The Trump administration has weakened oversight of for-profit colleges and student loan companies so much that states say they’ve been forced to become watchdogs. And they’re running with the role.
Last month, the interim director of the Consumer Financial Protection Bureau, Mick Mulvaney, demoted the agency’s student loan office, which has historically probed and filed lawsuits against companies in the education and student loan industry. Meanwhile, the Department of Education has reduced the scope and staff of a unit investigating abuses by for-profit colleges.
Now, efforts by state leaders that began during the Obama administration to investigate and sometimes sanction these companies have taken on new urgency. State law enforcement officials view their role as both defending students and taxpayers from predatory practices and acting as a foil to Trump administration officials who they say want to roll back the progress that’s been made protecting students.
“When the Department of Education is turning a blind eye, enforcement is left to the states in this environment,” said Aaron Ament, the president of the National Student Legal Defense Network, which represents students who have attended for-profit colleges. “States are the only check on some of these predatory colleges that are promising false hopes to students while saddling them with thousands of dollars in debt,” added Ament, who was the chief of staff in the Department’s office of the general counsel during the Obama era.
The Department of Education didn’t respond to a request for comment.
California is suing for-profit schools and the Dept. of Education
In California, which has been ground zero for both the predatory practices faced by students and efforts to fight them, the state’s attorney general, Xavier Becerra has been actively pursuing litigation against for-profit colleges and the Department of Education. The state is currently suing Ashford University and its parent company Bridgeport Education over claims the school misrepresented both the costs of the school and career prospects for its graduates. Last month, a judge ruled the case could move forward over the objection of the company.
The state has also signed on to or filed its own lawsuits defending Obama-era rules aimed at holding for-profit colleges accountable for producing good outcomes and making borrowers whole when they don’t. As of December, more than one in four borrower defense claims — or applications for monetary relief from federal student loans in cases of fraud by a school — came from California, according to Becerra’s office.
Last month, a judge temporarily blocked the Department’s plan to offer only partial relief to these borrowers, but a hearing is scheduled next week to determine whether the agency can go forward with the proposal in a different form.
Staff from the Becerra’s office met last week with Office of Management and Budget officials about concerns over the borrower defense rule, which allows students to have federal loans forgiven if they’ve been defrauded by their college.
Some fear an ‘explosion in fraud’
These efforts are particularly important in this political environment, Becerra said, because he worries that for-profit colleges and student loan companies view the Trump administration’s posture towards the industry as an opportunity to prey on students. “The worst thing” that’s happened since DeVos took office, Becerra said is that “the Trump Universities can come back to life and take advantage of these students and their families.”
It’s clear that the federal government’s approach to these companies influences their behavior, said Tom Miller, the attorney general of Iowa. After George W. Bush’s Department of Education and Republicans in Congress weakened rules related to for-profit colleges in the early and mid-2000s, “It was the green light, it said the sky’s the limit,” Miller said.
“From that point on is when we had this huge explosion in fraud,” he said. And indeed, the late 2000s were boom times for for-profit colleges as workers looked to retool during and after the recession.
Under Trump, Miller said his office hasn’t necessarily seen an uptick in nefarious activity, “but that’s a real risk of what’s going on in Washington and we want to play a role in countering that,” he said. That includes continuing to monitor these companies closely for misrepresentation in marketing and other forms of fraud. Miller has also signed onto multi-state lawsuits against DeVos over rollbacks of Obama-era rules aimed at holding for-profit colleges accountable for providing students with poor outcomes.
The decision by Devos’s Department of Education to weaken these regulations is particularly pernicious, said Brian Frosch, Maryland’s attorney general. The gainful employment rule — the implementation of which the Department has delayed and watered down — penalized career colleges or schools that prepare students specifically for a job when too few of their graduates made progress repaying their loans. The borrower defense rule looked to make it easier for borrowers who had been defrauded by their schools to have their loans forgiven.
‘The federal government was supposed to protect these folks’
Frosch said he feels like his job has taken on new urgency in light of those changes.
“It’s the same role, but larger,” he said. “It’s not that we have any more resources, but the federal government was supposed to protect these folks and they’re not only not protecting them, they’re taking away protections that had been in place.”
Since Trump and DeVos took over, Frosch has taken steps to help protect those students, including co-leading the multi-state lawsuit challenging the Department’s actions on the gainful employment rule and backing a campaign to help provide Maryland residents with more information about for-profit colleges before signing up.
State law enforcement officials investigated and enforced the law against for-profit colleges well before the Trump administration took office, but in the absence of aggressive federal regulations, states are “continuing to step up to protect their residents,” said Lisa Stifler, the state policy deputy director at the Center for Responsible Lending.
Massachusetts is doing what it can to rein in student loan servicers...
Those efforts include continuing to pass and defend laws that require student loan servicers to abide by certain rules to operate in their states. That’s despite DeVos issuing a memo earlier this year that said states don’t have the authority to regulate these companies because many of them operate on a contract with the federal government.
Still, Stifler said there’s more she’d like to see state officials do, including withdrawing the ability of for-profit colleges to operate in a state if they’re found to have engaged in misconduct. She also pointed to rules governing for-profit colleges issued by Massachusetts Attorney General Maura Healey as an example of proactive actions states can take to protect their students.
...and taking aim at the student debt problem
Healey’s office has prioritized student debt issues for years, including by regularly filing lawsuits against for-profit colleges and student loan servicers as well as creating a working group of business and community leaders to help address student loan issues in the state. Healey said a big part of her motivation for tackling these issues is that she hears constantly from constituents who are unable to buy homes, take the jobs they want or take other meaningful financial steps because of their student loans.
“The bottom line is that the student debt crisis is having a real impact on our economy and on families across our state and across the country,” she said.
Given that, she said it’s “frustrating” to see DeVos’s Department of Education, “give a pass to these entities.” The administration’s actions give her role an increased importance in this space, Healey said.
“We’ve got to continue to do the job enforcing the laws to protect those from predatory or unfair practices,” she said. “But we also have to work really hard now to deal with the U.S. Department of Education that wants to take us backwards and allow that kind of exploitation and cheating to go forward.”