To:​Negotiators

From:​Ann Bowers, Student Negotiator

Date:​2/14/2016

Re:​ Overview of current investigations of fraud and numbers of students impacted.

As I write this memo, it is the one year anniversary of the student debt strike that I began, along with fourteen other

brave student loan borrowers, in order to take a public stand against repaying federal student loans given the fraud

we had experienced at our schools. ​I am one of the original “Corinthian 15,” although we now number in the

hundreds. Over the last year we have been joined by over 5,000 defrauded students who submitted claims to get debt

relief through the Department of Education’s Defense to Repayment laws. Before our collective action to get

defrauded borrowers in communication with the Department, there had only been five claims.

Given the numbers of student victims I am in touch with every day, I feel compelled to update fellow negotiators

about the vastness of the problem, and the sheer volume of students who have been touched by the problem. I ask

that you keep these situations and students in mind as you consider what makes a fair and generous standard and

process for defrauded student loan borrowers. For us, the most crucial element of the process is that it enables class

wide discharge. The individual filing process will simply be too cumbersome and too slow to deliver the relief

necessary under the circumstances. Additionally, we can anticipate students who were harmed by their schools in

the past but were under the impression that they had no way to dispute the school or their debt to come forward and

file for relief, and I believe strongly that these students should not be shut out of the process simply because they

were unaware of their rights.

I will start with the school that has become the touchstone for our discussions, Corinthian Colleges. The

catastrophic failure of Corinthian Colleges, a for­profit company that operated the Wyotech, Heald, and Everest

College brands, was the impetus for this rulemaking. In April 2015, it went bankrupt after the Department of

Education withheld students’ federal aid dollars to the schools for falsifying its job placement rates. At its height,

the schools enrolled over 100,000 students. State Attorneys General from Massachusetts, California, Connecticut,

Illinois, Kentucky, New Mexico, Oregon, and Washington, along with the federal Consumer Financial Protection

Bureau requested that the Corinthian debtors have their federal loans forgiven given the evidence of fraud that had

been uncovered by these agencies.

Beyond Corinthian, there are approximately two dozen for­profit schools also being investigated. Here are a few

more high profile schools that are under investigation by state Attorneys General, the Department of Education, the

Federal Trade Commission, and the Consumer Financial Protection Bureau, along with the approximate number of

campuses and the approximate number of students that could be affected if these schools follow in Corinthian’s

path. Obviously, if fraud is found at these schools, and each student borrower were to apply for a defense to

repayment, then it adds up to an extreme number of claims to process individually. In addition, if a school is found

to be a bad actor currently, then it could have been a bad actor in the past, and those student debtors from the past

need a path to relief as well.

● ITT Tech: 112 campuses and 200,000 students. Under investigation or being sued by 19

state attorneys general, Consumer Finance Protection Bureau, Education Department for

fraud; misleading students on salaries & job placement; misleading investors, pressuring

students into high interest loans, etc..

● DeVry: 50,000 students. The Federal Trade Commission and the Department of Education

are investigating DeVry for misleading students on graduates’ salary and career placement

including through false marketing claims.

● Education Management Corporation, operating the Art Institutes, Argosy University, Brown

Mackey College, and South University brands; 110 locations, 32 states, 100,000 students.

Under investigation by Education Department and numerous state Attorneys General for
high­pressure enrollment tactics, false numbers reported to the government, false certification,

misleading students regarding salaries and job placement rates upon graduation, etc..

● University of Phoenix: 29 locations, 17 states, approximately 200,000 students (600,000

students in 2010. Under investigation by the Justice Department, Education Department,

Department of Defense, Federal Trade Commission, and many state Attorneys General for

deceptive and aggressive enrollment tactics, illegal use of military logo in advertisements and

recruiting material., etc.

Next I am including an article from Inside Higher Ed regarding the Department of Education’s list of schools that

have been placed on Heightened Cash Monitoring 2. These are schools that are being put in the ‘caution spotlight’

for their higher risk financial or compliance issues, and these serve a tremendous array of students. As the article

notes, for­profits dominate the list.

Cash Monitoring List Unveiled

March 31, 2015Michael Stratford

WASHINGTON ­­ The U.S. Department of Education on Tuesday, for the first time, named most of the hundreds of

colleges whose federal aid it has restricted because of concerns about their finances or compliance with federal

requirements.

The department released a partial list of the nearly 560 institutions that, as of March 1, were subject to the financial

restrictions known as heightened cash monitoring. Most of the colleges ­­ 487 institutions ­­ were on the lower level

of scrutiny, and 69 were subject to the higher, more stringent restrictions.

