Source: https://tcf.org/content/report/college-complaints-unmasked/
Timestamp: 2019-04-20 18:20:48+00:00

Document:
2Why Would a Former Student Pursue Borrower Defense?
The Century Foundation reviewed data on 98,868 “borrower defense claims” filed with the Department of Education and found 98.6 percent of them were from students saying they were misled by for-profit schools.
The schools with the most complaints are known bad actors with records that include multiple investigations and lawsuits for deceptive and predatory practices.
The Department of Education currently has a backlog of 87,000 unreviewed borrower defense claims.
Instead of implementing a new process developed in 2016 along with rules to prevent further abuses, the Department of Education is going back to the drawing board.
While the department previously has revealed small amounts of information on borrower defense complaints, including the number of claims that are pending and that have been approved, the government has never before released a comprehensive list of schools accused of predatory behavior.
Now, in response to a Freedom of Information Act (FOIA) request from TCF, the Department of Education has provided information that sorts all 98,868 borrower defense claims received as of August 15, 2017, by school.2 The data represents the first-ever public record of the number of claims students have filed against each and every higher education institution in the country.
When TCF analyzed the new data, it found a disproportionate concentration of predatory behavior among for-profit colleges. This report summarizes these findings, shedding new light on patterns of predatory behavior, and raising serious concerns about the federal government’s current approach to providing relief to students who have been defrauded and misled.
Out of the total of 98,868 complaints reviewed by TCF, for-profit colleges generated more than 98.6 percent of them (97,506 complaints). Of these complaints nonprofit colleges generated 0.79 percent (789 complaints) and public colleges generated 0.57 percent (559 complaints).
Approximately three-fourths of all claims (76.2 percent) were against schools owned by one for-profit entity, the now-closed Corinthian Colleges (75,343 claims). Removing Corinthian from the analysis, the vast majority of claims, over 94 percent, were still against for-profit colleges (22,160 of the 23,525 non-Corinthian claims).
Claims are concentrated around fifty-two entities—forty-seven for-profit companies and five nonprofit institutions—that have each generated twenty or more borrower defense claims. Of these five nonprofits, three converted from for-profit ownership.
The backlog of fraud complaints—currently numbering 87,000 not yet reviewed—is increasing, with the number of new claims submitted per month averaging approximately 8,000 since mid-August.
Despite making up the overwhelming majority of borrower defense claims, for-profit schools account for only about 10 percent of enrollment and 18 percent of the outstanding federal loan volume.
The “worst actors” among nonprofit and public colleges pale in comparison to their for-profit counterparts.
While the Department of Education has not provided any borrower defense complaints in response to TCF’s FOIA requests, it has outlined some of the fraudulent practices that could precipitate students’ requests for loan forgiveness, such as schools misrepresenting the costs, accreditation, transfer opportunities, and job prospects that are associated with a degree program.
Those who enrolled at a for-profit college in recent years are 1,100 times more likely to end up filing a fraud claim than those who enrolled at a public institution.
Every company that has generated more than 300 fraud complaints—the top eleven, in our analysis—has previously been the subject of investigations by law enforcement and public oversight bodies. In several cases, there are already rulings that these institutions defrauded students by violating state consumer protection laws and other standards that make students eligible for borrower defense relief.
To be sure, this new data on borrower defense claims sorted by institution does not, by itself, reveal any information on whether a school or company is guilty of wrongdoing. A claim is just a claim, after all.
Yet to establish whether a claim is valid, it must be reviewed—something the Department of Education currently is not doing.6 Responding to complaints is critical to establishing a marketplace that is safe for consumers and taxpayers.
The new data analyzed in this report is yet further evidence of a pattern of fraud and abuse by for-profit schools against students. By taking seriously these tens of thousands of claims, the Department of Education could help students, hold schools accountable, and send a signal that fraudulent predatory behavior will not be tolerated in higher education.
Lawmakers, flooded with complaints from their constituents, began searching for a remedy, and in 2014 rediscovered the borrower defense provision in the law.10 After months of outreach by the Department of Education, state attorneys general, and legal aid services, the applications for loan relief started pouring in. Data provided by the Department of Education to TCF on August 15 in response to a FOIA request placed the total number of complaints received by that date at 98,868, with an astonishing 98.6 percent of those originated from for-profit colleges.
