• For-Profit, Anti-Student

    For-Profit, Anti-Student

    by Nino C. Monea, JD ’17

    The legal job market is notoriously rocky. Virtually all law schools have trouble securing full-time jobs for their students. However, not all schools are equal in this regard, and many use deceptive techniques. Some of the worst cases involve private, for-profit law schools. One particularly troubling example is the Charleston School of Law (“CSOL”)—a for-profit law school in South Carolina with a poor track record of helping its graduates find gainful employment.

    Annual tuition is nearly $40,000 (not counting the $12,600 for room and board)—only a little less than the median private sector salary of $47,000 for its graduates.[1] Of course, this median only includes graduates who have a job. According to Law School Transparency, 21.4% of CSOL’s graduates in 2014 are non-employed.[2] Hit by declining enrollment, the school considered not admitting any students for the new school year. It has since decided to keep its doors open, and instead laid off faculty members to stay afloat.[3]

    For all the school’s woes, at least one group has done well: its owners. Over the institution’s twelve years of operation, the five original owners paid themselves more than $25 million.[4] Two of them sold their shares for an additional $6 million and retired, and a third resigned in disgust. Despite this windfall, the remaining owners announced last year that they would not pay for graduation ceremonies.[5]

    Sadly, CSOL is not an aberration. These kinds of low employment statistics are par-for-the-course in the for-profit education sector. This is true not only in law schools, but for universities in general. Although not all for-profit schools use deceptive tactics, the industry overall has used numerous questionable tactics.

    For-profit schools charge substantially higher tuition, on average, than nonprofit schools. An average university student will pay $13,000 to $16,000 per year for their for-profit education.[6] For comparison, the average student at a public, in-state four-year university pays $8,000 annually.[7] To make matters worse, for-profit schools target vulnerable populations, including high school dropouts, non-traditional students, the learning disabled, and even the homeless.[8] As a result, students in poverty are nearly four times as likely to be at a for-profit institution in spite of the higher tuition.[9]

    Unsurprisingly, these low-income students need assistance to finance the costly education. Much of this assistance comes in the form of government grants and loans. For-profit schools have collectively taken $22 billion in Pell Grants in 2014.[10] The result is taxpayers effectively footing the tuition bill and lining the pockets of the owners of for-profit corporations.

    If low-income students ultimately received remunerative employment, there would be nothing wrong with this picture. Low-income students are undoubtedly worthy recipients of public help, and the government frequently works with the private sector to achieve better outcomes.

    Sadly, graduates of for-profit schools have grim job prospects, and the high tuition costs do not have a correspondingly high return on investment. There have been reports of employers saying that degrees from for-profit schools are not credible.[11] Even though students at for-profit institutions are more likely to earn certificates and associate degrees than those in community college, they reported less satisfaction with their education, were more likely to experience long-term unemployment, and have lower earnings six years after finishing.[12]

    Some schools have been accused of offering misleading information about tuition and job placement. Students at one for-profit law school brought a lawsuit, claiming that their school wrongfully inflated its employment statistics.[13] A Senate investigation revealed that for-profit schools employed aggressive tactics to enroll veterans, going so far as to recruit at veteran hospitals and wounded warrior centers and misleading them about the costs of tuition.[14] Students recruited deceptively face a combination of high debt coupled with anemic job prospects.

    Because of poor job prospects for graduates of for-profit schools, they commonly default on their debt. Only eleven percent of students nationwide are enrolled in a for-profit educational institution. Yet these students account for nearly half of all federal student loan defaults.[15] A quarter of all students in for-profit institutions will default within three years, nearly triple the rate of students in nonprofit schools.[16]

    Legislative solutions have been proposed, but not enacted. Senators Dick Durbin, Tom Carper, and Richard Blumenthal introduced a bill that would bar for-profit colleges from getting more than ninety percent of their revenue from federal student loan funding.[17] Corinthian Colleges, Inc., a for-profit education company, alone received $180 million in GI dollars from enrolling veterans, and for-profit institutions have been accused of predatory lending and rigging job placement rates.[18] Senators Jeff Merkley and Tom Harkin also recently introduced legislation to close the loophole that allows institutions to accept federal funds even when their programs are not accredited.[19]

    Efforts to enact accountability standards for these programs have met fierce opposition. Lobbying groups representing for-profit education are naturally opposed, and have deployed lobbyists to try to stymie reforms and flood regulators with form letters arguing against any new rules.[20] Members of Congress from both parties have also tried to block plans to take on for-profit educational institutions.[21]

    Prospects for passage thus look dim in the current Congress. Given that we are in throes of the 2016 presidential election, it would be optimism to the point of foolishness to expect lawmakers to tackle such a contentious issue.