“We feel that by issuing this list today we’re doing what’s right for good government and transparency’s sake,” said

Ted Mitchell, the under secretary of education.

The department continued to keep secret the identities of 21 of the 69 colleges that it placed on the highest level of

monitoring, which means that department employees manually approve every dollar that flows to an institution.

Nearly all of those unidentified colleges were on that status because a federal audit of the institution resulted in

“severe findings.”

“We have ongoing investigations at each of those institutions and we fear that, at this point, releasing those names

would impede the progress of our investigation,” Mitchell said in an interview. He said the names of those colleges

would eventually be released as the investigations are completed.

‘A Caution Light’

Mitchell said that colleges may be placed on either form of cash monitoring for a range of reasons, some of which

are more serious than others.

The department, for example, may impose the sanction on a college for submitting its financial statements late. That

appears to have been the case for 43 public colleges and universities in Minnesota, all of which were on cash

monitoring with the designation of “audit late/missing.”

At the other extreme, a college may land on cash monitoring because of serious concerns about its financial

viability. Roxbury Community College, in Massachusetts, for instance, is on cash monitoring because of concerns

about its "administrative capacity." The college released a report in 2013 that showed, among other things, that

administrators had lost track of significant amounts of money.
A college being on the list “is not necessarily a red flag to students and taxpayers, but it can serve as a caution light,”

Mitchell wrote in a blog post. “It means we are watching these institutions more closely to ensure that institutions

are using federal student aid in a way that is accountable to both students and taxpayers.”

New Transparency Step

Before releasing the names of the institutions on cash monitoring Tuesday, the department had fought to keep the

information secret. As recently as last week, the department said that disclosing the list was likely to result in a

“substantial competitive injury” for colleges operating in a competitive marketplace.

The department reversed its position late last week after Inside Higher Ed reported that the cash monitoring

information was largely being kept hidden from public view.

When Inside Higher Ed first requested the cash monitoring list last summer, the department denied the request and

claimed that it did not keep such a list.

Going forward the department plans to publish the cash monitoring list online and update it on an ongoing basis, but

it hasn’t yet decided how frequently, Mitchell said.

Varying Levels of Scrutiny

Many of the colleges on the lower level of monitoring, which typically places a several­day delay on colleges’

federal funding, are placed there automatically because they fail the department’s standards of financial

responsibility.

Colleges and the groups that represent them have long complained that the methodology of those scores is out of

date and doesn’t accurately reflect an institution’s financial health.

"A lot of financially healthy institutions can find themselves on HCM1, for any number of minor reasons," said

Terry Hartle, senior vice president for government and public affairs at the American Council on Education. "HCM2

is a more serious problem, and institutions that are on there probably merit a close look."

Hartle said that although the department is rightly trying to make sure colleges have the financial and administrative

capacity to receive federal funding, officials have not been clear about how they use the cash monitoring sanctions.

"What institutions do to end up in that circumstance is not always clear," he said. "Because they're now making it

public, the stakes are much higher, and the need for more disclosure and transparency by the department has

increased."

For­Profits Dominate List

For­profit colleges made up more than half of the institutions on each level of heightened cash monitoring.

Of the 487 colleges facing the lower level of scrutiny, mostly for failing the department’s financial responsibility

test, 290 were for­profit institutions. Similarly, for­profit institutions represented 39 of 69 colleges facing the more

stringent restrictions.

Many smaller for­profit beauty, barber and cosmetology schools faced the highest level of monitoring, for a variety

of reasons, including accreditation problems, high default rates and severe audit findings.

Large for­profit college chains also have some colleges on the list, such as Corinthian Colleges, ITT Educational

Services, Education Management Corporation, and Career Education Corporation, including several of its Le

Cordon Bleu campuses that are up for sale. Those publicly­traded companies had all previously disclosed their status

to investors. (An earlier version of this paragraph incorrectly suggested that only some of these companies had told

investors of their cash monitoring status.)

Noah Black, a spokesman for the Association of Private Sector Colleges and Universities, said in response to the

department’s release of the list that students "would benefit greatly not from another disclosure, but from clear,

direct and accurate information."
He pointed to the “wealth of information that currently exists” on the department’s website, including various data

points about colleges and universities that are collected and published by the government.

Trace Urdan, a senior analyst at Wells Fargo who focuses on for­profit education companies, said in a note to clients

that the public disclosure of the list wouldn’t have a huge impact on stock prices. But, he said, the list “could have

the effect of discouraging enrollment at named institutions, thereby exacerbating their enrollment challenges.”