Initially, when the department began tracking borrower defense applications in late 2015, nearly all of the complaints centered on fraudulent practices by Corinthian Colleges, Inc. This high concentration of Corinthian students is understandable: the school was then in the process of closing or selling its campuses after government investigations found that the company had misled students.11 The Department of Education and borrower groups like the Debt Collective launched efforts to reach out to borrowers who might qualify for loan cancellation.12 In this way, the collapse of Corinthian drove much of the renewed attention on borrower defense relief, and this is reflected in the number of Corinthian-based fraud complaints. As of August 15, out of the 98,868 fraud complaints TCF reviewed, 75,343 came from former Corinthian students.
The high proportion of Corinthian students among those seeking relief may give the false impression that this high tide of complaints is simply an indicator of the collapse of a single school, but the data indicate otherwise. Claims from borrowers who attended schools other than Corinthian have been rising rapidly as well, particularly among students who attended other for-profit colleges. Of the 23,525 non-Corinthian borrower defense claims, over 94 percent were generated by for-profit colleges, even though for-profit schools make up only 18 percent of the outstanding loan volume in the federal student loan program.13 While the number of complaints from these schools does not approach the current totals for Corinthian, they may indicate Corinthians-in-the-making, as their complaint volume now exceeds early numbers for Corinthian-related claims.
Source: Authors’ analysis of Department of Education data.
Why Would a Former Student Pursue Borrower Defense?
After eight years of service with the U.S. Army, Wayne Fowler returned to civilian life in North Carolina with college on his mind.22 With G.I. Bill benefits that were generous enough to cover tuition and living expenses at most public universities, Wayne was ready to continue his education. Having previously worked as a corrections officer, Wayne was eager to pursue a degree that would help him move up in law enforcement. During a hospital visit, Wayne saw a television advertisement featuring promises that ITT Tech would help him achieve his dreams. He was intrigued, and contacted ITT.
Recruiters at ITT told Wayne that the school’s Criminology and Forensics program would lead to a job paying $50,000 to $100,000 in law enforcement. On a tour of the campus, Wayne saw posters that listed salaries of past graduates, and he was drawn in further by advertisements promising job placement assistance after graduation. Wayne was convinced, and chose to attend ITT from 2012 to 2014.
But after Wayne graduated, he realized that he had been misled. ITT’s career placement office was unresponsive and failed to connect Wayne with any law enforcement offices for interviews. Worse, he discovered that ITT’s predatory practices went beyond draining his hard-earned G.I. Bill benefits and wasting his time with false promises of career advancement. ITT concealed the full price of attendance, and saddled Wayne with student loans for his two-year degree.
Unbeknownst to Wayne, law enforcement offices saw ITT not as a source of employees to hire, but rather as a predatory enterprise. In Wayne’s home state of North Carolina, the attorney general was investigating ITT after receiving multiple complaints from students.23 By the time ITT closed in September 2016, it was under investigation by multiple state attorneys general offices; the Securities and Exchange Commission, which oversees Wall Street, had charged its executives with fraud;24 and the Consumer Financial Protection Bureau (CFPB) had uncovered “secret shopper” evidence showing that ITT recruiters regularly lied to potential students.25 Across the country, law enforcement offices suspected what Wayne had no way of knowing when he enrolled: ITT was focused on milking students for every penny of federal grants and loans the school could get, not providing students with a high-quality education.
Faced with no job prospects in his field of study, and surprised by the existence of loans that he didn’t remember signing up for, Wayne tried to find help for his situation. Through his research, Wayne connected with advocates who helped him submit a borrower defense application. As it turns out, Wayne was just one of many thousands of students who felt cheated by the college they attended. While Wayne will never get back the two years he spent studying, he could apply for student loan debt relief by filing a complaint against ITT with the department.
engaging in pressure tactics to prevent students from asking too many questions.
The importance of compensating borrowers who have been misled by predatory schools came up not long after the federal government’s first major foray into student loans.
HEW Secretary Caspar Weinberger recognized that because his agency was, in effect, endorsing the schools by backing the loans, the federal government bore some responsibility for the abuses. Schools that were heavily reliant on federal loans, he observed, had too strong an incentive to dilute their academic standards and use “exaggerated claims” to enroll students who carried the federal money with them.30 To stem the abuses, Weinberger established policies to cut off schools with high defaults rates and to scrutinize schools where a large proportion of students were using federal loans31—policies that did not survive the transition of the HEW Office of Education into a full-fledged Department of Education during the Carter administration.
