Colleges accused of defrauding students continue to benefit from federal student debt funds

The federal government continues to allow schools accused of defrauding students of access to federal financial aid money, putting students at risk of racking up debt for grades of little value in the labor market and footing the bill for taxpayers.

That’s one of the conclusions of a report released Monday by the National Student Legal Defense Network, a litigation and advocacy group founded by members of the Obama Department of Education’s Office of General Counsel.

The report focuses in part on program participation agreements, or the signing of contracts with ministry schools to be able to take out student loans and Pell grants — money the federal government provides to low-income college students — on behalf of their students. The organization found that the department renewed program participation agreements for several schools facing scrutiny from state attorneys general, accreditors, or the department itself. These contracts allow schools to continue to benefit from financial aid money through 2024.

The findings come as the Biden administration’s broad debt relief plan is mired in litigation. It also comes on the heels of several efforts by officials to write off billions of dollars in debt for students who attended for-profit colleges that defrauded them. As part of those announcements, officials pledged to increase accountability at unscrupulous schools. But the report noted that in addition to allowing schools facing scrutiny access to federal financial aid money, the Office of Federal Student Aid has not taken any enforcement action against the school since the Biden administration took office. .

“Can you imagine if the SEC hadn’t taken enforcement action for two years?” said Aaron Ament, President of NSLDN. “It’s unheard of – just allowing these institutions to continue operating and giving them new share agreements while saying there is evidence of misconduct.”

Clearing backlogs

The Department of Education has announced steps to increase oversight of colleges that pose a risk to students and taxpayers, including by re-establishing the Federal Student Aid Office Enforcement Unit, which investigates colleges and imposes fines and other actions against schools found to be involved in misconduct. The office was essentially disbanded during the Trump administration.

In addition, the agency denied rehabilitation, canceled temporary program participation agreements or terminated participation for about 20 schools and imposed fines of $2.6 million, according to an Education Department spokesperson. In March, the ministry said that in some cases it will require more parties that have ownership or control relationships of an enterprise to sign its PPA. The Financial Services Authority also issued a bulletin this month asking for advice on possible breaches of the Higher Education Act.

“The US Department of Education is committed to holding schools accountable for serving the best interests of students,” the spokesperson wrote in an email.

Officials from the Office of Federal Student Aid said that one of the office’s strategic goals for the next five years is to strengthen accountability for institutions participating in the student loan program. The FSA plans to do this in part by working with other agencies, including the Consumer Financial Protection Bureau and the Federal Trade Commission.

“The FCA is committed to strengthening oversight and taking appropriate action against entities to protect the interests of students, families and taxpayers from harmful practices,” the officials wrote in the draft strategic plan.

Amin, who served as chief of staff in the Education Department’s Office of General Counsel during the Obama administration, praised the administration’s efforts to exonerate students who attended schools accused of wrongdoing. “They’re clearing the backlog,” he said.

Since the Biden administration took office, officials have been more eager than previous administrations to pay off the debts of students wronged by their schools in large payments. In these cases, the erasure of that debt was based on pervasive evidence of fraud and not contingent on students who attended the schools individually raising their hands for relief. In at least one case, the agency also said it would try to hold the school liable for money spent on behalf of students who attended.

But without more aggressive efforts to protect current and future front-end students from incurring debt to enroll in for-profit colleges that are believed to mislead students, “it’s a really dangerous course,” Ament said. “Yes, we’ve spent billions, but billions more go to the same schools.”

A school facing scrutiny continues to receive federal financial aid

Department approach to Lincoln College of Technology, a chain of schools owned by the publicly traded Lincoln Education Services Company,
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The report notes this dynamic.

At the end of 2021, the Consumer Financial Protection Bureau sent a letter to Lincoln Tech, based in New Jersey, requesting information regarding how the school offers credit to its students, according to the report. The CFPB said it is closely scrutinizing the loans that schools, particularly for-profit colleges, make to their students. As part of that effort, the bureau said it is taking a closer look at practices such as withholding transcripts or restricting registration that are sometimes associated with these loans.

Also that year, the Department of Education required Lincoln to provide a letter of credit to the department, essentially a document indicating that the school could guarantee liabilities the agency might incur if it closed suddenly, such as paying off the debts of students who attended the school at the time it closed, according to the report. The letter came after the administration notified the school that some of its locations had not complied with requirements regarding refunds, according to securities filings. Earlier this year, the Massachusetts Attorney General’s office said it was investigating possible misconduct at Lincoln Tech related to fee refunds and disclosure of prospective students.

The Education Department also sent a letter to the school this year regarding a request by former Lincoln students in Massachusetts to be discharged of their federal debt. By law, student loan borrowers can have their debts canceled through a process called Borrower Defense if there is evidence that their school defrauded them. In securities filings, Lincoln officials said they object to the application, but if the department disagrees with the “legal and factual grounds” for objecting to it, the agency may “impose obligations on the company based on the discharge of the loans involved in the pending application.”

Two weeks after the department sent this letter, it renewed the Lincoln Tech Program Participation Agreement, NSLDN reports, allowing the school to withdraw federal financial aid money through the end of 2024.

Lincoln Tech did not immediately respond to a request for comment.

A faster way to protect students

The report cites other examples of for-profit schools that had their program participation agreements renewed while facing scrutiny from accreditors or state attorneys general. Additionally, as part of a class action lawsuit recently settled by the administration — which is set to provide at least $6 billion in relief to 200,000 borrowers who said they were scammed by their schools — the agency identified students who attended the five schools highlighted in the report, Including Lincoln Tech, eligible for debt cancellation due to the schools’ past conduct. The ministry renewed the agreements to participate in the programs of these schools in late summer and early fall, and they do not expire until sometime in 2024, according to the report.

In the past, Amin said, the government has used program participation agreements to protect students. He cited the example of ITT Tech, a for-profit college chain based in Indiana. In 2016, management said it would not renew the company’s PPA unless it could increase the letter of credit it had already published, amid allegations of wrongdoing by its accreditation body. The company was unable to post that amount, so it stopped participating in the federal financial aid program and filed for bankruptcy.

“It’s a much quicker way to protect students,” Ament said of using leverage associated with a program participation agreement, “than doing some sort of back-end enforcement action after a school is accused of wrongdoing.” However, the Biden administration does not appear to be using this tactic.

“Almost nothing has been done over the past two years to prevent these schools from continuing to enroll students in failing programmes,” said Amin.

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