduation and tend to earn less than students who attended public and private nonprofit colleges.
Yet despite providing students inferior educational and employment opportunities, many for-profit colleges charge high tuition. They also often successfully target poorer students and students of color, who are then saddled with higher student loan debt than if they had attended a public or private nonprofit institution.
Such predatory practices in higher education are not limited to for-profit colleges, but actors in the for-profit sector are by far the worst offenders when it comes to defrauding and misleading students.
In October, the Biden administration will hold public hearings to start the process of making regulatory changes to key federal student financial aid programs, which could result in stronger protections for student borrowers. One of the proposals under consideration would prohibit colleges from making new students sign arbitration agreements before they are able to enroll.
In our view, banning such arbitration agreements would help empower states to better regulate for-profit colleges. Such a plan was imposed during the Obama administration, then lifted by the Trump administration.
Unlike most actors in other higher education sectors, for-profit colleges regularly use arbitration clauses to shield themselves from court action by students alleging fraud or other wrongdoing.
That means that any such claims are decided by a private, third party and — unlike opinions issued by state or federal courts — are generally not subject to public disclosure.
For-profit colleges also use arbitration clauses to block collective legal action by multiple students accusing an institution of fraud or other misconduct.
Related: Left in the lurch by for-profit college direct loans
Prohibiting for-profit colleges from using arbitration to settle student complaints would help force the schools to choose between curbing their worst practices and risking lawsuits.
Banning colleges from using arbitration clauses as a condition to enroll would also revive an important federal-state partnership and ensure that a full range of state legal options are available to students challenging bad actions by predatory for-profit colleges.
In addition, states could adopt new rules to further empower students — or their own attorneys general or other state officials — to hold for-profit colleges more accountable.
For instance, states could require for-profit providers to make mandatory disclosures to provide greater transparency to potential or current students and their families.
Our own review of cases and state laws revealed several types of disclosures that some states currently require, including graduation and job placement rates for particular programs, student passage rates on required licensure or certification exams and information related to student loan debt, such as the requirement to repay loans even if an individual does not finish a program. California has extended disclosure requirements to institutions besides for-profit schools.
All states should require for-profit colleges to make such information available to all students and prospective students. States have the legal authority to impose disclosure requirements, even if they single out for-profit colleges. In Massachusetts, a federal court largely upheld rules imposed on for-profits.
Massachusetts’ regulations included a prohibition on the use of deceptive language in communications with students or prospective students and outlawed the use of high-pressure sales tactics, something we believe other states should do.
The for-profit colleges challenged those restrictions, but most people would agree that the requirements were reasonable — limiting calls to prospective students to no more than two times per week.
The state also promoted transparency by requiring disclosures about how long students typically take to complete a program, the consequences of loan default and graduation and job placement rates.
The court only struck down one disclosure rule, dealing with information about transfer of course credits to other institutions, as overly restrictive.
The disclosures required in Massachusetts show how states can help prospective students make better-informed choices before enrolling in a for-profit college.
States can also be more careful in how they spend public financial aid. Some states are restricting for-profit colleges’ participation in state financial aid grant programs. Alternatively, states could cap the size of grants paid to for-profit colleges.
Such practices will help us use tax dollars responsibly by preventing for-profit colleges from raising prices to maximize state aid. The changes will also reduce for-profits’ incentives to target working-class students to enroll in costly, low-quality programs with limited job or income prospects.
Done right, state rules can complement federal action while also fostering approaches tailored to the unique contexts and student needs in individual states.
Neal Hutchens is a professor of higher education at the University of Mississippi; Frank Fernandez is an assistant professor of higher education administration and policy at the University of Florida. Macey Edmondson, a clinical assistant professor of higher education at the University of Mississippi, contributed.
This story about regulating for-profit colleges was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for Hechinger’s newsletter.
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I find forgiving loans because the students are “unable to finish their degree” due to a “sudden” closure a disingenuous argument. This implies that had the students finished, they’d be better off (even though they would have even more debt with a worthless degree), that there were no warning signs in advance and that all sub prime schools should remain open indefinitely. If the loans are going to be cancelled, it should be because the degree is worthless and credits non-transferable, not because the school is closed.
At the moment, ED seems unwilling to cancel loans for poor schools that are still open, perhaps out of fear of the cascading effect and self-fulfilling prophesy where cancellation leads to more students seeking cancellation, which leads to closure which leads to more cancellation. It seems to be caught in a catch 22 and unwilling to put its foot down in advance, only willing to act after the fact.
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