Secretary Weinberger also established a “borrower defense” policy, promising that HEW would not make borrowers repay their loans if their school had misled them. The agency, he said, would recognize “the student’s assertions of a defense” against repaying the loan, and the agency would “not knowingly attempt to collect from a student when he has a valid defense.”32 A method for carrying out this promise, however, was not established.
In the 1980s, abuses by schools returned with a vengeance, with the student loan default rate at for-profit schools reaching an all-time high of 41 percent in 1990.33 As the Department of Education tried to rein in predatory schools and Congress considered reforms, the question of how to handle borrowers who were misled went up through the courts.
Lawsuits similar to the West Virginia case were filed in several other states.40 Meanwhile, the banks lobbied Congress to push back against Secretary Alexander’s position, arguing that it would undermine the federal student loan program,41 and the department retreated in the court cases.42 But Alexander resisted congressional efforts to completely immunize the lenders, arguing that doing so “could unfairly separate a student’s duty to pay from the school’s reciprocal duty to supply the promised educational services.”43 Without something like a borrower defense program, student loans would be a one-sided contract where students—and also taxpayers—would have to pay, even when schools didn’t do the work.
Without something like a borrower defense program, student loans would be a one-sided contract where students—and also taxpayers—would have to pay, even when schools didn’t do the work.
The agency followed up in 1994 and 1995 with brief regulations and guidance that punted to states on tough questions about the processes and standards that the federal borrower defense program would adopt.46 Under those rules, “the borrower may assert as a defense against repayment, any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law.”47 In other words, if a school broke state laws to recruit students and sign them up for loans, students could assert a defense and the department would discharge the unlawfully obtained loans.
This state-based borrower defense rule followed a wave of consumer protection legislation enacted across all fifty states in the 1970s and 1980s that built upon the Federal Trade Commission Act of 1914 to expand protections against fraud and other bad business practices.48 Whereas states’ legal standards for fraud often required evidence of hard-to-prove elements, such as a business’s state of mind, the state consumer protection statutes—often called UDAP statutes, for “Unfair and Deceptive Acts and Practices”—made it possible for states to protect consumers, and for consumers to win against fraudsters.49 By incorporating state protections, including UDAP laws, into the regulation, the secretary’s standard for granting borrower defense relief would evolve alongside the consumer protection regimes of the states.
In waiting for relief, Wayne is joined by over 87,000 students with pending fraud complaints before the Department of Education. Since January 2017, the Department of Education has placed a wrench in the borrower defense process, generating a backlog that, as of October 24, 2017, exceeds 87,000 pending complaints (see Figure 2).52 While the department has not released any sample of complaints, they are likely to describe a variety of fraudulent and predatory practices that might qualify for relief.
In 2016, while continuing to process the complaints it had received, the Department of Education launched a process to update the borrower defense regulations.55 This initiative had two goals. First, improve the relief process for borrowers who have claims against schools. To do this, the department constructed a standardized process for borrowers to submit applications,56 as well as a streamlined process to provide relief to groups of students in certain circumstances, including when a court reaches a judgment that a school systematically harmed students through predatory loan practices.
The department’s second goal, equally important over the long term, was to protect the interests of students and taxpayers by preventing further abuses. The 2016 rules clarified that the department could go after law-breaking schools to recoup taxpayer losses on loan relief for defrauded students. Because many scam schools close soon after their predatory practices are discovered, the rules designed a financial responsibility insurance policy that required schools to front more cash if their activities moved closer to the brink of collapse.
For the millions of students who will borrow to attend college in the coming years, the department’s regulations matter enormously. If the department rescinds or weakens efforts to hold schools accountable, predatory behavior will escalate, leading additional hundreds of thousands of students to seek relief, and taxpayers to bear much of the cost. If the department recognizes the patterns of consumer abuse and fraud and takes action to prevent it, both taxpayers and students will get more for their investment. Any rulemaking process on borrower defense will be judged by its ability to accomplish these twin aims—providing relief for defrauded borrowers and oversight for predatory schools—an achievement that has eluded education regulators thus far.
Data regarding loan relief requests filed by federal student loan borrowers have come in various forms over the past two years, in addition to the response to TCF’s FOIA request. Of the seven other data releases that we have identified, four came from the Special Master appointed by the U.S. undersecretary of education in 2015 “to guide a fair, efficient process.” Data were also released by the Department in a press release, and by Senator Richard Durbin. Finally, the Washington Post reported on October 24 that the claims backlog numbers 87,000, which combined with the claims that the department previously reported had already been processed implies a total of more than 118,000 claims filed.
