When Stephanie Porreca graduated from the photography program at the Illinois Institute of Art in July 2018, she was eager to start her new career. But that excitement quickly soured. “Right after graduation, they announced that there had been no [school] accreditation since January,” said Porreca. Illinois Institute of Art was owned by Dream Center Education Holdings, a notorious for-profit management company that has been accused, among other abuses, of enrolling new students despite being stripped of its federal accreditation — a stamp of approval signaling schools meet minimum education standards — and even withholding this information from existing students for months.
Porreca found herself with a worthless degree and a mountain of debt. Representatives from her school had urged her to supplement her federal loans with private ones through Tuition Options, a financing company that watchdog groups have claimed preys on students attending for-profit schools. If Porreca enrolled in college hopeful that she would improve her chances in the job market, she left feeling like she had wasted her money.
“Photography was my passion,” said Porreca. “That's what I wanted to do with my life, and to hear that the school I went to just kind of screwed me over — I really felt lost.”
For-profit colleges like the Illinois Institute of Art are part of a web of players and practices that victimize students, according to a new report from the Student Borrower Protection Center. The students hardest-hit by these manipulations are those from low-income and historically marginalized backgrounds who are trying to improve their lives. But the degrees they receive — often for professions like nursing assistant, truck driver, or cosmetologist that typically pay wages too low to match the high tuition costs — make their college debt nearly impossible to repay, a reality about which such institutions are routinely dishonest.
To hear that the school I went to just kind of screwed me over — I really felt lost.Stephanie Porreca Illinois Institute of Art student
Federal and state oversight bodies have failed to adequately regulate these behaviors, said Kelly McManus, Director of Higher Education at Arnold Ventures. “This vast web of predatory behavior is stealing money and opportunity from historically marginalized groups of students, and we as a public are just letting it happen,” McManus explained. “We have made the active policy choice that this is okay, and to me that’s deeply wrong and offensive.”
In recent years, watchdogs were hopeful the federal government was taking a stronger stand to protect students from predatory institutions and against insurmountable debt. Today, that hope has dissipated as protections have been rolled back, and student debt is surging at for-profit colleges: A recent report shows a 7 percent increase in the dollar value of new federal loans issued to students of for-profit schools during the 2019 to 2020 academic year, meaning more financial burden for more students at low-value schools.
In the face of the economic downturn that has accompanied COVID-19, addressing the issue of crippling student debt is urgent. McManus and other experts expect that, as during the last recession, people will look to improve their employment prospects in an uncertain market by enrolling in school — opening up even more people in vulnerable positions to being preyed on by predatory colleges, and increasing student debt.
For-profit institutions don’t perpetrate predatory behavior on their own. What makes these institutions into “misery factories,” said Seth Frotman, Executive Director at SBPC, is a grim ecosystem of shady entities involved in parting students from their money. These include deceptive lead generators, “shadow” student lenders like Tuition Options, and unscrupulous debt collectors.
In addition to well-known frauds like ITT Technical Institute and Corinthian Colleges, thousands of smaller for-profit institutions also engage in these practices. They pay lead generators large sums to recruit new and prospective students using deception and illegal practices. For example, websites that purport to help veterans match with fitting colleges in fact push them toward low-quality for-profit schools that pay for placement.
During the Great Recession, recruiters ramped up such efforts, and they are poised to do the same today, said Clare McCann, Deputy Director for Federal Higher Education Policy at the think tank New America: “The ways in which for-profit colleges tried to increase their enrollment was largely through aggressive and misleading recruiting practices that resulted in some of the biggest catastrophes of higher education in the last few years.”
'Shadow' Student Debt
What the SBPC calls “shadow” student debt is a related problem. Even with federal financial aid and Pell grants, low-income students may still require additional financing to cover the tuition of a for-profit program. Some institutions have formed private loan programs or partnerships with non-bank finance agencies, aggressively pushing those products to students. These loans typically carry astronomical interest rates and are accompanied by egregious debt collection and servicing practices, like withholding transcripts or credits, that punish borrowers for nonpayment.
“There are loans being made to borrowers that might not even legally classify as a student loan,” said Frotman. “They're ruining the financial lives of potentially millions of people, and it's just kind of operating in the shadows.”