    Fortunately, until new legislation is passed, there is an immediate solution: utilizing existing laws.

    Federal agencies can utilize existing laws to crack down on deceptive industry practices. In 2014, the Consumer Financial Protection Bureau (“CFPB”) brought suit against ITT Educational Services (“ITT”), a for-profit corporation, under the Consumer Financial Protection Act of 2010 (“CFPA”). The CFPB charged ITT with employing a bait-and-switch model of education. Specifically, ITT offers students short-term loans that are zero-interest for the first nine months. If students could not pay off these loans by the end of the academic year, which exceedingly few students do, ITT coerced them into taking out high-interest, high-fee private loans to pay off the “zero-interest” loans from before.[22]

    A similar suit by the CFPB against Corinthian yielded significant gains. Corinthian will forgive nearly half a billion dollars in loans, and sold half of its campuses to a company called ECMC. The new owner is working to change some of the worst practices so that future students do not face the same predatory tactics. For instance, ECMC will no longer use binding arbitration clauses, which can limit students’ ability to enforce their rights in court, in enrollment contracts.[23]

    The Federal Trade Commission (“FTC”) has issued new warnings consumers about the dangers of deceptive educational institutions.[24] More recently, the FTC has demanded information on enrollment, recruitment, financial aid, and tuition from Apollo Education Group, Inc., owner of a for-profit chain.[25]

    The Department of Education has promulgated rules that impose sanctions on schools where graduates’ annual loan payments exceed 20% of their discretionary income, or 8% of their total earnings.[26] Modest as these rules are, roughly 1,400 educational programs, virtually all of which are for-profit, would not make the cut.[27] The Department of Education relies upon a line in the Higher Education Act of 1965 for this rule-making authority. The law states that federal aid decisions can be given to programs that “lead to gainful employment in a recognized occupation.”[28] Over the summer, the Department of Education announced that it would fine Corinthian $30 million for misleading students about job placement opportunities and loan repayment rates.[29]

    Efforts to police deceptive institutions should continue so that students are not left out to dry. There have been calls from consumer groups for the FTC to go further in policing for-profit education, as the agency has stronger enforcement powers than the Department of Education.[30] Due to industry pushback, the Department of Education had to water down sanctions on for-profit schools in its final proposed regulation.[31] The CFPB deal with ECMC was great progress, but the school is still allowed to restrict student class-action lawsuits.

    All of these efforts are worth fighting for in subsequent enforcement actions. Comprehensive legislation in the mold of bills that have already been introduced would be the best long-term solution to the problem. But with Congress on cruise control, it’s up to agencies to ensure that low-income students don’t get thrown under the bus.



    [1] Charleston School of Law, U.S. News & World Report, http://grad-schools.usnews.rankingsandreviews.com/best-graduate-schools/top-law-schools/charleston-school-of-law-03194 [perma.cc/Y3N5-NGBX].

    [2] Charleston School of Law Profile, Law School Transparency, http://www.lstscorereports.com/schools/charleston/jobs/2014/ [perma.cc/YU9G-2UZZ].

    [3] See Debra Cassens Weiss, Charleston School of Law lays off seven more faculty members, plans to enroll fall class, ABA J. (May 26, 2015, 7:00 AM), http://www.abajournal.com/news/article/charleston_school_of_law_lays_off_seven_more_faculty_members_plans_to_enrol [perma.cc/3PRR-MYR2].

    [4] John M. Burbage, A legal maneuver to save the Charleston School of Law, Post & Courier (May 17, 2015 12:01 AM), http://www.postandcourier.com/article/20150517/PC1002/150519415/1268/a-legal-maneuver-to-save-the-charleston-school-of-law&source=RSS [perma.cc/WBK4-9BLZ].

    [5] Id.

    [6] Kayla Webley, For-Profit Schools: ‘Agile Predators’ or Just Business Savvy?, Time (Jan. 9, 2012), http://business.time.com/2012/01/09/for-profit-schools-agile-predators-or-just-business-savvy/ [perma.cc/3TG7-6T9N].

    [7] Id.

    [8] See Kayla Webley, Are For-Profit Colleges Targeting Low-Income Students?, Time (June 15, 2011), http://business.time.com/2011/06/15/are-for-profit-colleges-targeting-low-income-students/ [perma.cc/ZC2G-U42M].

    [9] Inst. for Higher Educ. Policy, Initial College Attendance of Low-Income Young Adults 3 (June 2011), http://www.ihep.org/sites/default/files/uploads/docs/pubs/portraits-low-income_young_adults_attendance_brief_final_june_2011.pdf [perma.cc/8TJS-V58R].