Click here to view and download the full data recieved in response to TCF’s FOIA request.
First Special Master report (September 3, 2015) Reporting the numbers of borrower defense claims received as of Aug. 26, 2015 for Corinthian-operated brands, and an aggregate number of claims received for all other schools.
Second Special Master report (December 3, 2015) Reporting the numbers of borrower defense claims received and processed65 as of Nov. 18, 2015 for Corinthian-operated brands, and the numbers of claims received for EDMC’s The Art Institute, ITT, Apollo Education Group’s The University of Phoenix, and all aggregate number of claims for all other schools.
Third Special Master report (March 25, 2016) Reporting the numbers of borrower defense claims received and processed as of March 1, 2016 for Corinthian-operated brands, and the numbers of claims received for The Art Institute, ITT, Apollo Education Group’s The University of Phoenix, and all aggregate number of claims for all other schools.
Fourth Special Master report (June 29, 2016) Reporting the numbers of borrower defense claims received and approved for discharge66 as of June 24, 2016 for Corinthian-operated brands, and aggregate numbers of claims received for all schools garnering more than 10 claims and for all schools garnering fewer than 10 claims.
(July 7, 2017) Providing the numbers of pending68 borrower defense claims for students who attended Corinthian, ITT, EDMC, Adtalem Global Education’s DeVry University, and Apollo Education Group’s The University of Phoenix, providing numbers for the numbers of discharges that had been processed for Corinthian, ACI, and ITT students with previously-approved borrower defense claims, and stating that, as of July 7,2017, no borrower defense claims had been approved since January 20, 2017.
Enclosure 1 of Department of Education response to Senator Durbin (July 7, 2017) Providing a state-by-state breakdown of the numbers of pending claims for students who attended Corinthian, ITT, and an aggregate for all other schools.
Enclosure 2 of Durbin response (July 7, 2017) Providing a state-by-state breakdown of the numbers of pending claims received between Jan. 20 and July 5, 2017, for students who attended Corinthian, ITT, and an aggregate for all other schools.
Department response to TCF FOIA (August 15, 2017) Disclosing the total numbers of borrower defense claims received by Office of Postsecondary Education Identification number (“OPEID”).
Department of Education disclosures to The Washington Post (October 24, 2017) Disclosing, in an authorized statement, the approximate number of pending borrower defense claims and the approximate number of discharges that have yet to be processed for previously-approved borrower defense claims.
The department’s response sorted student complaints based on an internal unit: an eight digit identification code, called an Office of Postsecondary Education Identification number (“OPEID”), which the department generates and uses in the administration of federal financial aid programs.69 The department’s response listed the number of student complaints by OPEID and school name. However, comparing student complaints by OPEIDs does not offer consistency across units of measure: for example, all undergraduate and graduate programs for Harvard University operate under a single OPEID while ITT Educational Services split its programs across at least two OPEIDs, and Corinthian Colleges Inc. used numerous OPEIDs.
For the purposes of this report, the term fraud is inclusive of unfair and deceptive acts and practices as well as other state laws bases for borrower defense relief—including constructive fraud, contract defenses, and unjust enrichment, among others. Throughout this report, borrower defense applications or “claims” are also described as fraud complaints because the lay usage of the term fraud broadly captures the unfair tricks and deceptions that underlie each of the legal causes of actions that trigger borrower defense relief.
The list included the school name, along with the number assigned to the school by the department, known as the OPEID (Office of Postsecondary Education Identification) number.
Based on 2011 total enrollment, by sector, in institutions participating in the Title IV financial aid programs. Data from Laura G. Knapp Janice E. Kelly-Reid Scott A. Ginder, “Enrollment in Postsecondary Institutions, Fall 2011; Financial Statistics, Fiscal Year 2011; and Graduation Rates, Selected Cohorts, 2003–2008 First Look (Provisional Data),” U.S. Department of Education, National Center for Education Statistics, December 2012, https://nces.ed.gov/pubs2012/2012174rev.pdf.
Based on 2017 Q2 outstanding principal and interest balances, by school type, from the Federal Student Aid Data Center, U.S. Department of Education, https://studentaid.ed.gov/sa/about/data-center/student/portfolio.
The nonprofit and public colleges with the most claims are Wright Career College/Mission Group Kansas (44), Mountain State University (39), Everglades College, Inc. (34), Remington College (33), Dowling College (21), California State University system (17), Thomas Jefferson School of Law (12), and four had 11 claims: Nova Southeastern University, State University of New York system, Ivy Tech Community Colleges of Indiana, and Morris Brown College. We aggregated the number of claims for public college systems that operate under a single governing board, which would have similar control as a corporate owner.
