Imagine a car dealer sold you a lemon. You sue to get your money back. But the judge discovers that you managed to get yourself around most of the time, despite the bum vehicle. You only missed 10 percent of your appointments, so the judge orders that you are entitled to 10 percent of the price of the car.
That’s essentially what Education Secretary Betsy DeVos announced last week for students defrauded by for-profit chain Corinthian Colleges. Victims of the corrupt diploma mill will not have their student loans discharged; instead, they will get a portion of relief based on their current income. The more professional ingenuity they showed despite being defrauded by Corinthian, the less money they will get in restitution.
It’s yet another way in which DeVos has acted in favor of the for-profit college industry, which was left for dead after several major companies’ deceptive schemes finally caught up with them. Not only is DeVos shielding the industry from the consequences of those misdeeds, she’s rewriting the rules to legalize those practices.
Corinthian targeted single mothers and returning veterans with high-pressure recruitment, lying about job placement statistics to make enrollment seem like a good bet. Once signed up, Corinthian would pile on tens of thousands of dollars of unanticipated debt and deliver a substandard educational experience. One student alleged that some final exams involved board games and that he got course credit from an “internship” working at a fast-food restaurant. In the end, the useless degrees did not help, and sometimes even hurt, graduates’ job prospects.
Corinthian shut down in April 2015, after the Education Department fined it $30 million for misrepresenting job placement rates. State and federal regulators eventually won billions in fraud judgments against the bankrupt firm.
A coalition of students refused to pay their debts to Corinthian, citing a clause in their loan contracts allowing “defense to repayment” if they were defrauded. Even under Obama, the Education Department made loan relief unnecessarily burdensome, forcing students to prove the fraud instead of instituting blanket relief. Thousands of cases were left to DeVos to adjudicate, delaying forgiveness of billions of dollars.
And DeVos did almost nothing about them. In the final year of the Obama administration, 27,986 of 46,274 debt cancellation claims were dealt with; in the first several months under DeVos, only two claims were addressed—and both were denied. By early December, the backlog had grown to 95,000 unprocessed claims, mostly from Corinthian students. Interest accrued on the loans while students waited in limbo for a ruling. The Education Department even used debt collectors to garnish wages and seize tax refunds on some borrowers. Several state attorneys general sued the department to deal with the backlog.
DeVos finally announced a resolution last week, approving 12,900 “defense to repayment” applications and denying 8,600 others. But the new relief plan was noteworthy. The Education Department will now compare the earnings of an applicant for debt relief to the average earnings of students who took similar vocational courses. So if you trained at Corinthian as a medical technician, the agency will look at your salary compared to other medical technicians, and deliver relief on a sliding scale. Students making 50 percent of the average rate of their program will get 50 percent of their debt cancelled; those making 60 percent will get 40 percent cancelled; and so on.
This is a highly uncommon approach to fraud resolution. Whether a student debtor succeeded after being defrauded bears no direct relationship to the fraud itself. Plus, the data used to determine the average wage comes from those who completed vocational programs. But many of the defrauded students didn’t finish, because Corinthian shut down before they completed their coursework. Judging defrauded holders of partial credits against graduates seems unfair.
The action may also be illegal, because the agency is changing the parameters for debt cancellation midstream. The Education Department has already attempted to alter the “defense to repayment” rule unilaterally, drawing an additional lawsuit from multiple states. That rule, finalized late in the Obama administration, would have quickened the application process and put colleges on the hook for the costs of loan cancellation.
Clearly, DeVos is trying to minimize the monetary costs of cancelling federal student loans, which make up between 80 and 90 percent of total revenue at for-profit colleges. But reducing the bottom line for the government also lightens the perceived damage that for-profit colleges have done.
DeVos has intervened on behalf of for-profit colleges several times in her young tenure. In addition to the “defense to repayment” rule, the Education Department has moved to rewrite a “gainful employment” rule, which eliminates financial aid for college programs that fail to provide a career path for students. The head of the group policing fraud in higher education is a former dean at DeVry University, itself charged with misleading students and subject to a $100 million fine.
Congressional Republicans want to help out for-profits, too, unveiling a new higher education bill that would repeal both the “gainful employment” and “defense to repayment” rules. The bill would also overhaul the credit hour system, enabling for-profit colleges to inflate credits in a particular course and churn students through their schools. It raises borrowing caps to push more debt onto students. It repeals the “90-10” rule requiring colleges to earn at least 10 percent of their revenue from something other than federal financial aid. This would allow for-profits to earn all their revenue from the federal government, becoming corporate vassals of the welfare state while passing defaults onto taxpayers. It even gives the Education Department an incentive to delay fraud claims, putting a three-year statute of limitations on debt cancellation.
Around 4.6 million Americans are in default on their student loans, with no sign of this crisis abating. A disproportionate number of these debtors went to for-profit colleges, students who hoped to climb their way to prosperity and were instead thrown off the ladder. The Trump administration has pummeled a lot of people this year, but what they’ve done to fraud victims savaged by con artists ranks among the worst abuses on the list.