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Regulator Probes Into For-Profit College Loans, Practices, Expands

Officials with the Consumer Financial Protection Bureau, along with 32 state attorneys general, are working to expand investigation into the promises and practices of for-profit colleges, with special attention being paid to student loans.
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There is ample indication, the watchdogs say, that there are unfair and deceptive lending practices at these institutions. Inquiries have also led authorities to believe that schools have been overstating the results of their offerings, fudging the facts on post-graduate job placement and more. These kinds of actions are likely to spur New York education lawsuits.

Among those that are being more closely scrutinized:

  • Education Management Co. (a chain partially-owned by Goldman Sachs Group Inc.);
  • ITT Educational Services Inc.;
  • Corinthian Colleges Inc.;
  • Career Education Corp.


Overall in this country, student loan debt has soared to $1.2 trillion. While for-profit college graduates aren’t the only ones grappling with the debt, they are disproportionately burdened with a higher percentage of it.

While for-profit schools comprise about 10 to 13 percent of the total higher education market, those who attend for-profit institutions held nearly half of all federal student loan defaults, as of 2008 and 2009. It’s believed those figures have risen.

At a recent panel before the House of Representatives, the attorney general for Ohio testified that his department receives thousands of complaints annually regarding private student loans and debt.

Usually, when regulators discover wrongdoing by for-profit firms, they will file civil lawsuits for monetary damages. In some cases, they will seek restitution for victims, but primarily, they are after changes in corporate culture. Often, it may be up to individuals to seek remedy by filing their own civil lawsuit.

So far, New York is not among those states that have sought demands for information from education companies. The information that has so far been demanded of the aforementioned schools includes details about advertising, marketing, lending, student recruitment, graduation rates, professional licensing rates and job placement statistics.

In theory, for-profit colleges provide a valuable service to students who may not be able to access traditional universities. However, there is concern that these students, because of their lack of other opportunities, have been exploited. Some emerge with a degree, $90,000 in debt that can’t be written off and no job opportunities.

Late last year, the Federal Trade Commission, focused on prevention of consumer deception and fraud, hardened the requirements for companies that offer vocational training. Guidelines for misrepresentation of information ranging from availability of financial aid to graduation rates is now met with stiffer penalties than ever before.

Additionally, the U.S. Department of Education is working to bolster its regulations as well, allowing that eligibility for federal dollars from student grants and loans (which is about 90 percent of the revenue at many for-profit institutions) must be linked to student graduation rates and debt levels. This provides strong incentive for schools to deliver on the promises made.

Plus, both the Securities and Exchange Commission and the U.S. Justice Department have launched investigations into for-profit school practices.

While regulators may now be taking action, it won’t necessarily help the new graduates who are struggling now. For them, relief may only come in the form of individual civil litigation.

The Law Offices of Ira S. Newman provides education litigation representation in New York City, Long Island, Great Neck and throughout the area. Call 516-487-7375 or send us an e-mail.

Additional Resources:
For-Profit College Probe Expands, Jan. 13, 2014, By Stephanie Armour and Alan Zibel, The Wall Street Journal
More Blog Entries:
Education Fraud Case Declined By State High Court, May 10, 2013, New York Education Lawyer Blog