He also said that there is “a strong likelihood that state regulators could demand disclosure of the sanction to

prospective students, and/or impose their own sanctions on named schools.”

Breakdown by Sector | Create infographics

Institutions on Heightened Cash Monitoring 2:

Name City, State Type Reason

Arkansas Baptist College Little Rock, Ark. Private,

Nonprofit

Administrative Capability

JRMC School of Nursing Pine Bluff, Ark. Private,

Nonprofit

Audit ­­ Severe Findings

Asian­American International Beauty

College

Westminster, Calif. Proprietary Accreditation Problems

David's Academy of Beauty Pico Rivera, Calif. Proprietary Accreditation Problems

Community Christian College Redlands, Calif. Private,

Nonprofit

Accreditation Problems

Galaxy Medical College North Hollywood,

Calif.

Proprietary Accreditation Problems

Southern California University SOMA Los Angeles, Calif. Proprietary Accreditation Problems

Real Barbers College (The) Anaheim, Calif. Proprietary Accreditation Problems
California Career School Anaheim, Calif. Proprietary Audit Late/Missing

American Beauty College West Covina, Calif. Proprietary Other ­­ CIO Problems

(Eligibility)

Potomac College Washington, D.C. Proprietary Administrative Capability

SAE Institute of Technology ­­ Miami North Miami Beach,

Fla.

Proprietary Administrative Capability

Ultrasound Medical Institute Lantana, Fla. Proprietary Audit Late/Missing

Academy of Healing Arts, Massage &

Facial Skin Care

Lake Worth, Fla. Proprietary Other ­­ CIO Problems

(Eligibility)

Atlanta Beauty & Barber Academy Doraville, Ga. Proprietary Accreditation Problems

American College of Hairstyling ­­ Cedar

Rapids

Cedar Rapids, Iowa Proprietary Audit Late/Missing

American College of Hairstyling ­­ Des

Moines

Des Moines Proprietary Audit Late/Missing

Larry's Barber College Chicago Proprietary Audit Late/Missing

Masters of Cosmetology College Fort Wayne, Ind. Proprietary Administrative Capability

Collins School of Cosmetology Middlesboro, Ky. Proprietary Accreditation Problems
Roxbury Community College Boston Public Administrative Capability

International Beauty School Cumberland, Md. Proprietary Accreditation Problems

Sojourner­Douglass College Baltimore Private,

Nonprofit

Accreditation Problems

Missouri School of Barbering &

Hairstyling ­­ St. Louis

Florissant, Mo. Proprietary Audit Late/Missing

eClips School of Cosmetology and

Barbering

Cape Girardeau,

Mo.

Proprietary Default Rate

Fort Berthold Community College New Town, N.D. Public Payment Method Changed

Little Priest Tribal College Winnebago, Neb. Private,

Nonprofit

Administrative Capability

Total Image Beauty Academy Union City, N.J. Proprietary Financial Responsibility

Bramson ORT College Forest Hills, N.Y. Private,

Nonprofit

Accreditation Problems

Rabbinical Seminary of America Flushing, N.Y. Private,

Nonprofit

Audit Late/Missing

Joffrey Ballet School, American Ballet

Center

New York, N.Y. Proprietary Audit Late/Missing
Yeshiva Shaar Hatorah Richmond Hill,

N.Y.

Private,

Nonprofit

F/S Late/Missing

Saint James Mercy Hospital School of

Radiologic Sciences

Hornell, N.Y. Private,

Nonprofit

Financial Responsibility

VEEB Nassau County School of Practical

Nursing

Uniondale, N.Y. Public Financial Responsibility

Ohio Mid­Western College Cincinnati Private,

Nonprofit

Financial Responsibility

Institute of Therapeutic Massage Lima, Ohio Proprietary Outstanding Liability/Offset

CC's Cosmetology College Tulsa, Okla. Proprietary Program Review

Citizens School of Nursing New Kensington,

Penn.

Private,

Nonprofit

Other ­­ CIO Problems

(Eligibility)

Western Pennsylvania Hospital School of

Nursing

Pittsburgh Private,

Nonprofit

Other ­­ CIO Problems

(Eligibility)

Nashville Barber and Style Academy Nashville Proprietary Administrative Capability

Shear Academy Crossville, Tenn. Proprietary Audit ­­ Severe Findings

Texas Beauty College Haltom City, Tex. Proprietary Accreditation Problems

(The department declined to name an additional 21 colleges that were subject to heightened cash monitoring 2.)
In summary, I ask negotiators to recognize the breadth and depth of the problem and to design a standard and a

process that fits the crime. Defrauded students need a group discharge process, and they need a standard and

process that is retroactive.