In 2010, Secretary Arne Duncan said in response to a reporter’s question that debts of defrauded borrowers could not be canceled. Stephen Burd, “Borrower’s Remorse: The Obama administration promised debt relief to the victims of predatory for-profit colleges. Then came Trump.” Washington Monthly, September/October 2017, https://washingtonmonthly.com/magazine/septemberoctober-2017/borrowers-remorse/.
The Department of Education weakened rules banning the payment of bounties to school recruiters, and with Congress relaxed limitations on online education. See Mike Lillis, “GAO: Bush-era rules helped schools evade banned practices,” The Hill, October 10, 2010, thehill.com/policy/healthcare/123551-gao-bush-era-rules-helped-for-profit-schools-evade-recruitment-lending-rules.
Stephen Burd, “Borrowers Remorse,” Washington Monthly, September/October 2017, https://washingtonmonthly.com/magazine/septemberoctober-2017/borrowers-remorse/.
Michael Stratford, “Corinthian Dismantling Continues,” Inside Higher Ed, April 15, 2015, https://www.insidehighered.com/news/2015/04/15/us-fines-corinthian-colleges-30-million-and-effectively-closes-heald-chain.
Tamar Lewin, “Government to Forgive Student Loans at Corinthian Colleges,” New York Times, June 8, 2015, https://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html.
The Department of Education reports that at the end of the second quarter of the 2017 federal fiscal year, outstanding student loans from attendance at for-profit schools totaled $221.6 billion, out of a total of $1,233.6 billion (not including loans that could not be linked to a specific school). See “Portfolio by School Type,” https://studentaid.ed.gov/sa/about/data-center/student/portfolio.
For an example of the press outreach conducted by attorneys general for forty-three states and the District of Columbia, see Jim Hood, Attorney General, Mississippi, “Federal Student Loan Cancellation Available for Former Corinthian College Students,” Press Release, May 5, 2017, http://www.ago.state.ms.us/releases/federal-student-loan-cancellation-available-for-former-corinthian-college-students/.
For an example of groups working with veterans on borrower defense issues, see “VCS Urges a Strong Borrower Defense Regulation to Protect Veterans and Servicemembers,” Veterans for Common Sense (VCS), June 6, 2017, http://veteransforcommonsense.org/2017/06/06/vcs-urges-a-strong-borrower-defense-regulation-to-protect-veterans-and-servicemembers/.
For examples of legal services organizations’ experiences with borrower defense issues, see “Comments from the Legal Aid Community to the Department of Education re: Proposed Regulations on Borrower Defenses and Use of Forced Arbitration by Schools in the Direct Loan Program, and Proposed Amendments to Closed School and False Certification Discharge Regulations,” Docket ID ED-2015- OPE-0103, August 1, 2016, https://www.nclc.org/images/pdf/special_projects/sl/comments_legal_aid_docketid-ED-2015-OPE-0103.pdf.
U.S. Department of Education, Borrower Defense Application Form, https://studentaid.ed.gov/sa/sites/default/files/borrower-defense-application.html.
The Special Master appointed to lead the borrower defense claims process used a twenty-complaint threshold in listing schools with borrower defense claims in his last report on the development of this process.
Everglades College (which includes Keiser University) and Remington College were both featured in Robert Shireman, “The Covert For-Profit: How College Owners Escape Oversight through a Regulatory Blind Spot,” The Century Foundation, September 22, 2015, https://tcf.org/content/report/covert-for-profit/.
Missouri College, which was sold to Weston Educational, Inc. in 2015, had eight claims.
Kaplan University, still owned by Graham Holdings, generated 321 claims. The remaining complaints were about Kaplan College, Kaplan Career Institute, and TESST College of Technology, brands that were sold to Education Corporation of America on September 3, 2015.
Wayne Fowler’s experience with ITT and application for borrower defense relief were shared, with his permission, by Veterans Education Success, a nonprofit organization that provides legal services to veterans, and was independently verified by the authors of this report.
See Complaint, United States Securities and Exchange Commission v. ITT Educational Services, et al., https://www.sec.gov/litigation/complaints/2015/comp-pr2015-86.pdf.
See Complaint, Consumer Financial Protection Bureau v. ITT Educational Services Inc., http://files.consumerfinance.gov/f/201402_cfpb_complaint_ITT.pdf.