Unsurprisingly, many students default on these loans. Because for-profit schools’ high “cohort default rate” threatens their ability to access federal student loans, another common practice is to hire special contractors that push students into forbearance in order to manipulate this rate and keep the federal dollars flowing.
These and other dishonest behaviors form a suffocating system that harms students who pursued a college education in good faith — and gives them little recourse when they discover they have been deceived.
Underwhelmed by Federal Oversight
Experts agreed these abuses could be addressed through increased federal oversight and regulation, although both states and accreditors also bear responsibility. “The number one contributor to this problem is the federal government,” said Robert Shireman, a Senior Fellow at the Century Foundation.
In recent years, the federal government has taken some measures to rein in the excesses of for-profit colleges. In 2014, the Obama-era Department of Education adopted the Gainful Employment Rule, which mandated that programs’ typical graduates must earn enough to afford to repay their loans or those programs would lose access to federal financial aid. Over 350,000 students have completed programs at schools that failed to meet these guidelines, representing nearly $7.5 billion in student debt.
The Gainful Employment Rule was effective. “The mere threat of accountability was enough to make some movements in how institutions set up their programs and what kind of value they provided to their students,” explained McCann. These movements reduced the amount of student aid wasted at low-quality programs and made colleges less likely to close, as many programs acted quickly to comply with regulations. But in 2019, the Trump administration repealed the rule under pressure from industry lobbyists.
Another line of federal recourse is “borrower defense,” a law that allows students to seek loan discharge if their loans were made to an institution that misrepresented the value it provides. A major exercise of that authority arrived in 2018, when a court ruled that the Department of Education under Betsy DeVos must fully cancel debt held by students who attended Corinthian Colleges. Since then, over 200,000 students have made similar claims, including against other institutions. Today, however, DeVos has stalled on processing these claims, leaving the great majority of students with no resolution.
In general, federal actors, state representatives, and accreditors have kicked responsibility for oversight back and and forth without holding institutions seriously accountable. “It's been a game of regulatory ping pong for the last few years, as the Trump administration has rolled back what protections were put in place through regulation,” said McCann.
Given this reality, experts recommend a range of policy protections for student borrowers. With the current federal administration committed to relaxing student protections, many accountability measures fall to the states.
SBPC has fought for states to use the existing powers of banking regulators and attorneys general in addressing the predation of the for-profit college system. The organization has worked with consumer groups, grassroots organizers, elected officials, and law enforcement to pass legislation in California, Washington, and Louisiana that cracks down on harmful behaviors like abusive collection practices and default rate services. “We’re trying to create a roadmap to demonstrate that people in state houses could make a difference, even just by using the authorities they currently have,” said Frotman.
These are vulnerable students who don't have the resources for do-overs. They are really trying to fulfill the promises that this country is supposed to provide — that if you work hard, if you get a good education, then you will have opportunity.Eric Rothschild Litigation Director at Student Defense
Meanwhile, litigators at the National Student Legal Defense Network, a nonprofit that uses litigation and advocacy to advance students’ rights, defend class-action lawsuits against predatory institutions. They have, for example, successfully filed an injunction calling for Tuition Options to stop collections from students who had been defrauded by their schools, and in some cases won tuition refunds for students. They also address large-scale Department of Education regulation changes and have mounted a challenge to DeVos’s rollback of the Gainful Employment Rule.
“These are vulnerable students who don't have the resources for do-overs,” said Eric Rothschild, Litigation Director at Student Defense. “They are really trying to fulfill the promises that this country is supposed to provide — that if you work hard, if you get a good education, then you will have opportunity.”
For Porreca, one among thousands of those students, seeking justice has meant joining class-action lawsuits that Student Defense brought against the federal government and Dream Center. The suit against the government resulted in the cancellation of students’ federal loans for the period after the school lost accreditation; the suit against the Dream Center is still active. “It’s been a huge relief to know that they're helping me, helping everyone get justice,” said Porreca.
She is now considering returning to school, this time for a program that will more surely prepare her for the job market. But she’s wary. Her impressions underscore the importance of oversight that will build students’ confidence in the higher education system. “Thinking about going back to school for anything kind of scares me,” she said. “I just don't want the same thing to happen again.”