    [10] Allie Grasgreen, Obama retreats on college crackdown, Politico (Oct. 30, 2014 6:16 AM), http://www.politico.com/story/2014/10/obama-for-profit-colleges-crackdown-112340 [perma.cc/6DQQ-J3DU].

    [11] See, e.g., Blake Ellis, My college degree is worthless, CNN Money (Dec. 2, 2015, 6:11 PM), http://money.cnn.com/2014/11/02/pf/college/for-profit-college-degree/ [perma.cc/RVD7-UEQQ].

    [12] See Georgia West Stacey, For-Profit College Students Less Likely to Be Employed After Graduation and Have Lower Earnings, New Study Finds, Center for Analysis of Postsecondary Education and Employment, http://capseecenter.org/for-profit-college-students-less-likely-to-be-employed-after-graduation-and-have-lower-earnings-new-study-finds/?utm_source=rss&utm_medium=rss&utm_campaign=for-profit-college-students-less-likely-to-be-employed-after-graduation-and-have-lower-earnings-new-study-finds [perma.cc/J2M2-HBJY].

    [13] See William Browning, Florida Coastal School of Law grads file suit against school, allege deceptive practices, Jacksonville.com (Mar. 7, 2012 12:06 AM), http://jacksonville.com/news/crime/2012-03-07/story/florida-coastal-school-law-grads-file-suit-against-school-allege [perma.cc/RF7A-T4JV].

    [14] See Danielle Douglas-Gabriel, For-profit colleges aggressively target veterans for enrollment. These Democrats want it to stop., Wash. Post: Wonkblog (June 25, 2015), https://www.washingtonpost.com/news/wonk/wp/2015/06/25/for-profit-colleges-aggressively-target-veterans-for-enrollment-these-democrats-want-it-to-stop/ [perma.cc/ETK8-R8X7].

    [15] Emily Fox, White House crackdown on for-profit colleges begins today, CNN Money (July 1, 2015, 2:34 PM), http://money.cnn.com/2015/07/01/pf/college/for-profit-colleges-debt/ [perma.cc/RM9N-NP47].

    [16] Webley, supra note 6.

    [17] See id.

    [18] See Julia Glum, For-Profit Colleges’ 90/10 Loophole Latest Target For Democrats With Military And Veterans Education Protection Act, Int’l Bus. Times (June 24, 2015, 3:07 PM), http://www.ibtimes.com/profit-colleges-9010-loophole-latest-target-democrats-military-veterans-education-1982127 [perma.cc/ZKQ5-9D8A].

    [19] See Ellis, supra note 11.

    [20] See Grasgreen, supra note 10.

    [21] See id.

    [22] See CFPB Sues For-Profit College Chain ITT for Predatory Lending, Consumer Fin. Protection Bureau (Feb. 26, 2014), http://www.consumerfinance.gov/newsroom/cfpb-sues-for-profit-college-chain-itt-for-predatory-lending/ [perma.cc/P37H-AE87].

    [23] See Alan Pyke, $480 Million in For-Profit College Debts Are Actually Worth Less Than $8 Million, ThinkProgress (Feb. 4, 2015, 11:10 AM), http://thinkprogress.org/economy/2015/02/04/3618792/corinthian-colleges-loan-forgiveness-debt-buyer/ [perma.cc/PAP6-7U8X].

    [24] See Paul Fain, FTC Joins For-Profit Fight, Inside Higher Ed (Nov. 14, 2013), https://www.insidehighered.com/news/2013/11/14/federal-trade-commission-steps-scrutiny-profit-colleges [perma.cc/25K2-8CM2].

    [25] See John Lauerman, Regulators Investigate For-Profit College Chain Apollo for ‘Deceptive’ Marketing, Bloomberg Bus. (July 29, 2015, 10:07 AM), http://www.bloomberg.com/news/articles/2015-07-29/apollo-education-slumps-as-ftc-investigates-college-marketing [perma.cc/4MYY-4MC4].

    [26] Fox, supra note 15.

    [27] Id.

    [28] Grasgreen, supra note 10.

    [29] See Alec Covington & Jodie Herrmann Lawson, CFPB Pursues Recovery Against For-Profit College Corinthian and Relief for Its Students, Subject to Inquiry (June 5, 2015), http://www.subjecttoinquiry.com/cfpb/cfpb-pursues-recovery-against-for-profit-college-corinthian-and-relief-for-its-students/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original [perma.cc/ZMP9-UG2W].

    [30] See Fain, supra note 24.

    [31] See Grasgreen, supra note 10.

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