“ITT Bankruptcy—Student Intervention,” Legal Services Center of Harvard Law School, http://www.legalservicescenter.org/get-legal-help/predatory-lending-and-consumer-protection-unit/project-on-predatory-student-lending/itt-bankruptcy-student-intervention/#itt-student-testimony.
Thanks to David Whitman for providing much of the background research for this section. David Whitman, “Truman, Eisenhower, and the Fist GI Bill Scandal,” The Century Foundation, January 24, 2017, https://tcf.org/content/report/truman-eisenhower-first-gi-bill-scandal/.
Steven M. Jung, Jack A. Hamilton, et. al, “Study Design and Analysis Plan: Improving the Consumer Protection Function in Postsecondary Education,” American Institutes for Research, October 21, 1975, https://drive.google.com/file/d/0B7aqIo3eYEUtNW5CdVhaTElQQVk/view?usp=sharing.
Weinberger believed that “the potential for abuse resulting from the rapid increase in the level of federal funds flowing to institutions of higher education . . . required HEW to assume responsibility for administering their operation at a level of detail that in other circumstances would have been entirely inappropriate.” Caspar W. Weinberger, “Reflections on the Seventies,“ Journal of College and University Law 8, no. 4 (1981–82): 452–56, https://drive.google.com/file/d/0B7aqIo3eYEUtV0phX2c5bFBYTmM/view?usp=sharing.
The Office of Education could cut off or impose additional restrictions on schools where 60 percent or more of the borrowers were using federal loans. See David Whitman, “Vietnam Vets and a New Student Loan Program Bring New College Scams,” The Century Foundation, February 13, 2017, https://tcf.org/content/report/vietnam-vets-new-student-loan-program-bring-new-college-scams/.
Mike Tharp, “Charges of Fraud Hit Student-Loan Program Backed by Government,” Wall Street Journal, June 30, 1975, 1, 9, https://drive.google.com/file/d/0B7aqIo3eYEUtZWVqWUF3VHJoZGs/view?usp=sharing.
David Whitman, “The Reagan Administration’s Campaign to Rein In Predatory For-Profit Colleges,” The Century Foundation, February 13, 2017, https://tcf.org/content/report/reagan-administrations-campaign-rein-predatory-profit-colleges/; David Whitman, “When President George H. W. Bush ‘Cracked Down’ on Abuses at For-Profit Colleges,” The Century Foundation, March 9, 2017, https://tcf.org/content/report/president-george-h-w-bush-cracked-abuses-profit-colleges/.
Accredited by the Association of Independent Colleges and Schools, predecessor to ACICS, (which in 2016 lost its federal recognition as a reliable accreditor).
See Orders of September 4, 1986, and May 29, 1987, Perry–Alltop v. Northeastern Business College, Inc., CA 83–C–2514 (WV Cir. Court), discussed in Tipton v. Secretary of Education of the United States, 768 F. Supp. 540 (S.D.W. Va., June 21,1991), 547, 540, Ft. 6. Also see Forest J. Bowman, “The History of the United States District Court For The Southern District of West Virginia,” West Virginia Law Review 109 (2007): 785–86.
See Tipton v. Secretary of Education of the United States, 768 F. Supp. 540 (S.D.W. Va., June 21, 1991).
See Jason DeParle, “In Ruling, Hope for Students Deceived by Schools,” New York Times, July 15, 1991; and Kenneth J. Cooper, “Questioning the Need to Repay School Loans: Judge Says State Law May Free Students of Obligation When Training Is Inadequate,” Washington Post, July 22, 1991, A9.
See Tipton v. Secretary of Education of the United States, 768 F. Supp. 540, 562 (noting that “as the Secretary has consistently maintained, there are sound policy reasons for rendering lenders with a close connection to a participating school subject to the claims and defenses which a student would have against the school on the enforceability of their loan obligation”).
Ibid., 547–71; see also Tipton, 1993 WL 545724 (S.D.W. Va., Aug. 28, 1992).
California, Kentucky, New Jersey, Texas, and the District of Columbia are cited in DeParle, “In Ruling, Hope for Students Deceived by Schools.” On the D.C. case, see Michael Jackson et al. v. Culinary School of Washington,27 F.3d 573, June 24, 1994.
