PI Original Ellyn Fortino Thursday May 28th, 2015, 10:36pm

Consumer Protection Agency Probing Student Loan Services; Researchers Analyze Borrowing At For-Profit Colleges

On the heels of new research detailing trends in student loan burdens at for-profit colleges, the Consumer Financial Protection Bureau launched a public inquiry earlier this month into student loan servicing practices. 

The Consumer Financial Protection Bureau (CFPB) has launched a public inquiry into student loan servicing practices and ways to help ease student debt stress.

Public feedback is being sought by CFPB on "industry practices that create repayment challenges, hurdles for distressed borrowers and the economic incentives that may affect the quality of service." The public comment period opened May 14 and will run through July 13.

CFPB's probe into the matter is part of a collaboration with the U.S. education and treasury departments to "identify initiatives to strengthen student loan servicing."

Consumer advocacy groups are encouraged by CFPB's broad review of industry practices.

"With student loan debt surpassing $1.2 trillion, and 8 million student loan borrowers already in default, this an issue of the utmost importance," said Katie Buitrago, senior policy and communications associate at the Woodstock Institute. "We support the CFPB's efforts to gather information and use its authority to best protect consumers."

The CFPB's inquiry comes on the heels of new research by the Woodstock Institute detailing student loan burdens at for-profit colleges, which have come under increased public scrutiny over a variety of exploitative and fraudulent practices uncovered in recent years at a number of institutions.

It also follows the April closure of the for-profit behemoth Corinthian Colleges Inc, which was rocked by various government lawsuits over, among other allegations, predatory loan practices. Corinthian Colleges, which filed for bankruptcy earlier this month, shut down shortly after the U.S. Department of Education slapped the for-profit college network with a $30 million fine for misrepresenting job placement rates.

"New revelations are appearing every day about deceptive and abusive practices at some for-profit colleges, including recent bankruptcy and enforcement actions against the Corinthian Colleges chain," Buitrago said. "Regulators and law enforcement should continue to investigate the for-profit college practices that are generating higher debt loads--and poorer educational outcomes."

When it comes to student loan burdens at for-profit colleges, the Woodstock Institute's study showed that students at two-year for-profit colleges are nearly 50 percent more likely to borrow, and typically borrow more, than their counterparts at two-year public colleges. During the 2011-2012 school year, the amount borrowed by students at two-year for-profit colleges averaged $1,300 more than those borrowing to attend two-year public colleges.

The study found no statistical difference in student borrowing likelihood at four-year for-profit and public colleges. But the trends differ by students' race and ethnicity. For example, four-year Latino and white students are 37 percent and 20 percent more likely to borrow at for-profit colleges than public colleges, respectively. Among four-year African-American students, there is no statistical difference in the likelihood of borrowing at for-profit, public and non-profit colleges. The report showed that African-American college students are still highly likely to borrow at all schools, and they are significantly more likely to borrow at public and non-profit colleges compared to their white and Latino counterparts.

"It's well known that for-profit college students borrow--and default--more than students at public and nonprofit schools," said Buitrago, who authored the report. "This research shows that even when for-profit students have socioeconomic backgrounds similar to students at other schools and attend schools with similar costs, many students are still more likely to borrow at for-profits than at other schools. Something is happening at for-profit schools that is driving students into debt."

In Illinois, about 100,000 students were enrolled at for-profit colleges in the 2013-2014 school year.

U.S. Sen. Dick Durbin (D-IL) has been a staunch advocate for students' rights and a loud voice in the fight against predatory for-profit colleges.

Last month after the closure of Corinthian Colleges, Durbin introduced a bill in the Senate, the Court Legal Access and Student Support (CLASS) Act, that would prohibit higher education institutions receiving federal student aid funding from placing any restrictions on a student's ability "to pursue a claim, individually or with others, against an institution in court." Corinthian Colleges was one of many institutions with enrollment agreements including such restrictions, according to Durbin's office.

In the House, the CLASS Act is being spearheaded by U.S. Rep. Maxine Waters (D-CA,43).

"For years, unscrupulous for-profit colleges have enriched themselves by devouring billions in federal student loan dollars while leaving students with worthless degrees and a mountain of debt," Durbin said in a news release.  "Students have had little to no recourse, unable to hold these companies accountable in court because of the fine print in enrollment contracts. The practices of requiring binding, mandatory arbitration or prohibiting students from seeking a jury trial or bringing class action suits against a company unfairly stacks the deck against students. Our bill would deny Title IV education funding to institutions that use these legal tricks to block students' rights to have their day in court."

Durbin also joined six other Democratic senators in sending a letter earlier this month to U.S. Attorney General Loretta Lynch, urging the Department of Justice to launch an investigation to determine whether Corinthian Colleges and its executives violated any federal or civil laws.

Additionally, Durbin called on the U.S. Department of Education this month to provide "meaningful federal student debt relief" to students who attended six Everest College campuses in Illinois that were run by Corinthian Colleges. The for-profit college network sold the six local Everest campuses last year. Since the local Everest campuses were sold, rather than closed, Durin says the former students are ineligible to discharge their federal loans.

"For years Corinthian lured students with flashy ads and misleading promises, leaving them with mountains of debt and little to show for it in the way of a meaningful education," Durbin said in a statement. "Corinthian's fraudulent behavior has left thousands of students in financial desperation. We can't simply write these students off as collateral damage and move on."

The Illinois senator has further demanded that the Department of Education "investigate and respond to fraud and other wrongdoing" at three other for-profit colleges: Career Education Corporation (CEC), Education Management Corporation (EDMC), and ITT Educational Services Inc. These for-profit colleges are all under investigation by a number of state attorneys general over a variety of matters, including job placement rates as well as marketing and recruiting. The U.S. Securities and Exchange Commission also recently charged ITT Educational Services, which owns ITT Tech, and two of its executives with fraud for allegedly concealing from ITT's investors "the poor performance and looming financial impact of two student loan programs that ITT financially guaranteed."

In a May 19 letter to U.S. Education Secretary Arne Duncan, Durbin wrote: "The collapse of Corinthian Colleges, Inc. should be a wake-up call for the Department of Education and lead to earlier and more aggressive oversight of for-profit colleges."

"Unfortunately, Corinthian is not unique in the for-profit industry," the letter adds. "Other major for-profit education companies, including CEC, EDMC, and ITT Tech, face a litany of investigations and lawsuits similar to Corinthian and are all on the Department's own Heightened Cash Monitoring list. The Department must investigate these companies and aggressively hold them accountable for wrongdoing in order to protect students and taxpayers."

Durbin again blasted ITT Tech in a letter sent to President and CEO Eugene W. Feitchner for "complaining that [the school's] 'day in court [is] long overdue' while in its enrollment documents, the company prohibits students from filing suit in a court of law against the company either as an individual or as part of a class action - essentially denying students their own 'day in court.'"

"Students are forced into arbitration proceedings that deny them the precedents and protections of court proceedings. With these enrollment terms, ITT Tech is shielding itself from liability and accountability," Durbin wrote in the letter. "Given your firm position that ITT Tech deserves its 'day in court', surely you believe your students deserve the same. That is why today I am calling on you to immediately cease enforcement of any arbitration clauses, class-action bans, or other contractual roadblocks that prevent students from bringing claims against ITT Tech before a court of law and to remove any such provisions from future enrollment documents."


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