“The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with tens of billions of loans they now know can be legally discharged.”
That’s what we said last May when disgruntled students from the now defunct Corinthian Colleges began to press the Department of Education for debt relief after the government accused the for-profit institution of using fraudulent recruiting practices.
Long story short, students are entitled to have their debt expunged if they can prove that they’ve been defrauded. When the government forces a school to close its doors, it’s obviously quite difficult to deny students’ claims, which means that if Congress is serious about going after the for-profit college space, they’re effectively setting the stage for a massive taxpayer bailout of the schools’ students.
At issue are claims the schools make about things like graduation rates and job placements. As WSJ wrote last week, “thousands” of students are now “flooding the government” with appeals to have their loans discharged on the grounds they’ve been the victims of fraud.
The problem for the government is that the obscure law which allows students to apply for loan relief is short on specifics. That is, it doesn’t spell out what qualifies as “fraud” which means that while there are some clear-cut cases, there’s also quite a bit of ambiguity - especially when it comes to the for-profits.
“They promised us to get jobs in the field, and most of us ended up at Office Depot,” one former Art Institutes student told the Journal, describing his less than satisfactory experience at the school, where he studied to be a video game designer.
“In short, it's just a matter of time before the ‘thousands’ of appeals flooding the Department of Education turn into tens and hundreds of thousands as recent graduates suddenly discover the harsh realities of America's waiter and bartender economy,” we said.
Well you can add DeVry students to the list of those who will very shortly be sending the Education Department a mountain of discharge requests because the FTC has now accused the school of deceiving prospective students about the employment success of graduates.
“The Federal Trade Commission—one of several federal agencies investigating the for-profit school industry—took aim at DeVry advertisements claiming 90% of its graduates who sought jobs found them in their field of study within six months of graduation,” WSJ reports. “In a suit filed in a California federal court, the FTC is asking a judge to provide monetary remedies to allegedly deceived students, including refunds and restitution.”
Needless to say, shares of DeVry had a rough session:
For its part, the school says the FTC has no legal basis to file the complaint. "DeVry Education Group intends to vigorously contest a complaint filed by the Federal Trade Commission, challenging the employment and earnings outcomes of DeVry University graduates," a statement from the company reads.
But again, someone will end up having to pay these students restitution (i.e. their debt will be expunged one way or the other whether it's through a refund from DeVry or federal debt relief). As a reminder, most students at for-profit schools receive federal aid, which means that if DeVry ends up successfully contesting the idea that it's responsible for refunding students' tuition, the students can just appeal to the government for debt relief. After all, it's not exactly like the Department of Education could refuse after the FTC sued the school for fraud.
But the reall punchline is this, again from WSJ: "[The FTC] accuses the school of including workers in low-paying retail jobs as finding work in their field of study, such as a business administration major working as a restaurant server."
And there you have it America. The "waiter and bartender recovery" is confirmed ... by none other than the US government.