In a letter to Senator Ted Kennedy, who had expressed concern about the department’s position, department general counsel Jeffrey Martin wrote that banks should be held responsible for student loans in default only if the banks knew about prior, unresolved student complaints at a school; if the bank and school were affiliates; if the bank had delegated substantial pre-loan functions to the school; or if the bank paid finder’s fees to the school. “Capital Digest,” Education Week, October 30, 1991.
Letter from U.S. Secretary of Education Lamar Alexander to Congressman William D. Ford on H.R. 3553, October 21, 1991, Appendix A, 14.
In December 1992, Alexander formally announced that he would abandon a regulatory effort, launched by his predecessor, to codify a uniform federal rule on borrower defenses that would preempt state law. Federal Register 57, no. 244 (December 18, 1992): 60304.
The provision, titled “[b]orrower defenses,” instructs that “[n]otwithstanding any other provision of State or Federal law, the Secretary shall specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under this part[.]” The new section 455(h) of the Higher Education Act was enacted on August 10, 1993 as part of Omnibus Budget Reconciliation Act (OBRA) of 1993 (Pub. L. 103-66), and is codified at 20 U.S.C. 1087e(h). At the time, the secretary was seen as having “long-standing authority to relieve the borrower of his or her obligation to repay a loan on the basis of an act or omission of the borrower’s school.” Federal Direct Student Loan Program, 59 FR 42646-01, August 18, 1994. This background authority is illustrated Secretary Lamar Alexander’s actions in support of students who were defrauded by Northeastern Business College, which predated the enactment of the borrower defense provision.
For more legal and regulatory background concerning the borrower defense provision, see the “First Report of the Special Master for Borrower Defense to the Under Secretary,” https://www2.ed.gov/documents/press-releases/report-special-master-borrower-defense-1.pdf. See also Code of Federal Regulations 34, 685.206(c) (containing the borrower defense regulations currently in effect); Federal Register 59 (August 18, 1994): 42646-49, 42663-64 (announcing a notice of proposed rulemaking on borrower defense regulations and introducing preliminary rules intended to take effect for the 1995–96 academic year only); Federal Register 60 (February 28, 1995): 11004 (notice of intent to establish a committee for the development of borrower defense regulations); Federal Register 60 (July 21, 1995): 37768 (adopting the rulemaking committee’s recommendation to make the preliminary regulations permanent and issuing an interpretation to clarify borrower defense processes).
Code of Federal Regulations 11, 685.206(c)(1). The department also clarified that to qualify for borrower defense, a school’s unlawful behavior must relate to “the school’s provision of educational services,” such as a lie about the quality of a school, or to the school’s practices regarding student loans, such as a lie about the repayment terms for a loan. Federal Register 60 (July 21, 1995): 37768, 37769.
Carolyn L. Carter, “A 50-State Report on Unfair and Deceptive Acts and Practices Statutes,” National Consumer Law Center, February 2009, 5, http://www.nclc.org/images/pdf/udap/report_50_states.pdf.
Indeed, the common understanding of fraud incorporates many of the deceptive and predatory acts that UDAP statutes are designed to capture, and that the borrower defense rules, in turn, rely upon to grant relief. Throughout this report, references to fraudulent acts, defrauded borrowers and other fraud-based language includes the unfair and deceptive behaviors that are prohibited by federal and state consumer protection law.
The U.S. Department of Education did not approve any applications for fraud-based relief between January 20 and July 7, 2017. See Danielle Douglas-Gabriel, “Trump administration is sitting on tens of thousands of student debt forgiveness claims,” Washington Post, July 27, 2017, https://www.washingtonpost.com/news/grade-point/wp/2017/07/27/trump-administration-is-sitting-on-tens-of-thousands-of-student-debt-forgiveness-claims/?utm_term=.b76af0035b59.
Wayne Fowler, “Letter to the Editor” (unpublished), on file with The Century Foundation and Veterans Education Success.
Douglas-Gabriel, “DeVos Calls for Another Delay of Rule to Protect Students from Predatory Colleges,” https://www.washingtonpost.com/news/grade-point/wp/2017/10/24/devos-calls-for-another-delay-of-rule-to-protect-students-from-predatory-colleges/?utm_term=.5b5554896ed5.
TCF calculated that 81,995 complaints were received by January 20, 2017 based on the Department of Education’s July 7, 2017 Reply to Senator Durbin, which stated that 14,949 of 96,944 borrower defense claims were received on or after January 20, 2017. TCF calculated that 118,773 complaints were received by October 24, 2017 by combining on The Washington Post’s report that 87,000 applications were pending as of that date with the 31,773 previously approved applications.
