States cracking down on for-profit colleges and student-loan companies for alleged abuses

Beware of those commercials for for-profit colleges claiming their school has a high rate of placing graduates in jobs. Many students have found out the hard way that the only thing waiting for them after earning a degree from such a school is a mountain of debt  they can't afford. (To view an interactive state-by-state map from the Institute for College Access and Success, click here)

"Thirty-two states are now working together under the leadership of Kentucky Attorney General Jack Conway to investigate potential abuses in the for-profit college industry, which saw enrollment more than triple between 1998 and 2008, according to the Consumer Finance Protection Bureau," Adrienne Lu reports for Stateline. "One reason for the concern is the amount of taxpayer dollars involved: Some for-profit colleges receive 90 percent or more of their revenue from the federal and/or state governments in the form of student aid." Students at for-profit colleges account for 13 percent of all college students, but 31 percent of student loans and about half of loan defaults.

Massachusetts Attorney General Martha Coakley told Lu, “While some for-profit schools offer quality training and legitimate diplomas, we have found that this industry often markets sub-par programs to veterans and low-income students who depend on federal aid. When students don’t receive the training they sign up for or default on their loans, it not only greatly impacts their future but it also impacts taxpayers who have backed these loans in the first place.”

In January, 13 states issued subpoenas to four for-profit colleges "over concerns about possible misrepresentations to students about financing, recruitment practices and graduates’ employment rates," Lu writes. "Also in January, Coakley’s office in Massachusetts held hearings on proposed regulations for for-profit colleges and occupational schools. The rules would require schools to disclose accurate information about tuition and fees along with placement statistics and graduation rates; prohibit them from using high-pressure sales tactics such as repeated phone calls and text messages; and bar them from calling recruitment personnel 'counselors' or 'advisers.'”

In February, the Consumer Financial Protection Bureau, created in 2010, filed suit against for-profit ITT Educational Services, which operates about 150 institutions in nearly 40 states, "alleging predatory student lending," Lu writes. "The lawsuit was the bureau’s first public enforcement action against a for-profit college. Last year, New York Attorney General Eric Schneiderman won a $10.25 million settlement with the for-profit Career Education Corp. over inflated job placement rates."

"In January, New York state’s Student Protection Unit issued subpoenas to 13 student-debt-relief companies as part of its investigation into whether the companies might be charging improper fees to enroll students in debt relief programs that are already available free through the federal government," Lu writes. 

Last month the U.S. Department of Education "proposed new 'gainful employment' rules which would require for-profit colleges that benefit from federal student aid to meet certain standards relating to student debt and income," Lu writes. "California was the first state in the nation to require for-profit colleges to meet standards beyond those required by the federal government for its grants and loans, passing a law in 2011 prohibiting schools with high borrowing and default rates from receiving Cal Grant funds. In 2012, the state further tightened standards for institutions, eliminating 154 schools from receiving Cal Grant funds." (Read more)