Protecting Students From Bad Colleges

By failing for decades to regulate for-profit colleges, the federal government encouraged a predatory industry that saddled poor and working-class people with crippling student debt, often in return for useless degrees or no degrees at all. The industry accomplished this by relying on the federal student aid program for virtually all of its revenue. But the Obama administration took steps last week that could keep future students from falling into this trap.

The cost of poor oversight was made clear in 2014, when Corinthian Colleges, one of the nation’s largest operators of for-profit schools, collapsed financially in the wake of state and federal fraud investigations. That left the federal government legally responsible for forgiving the student loans of thousands whose schools had either defrauded them or shut down while they were enrolled.

The Obama administration last week proposed new regulations intended to protect taxpayers and borrowers from Corinthian-style disasters while eliminating some obstacles that have historically prevented students who have been defrauded by schools from aggressively seeking redress through the courts. The proposed regulations would be an improvement, but they need more work before they are finalized.

A long-overdue rule would require schools that show signs of financial instability — like failing to meet federal requirements for receiving student aid dollars or being sued for fraud by state attorneys general or federal entities — to set aside money that could be used to provide debt relief for students harmed by the school. Under this system, the schools could no longer shift those costs to taxpayers.

The rules would also protect the rights of students to join with others to sue schools over abuses. Schools that receive federal aid would not be allowed to require students to sign contracts with clauses that bar them from joining class-action suits and force those with grievances into an arbitration system that is designed to favor the schools.

The regulations would also prohibit rules that keep students or former students from talking about the complaint resolution process. In the past, schools used these rules to cover up wrongdoing and ensure that federal money kept flowing into their coffers.

The proposed rules would also provide loan relief in cases where schools, desperate for loan dollars, were known to have falsely stated that students had high school diplomas or referred students to third parties to obtain counterfeit ones.

The Department of Education acknowledges in the proposed rules that it will be necessary to provide debt relief for groups of students who may have been defrauded by the same company. But the method the department would use to identify the group is complicated and lacks transparency. One way to fix that is to identify groups through the many lawsuits that state attorneys general have filed in their efforts to clean up this industry. They pioneered this fight, after all, and have the deepest understanding of where the problems lie and how to fix them.

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