Department of Education, Interim Final Rule, October 24, 2017, available at https://www.federalregister.gov/documents/2017/10/24/2017-22851/student-assistance-general-provisions-federal-perkins-loan-program-federal-family-education-loan.
The final version of regulations drafted in the department’s 2015-2016 rulemaking process are available as “Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, William D. Ford Federal Direct Loan Program, and Teacher Education Assistance for College and Higher Education Grant Program: Final Regulations,” November 1, 2016, 81 FR 75926-01.
In a parallel process, the department created the first approved form students to submit borrower defense claims, available at https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/borrower-defense.
Tariq Habash and Robert Shireman, “How College Enrollment Contracts Limit Students’ Rights,” April 28, 2016, https://tcf.org/content/report/how-college-enrollment-contracts-limit-students-rights/.
Tariq Habash, “New Department of Education Regulations Big Win for Students’ Rights,” The Century Foundation, October 28, 2016, https://tcf.org/content/commentary/new-department-education-regulations-big-win-students-rights/.
The lawsuits challenging DeVos’s delays include one filed by attorneys general from eighteen states and the District of Columbia, Jillian Berman, “States sue Betsy DeVos over delays to Obama-era crackdown on for-profit colleges,” MarketWatch, October 17, 2017, https://www.marketwatch.com/story/states-sue-betsy-devos-over-delays-to-obama-era-crackdown-on-for-profit-colleges-2017-10-17, and another filed by students awaiting borrower defense relief, Donna Goodison, “Healey slams loan forgiveness change ‘Free pass to cheat,’” Boston Herald, Oct. 30, 2017, http://www.bostonherald.com/business/business_markets/2017/10/healey_slams_loan_forgiveness_change.
“Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, William D. Ford Federal Direct Loan Program, and Teacher Education Assistance for College and Higher Education Grant Program: Interim final rule; delay of effective date; request for comments,” U.S. Department of Education, October 24, 2017, 82 FR 49114, https://www.federalregister.gov/documents/2017/10/24/2017-22851/student-assistance-general-provisions-federal-perkins-loan-program-federal-family-education-loan.
Career Education Corporation sold Missouri College brand to Weston Educational, Inc. on September 1, 2015.
On February 3, 2015 the student loan guarantor and debt collector Education Credit Management Corporation (ECMC) purchased 56 Everest and Wyotech campuses and rebranded the new venture Zenith Education Group. Since the complaint data are not available by date of enrollment, and school OPEIDs do not change when schools change owners, we are not able to determine whether any of the complaints about Corinthian schools data from after their transfer to Zenith.).
Schools purchased in 2015 (see Graham Holdings) are not included here.
Graham Holdings sold “Kaplan Higher Education” which includes the Kaplan College, Kaplan Career Institute, and Tesst College of Technology brands to Education Corporation of America on September 3, 2015.
Reports from November 18, 2015 through March 25, 2015, stated the number of borrower defense claims that were “processed,” defined as claims were approved by the borrower defense unit and the Under Secretary of Education authorized appropriate relief, including loan discharge. See “Second Report of the Special Master for Borrower Defense to the Under Secretary, 3–4; “Third Report of the Special Master for Borrower Defense to the Under Secretary,” U.S. Department of Education, March 25, 2016, 5.
Fourth Report of the Special Master for Borrower Defense to the Under Secretary,” U.S. Department of Education, June 29, 2016, 7, https://www2.ed.gov/documents/press-releases/report-special-master-borrower-defense-4.pdf.
This press release also announced that the department was “beginning to award the first discharges to affected students” who submitted ITT-related claims, but did not say how many ITT discharges were approved.
These claims are described as “pending review, decision, or adjudication,” and appear to be distinct from claims that were previously approved but that are awaiting action in the form of a discharge or refund. Department of Education response at 1-3.
The Department of Defense has created a tool which provides more information on OPEIDs and allows users to search for schools by OPEID, available at https://www.dodmou.com/Home/EnterOpeidBeforeCreateUserAccount.
Some public higher education systems can also be said to have multiple brands, such as the University of California which has one set of regents overseeing multiple semi-autonomous campuses. Even when borrower defense claims are combined across such systems, we did not find any public system with 20 or more complaints.
Sources included the College Scorecard data, the Integrated Postsecondary Education Data System (IPEDS), and the Postsecondary Education Participation System (PEPS) Closed School List.
In some cases the schools were closed many years ago and some matching information (such as the accreditor) was not readily available.

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