- For-profit schools across the country have shut down in recent years due to fraudulent activity.
- The shutdowns left thousands of students with debt they’re still struggling to pay off.
- Education Secretary Miguel Cardona canceled $US1 ($1) billion in debt for about 72,000 students last week.
- See more stories on Insider’s business page.
Last week, Education Secretary Miguel Cardona canceled $US1 ($1) billion in student loan debt for about 72,000 defrauded borrowers.
The decision, his first major one as Biden’s education chief, came after a series of investigations over the last decade of for-profit schools for engaging in fraudulent behavior related to federal loans. Corinthian Colleges and ITT Technical Institute were the main institutions connected to the debt canceled by Cardona, but other institutions were accused of doing similar things, according to a series of legal settlements.
Since 2015, more than 200,000 defrauded students filed claims for a complete discharge of their loans, and the Education Department approved nearly 28,000 claims in the six-month period before January 2017. However, under former President Donald Trump’s Education Secretary, Betsy DeVos, claims processing slowed down dramatically and in many regards halted. Cardona said the new process will streamline debt relief determinations for about 72,000 borrowers with approved claims to date.
Under Cardona’s new rule, anyone with a previously approved claim is now eligible for 100% student loan forgiveness. Those who haven’t submitted claims but believe they have been defrauded can apply for forgiveness on the Borrower Defense website.
“For more than four years, defrauded borrowers and their families have lived under a cloud of education debt that they should not have to repay,” House Education and Labor Committee Chair Bobby Scott said in a statement. “I applaud the Biden Administration for doing the right thing by making these borrowers whole, and I can only imagine the mixture of joy and relief they are feeling today. This announcement is life-changing for tens of thousands of people across the country.”
Here’s what Corinthian and ITT did, along with the other notable investigations of fraud among other major for-profit schools:
(1) Corinthian Colleges
Founded in 1995, Corinthian Colleges once had more than 100 campuses across the country, with 74,000 students enrolled. In 2014, the Consumer Financial Protection Bureau accused it of illegally collecting high-interest private loans that it marketed to students.
The CFPB’s action coincided with the filing of more than 100 lawsuits in federal court about Corinthian’s practices, and the company lost federal funding because of deceptive marketing and lying about its graduation rates, with high loan defaults being one result. It filed for bankruptcy protection in 2015.
Sen. Elizabeth Warren of Massachusetts found in a 2016 investigation that 80,000 former Corinthian students are still under some form of debt collection from the government.
When it shut down, the company was liable for $US531 ($692) million in student loans.
(2) ITT Technical Institute
In 2016, the government cut off ITT’s access to millions of dollars in federal loans and grants, and the institution shut down shortly afterward, ending its 50-year history.
It had been taken to court by the Securities and Exchange Commission in 2015 for deceiving investors about high rates of late payment and defaults on student loans.
Last year, 48 state attorneys general and the CFPB secured more than $US330 ($430) million in private student-loan forgiveness for 35,000 former ITT Tech students.
(3) Education Corporation of America
Education Corporation of America was one the largest closures of a for-profit school after Corinthian and ITT Tech when it closed about 70 campuses across the country in 2018. A report released in 2018 by the Accrediting Council for Continuing Education and Training found ECA schools had failed to meet baseline standards for educational quality, did not communicate accurate information to students and regulators, and failed to equip students for employment in their fields.
This comes after ECA’s accreditor, the Accrediting Council for Independent Colleges and Schools (also the accreditor for Corinthian and ITT Tech), lost its federal recognition under the Obama administration in 2016.
The closure came with little warning, and DOE spokeswoman Liz Hill said in a statement at the time that instead of “taking the next few months to close in an orderly fashion, ECA took the easy way out and left 19,000 students scrambling to find a way to finish.”
The department said ECA students had the option to transfer to another school or apply for a loan discharge.
(4) Education Management Corporation
At its peak, the Education Management Corporation operated 110 for-profit campuses across the country, and at its trough, it filed for bankruptcy in 2018. Following a series of federal investigations related to fraud, unlawful recruiting of students, and misleading practices, EMC reached a $US99.5 ($130) million settlement in 2015 with the government.
“This settlement should be a warning to other career colleges out there: We will not stand by while you profit illegally off of students and taxpayers,” then-Education Secretary Arne Duncan said in a statement. “The federal government will continue to work tirelessly with state attorneys general to ensure that all colleges follow the law.”
EMC also agreed to forgive $US100 ($130) million in student loans as part of the settlement.
(5) The University of Phoenix
The nation’s largest for-profit chain, the University of Phoenix, agreed to a $US191 ($249) million settlement with the Federal Trade Commission in 2019 over claims of fraud and deceptive marketing.
Starting in 2012, the university ran a series of ads that cited its partnerships with corporations like American Red Cross and Yahoo, but in reality, those companies had no curricular ties to the school and could not help with hiring. The Federal Trade Commission filed a complaint in federal court asserting that the school had made “deceptive claims” relating to employment for military veterans.
The university did not acknowledge wrongdoing in the settlement, and affected students were still required to pay off their loans, although they had the option to apply for debt relief under the borrower defense to repayment system, which allows borrowers to seek forgiveness on debt from fraudulent schools. Cardona’s action last week canceling $US1 ($1) billion of debt also said the DOE is seeking to reform this largely ineffective system, as it existed under former Secretary DeVos.