By Tariq Habash and Winston Berkman-Breen | April 11, 2024
In recent years, the landscape of higher education has rapidly evolved, with online programs and alternative credentials gaining popularity both within institutions of higher education and outside of traditional higher ed. However, amidst this evolution lies a darker reality—a reality where students face deceptive practices, financial exploitation, and mounting debt—all without many of the guardrails that exist for students borrowing federal loans to pursue degrees. As this landscape evolves, it is critical that consumer protections and watchdogs evolve with it. A new consumer protection lawsuit in Maine illustrates the risks to students and challenges for the higher education sector, and serves as a call to action for regulators.
Last week, a case was filed in state court in Portland, Maine, that should serve as a warning to schools and a call to action for education and consumer protection regulators. David Bernard, a borrower represented by Pine Tree Legal Assistance, filed a new lawsuit against 2U Inc., the scandal-laden EdTech firm that serves as an Online Program Manager (OPM), and Climb Credit, a specialty private student lender. This lawsuit seeks to enforce Maine state consumer protections that were enacted in recent years specifically to address abuses by predatory student lenders, and also uses state law to address gaps in federal oversight of so-called “non-degree” programs.
Accordingly to his complaint, after searching for a bootcamp to help him break into the coding and tech industry, Mr. Bernard enrolled in a program that appeared to be operated by the University of New Hampshire (UNH), a public state flagship university. But despite being marketed under the well-known and trusted banner of UNH, he came to discover that it was actually operated by an unaccredited online operator 2U Inc., a company that has recently been in the news for allegedly managing high cost programs with poor outcomes at University of Southern California (USC), another well-respected university. Further, Mr. Bernard alleges that it was 2U employees—whom Mr. Bernard then believed to be UNH employees—who directed him to Climb Credit to finance the bootcamp.
Mr. Bernard’s complaint reflects all aspects of the broken student debt system. He claims that he was defrauded by a for-profit education company, which referred him to a lender partner, which in turn mismanaged his payments and charged him fees that were higher than permitted under the loan agreement. When Mr. Bernard sought assistance with his loan, the complaint explains that he received inconsistent and conflicting information from Climb Credit and its servicer. Unfortunately, this fact pattern is all too common.
In his lawsuit, Mr. Bernard alleges violations of several Maine consumer protection laws, three of which—the Student Loan Bill of Rights, the Private Education Lending law, and the Private Student Loan Registry law—were enacted in recent years specifically to address borrower abuses like those allegedly faced by Mr. Bernard. However, his complaint also highlights a subtle but important shortcoming in existing federal oversight that, if properly administered, should have alerted Mr. Bernard to the private financial interests operating behind the bootcamp. Mr. Bernard uses available state law claims to address this oversight, but private litigation cannot be a complete substitute for federal vigilance.
Preferred Lender Regulations
The federal Higher Education Act ensures that when students enrolled at institutions of higher education need private financing to support their education, schools can recommend private lending options so long as they abide by requirements for “preferred lender” arrangements, which include substantial disclosures, clear information on the school’s website about different preferred options, and the method and criteria for how the lenders participating in these preferred lender arrangements were selected in the interest of borrowers. Students understandably assume schools have their best interests in mind and that any lender to which they are referred has been vetted. The preferred lender requirements are meant, in part, to shed light on these otherwise private arrangements.
Mr. Bernard, however, was not given the opportunity to assess the relationship between 2U’s bootcamp and Climb Credit: neither UNH nor 2U seem to have disclosed any preferred lender arrangement. The fact that the bootcamp was not accredited and that Mr. Bernard did not receive a federal student loan to attend are immaterial; UNH is a “covered institution” for the purpose of the regulations, and 2U is therefore an “institution-affiliated organization” based on its role operating UNH’s bootcamp and referring students like Mr. Bernard to lenders. Either company should have disclosed the preferred lender arrangement with Climb Credit, and the fact that neither did raises serious concerns about what other violations are taking place without oversight or accountability. The Higher Education Act can’t be enforced by private citizens, but Mr. Bernard’s lawsuit alleged that failure to disclose a preferred lender arrangement was deceptive in violation of Maine law, in addition to claims for the other unfair and deceptive practices that he experienced. The SBPC has written separately about concerns over 2U specifically, but this is bigger than just one company. Mr. Bernard’s case should serve as a canary in a coal mine for federal regulators that their oversight is lacking. The Department of Education and the Consumer Financial Protection Bureau must step in to enforce violations of federal laws, and must understand that violations of seemingly simple disclosure requirements, like those for preferred lender arrangements, can indicate much more nefarious consumer abuses, like those detailed in Mr. Bernard’s complaint. Especially as OPM-backed programs continue to proliferate, clarifying the applicability of existing protections to these private companies is critical.
###
Winston Berkman-Breen is the Legal Director at the Student Borrower Protection Center. Prior to joining the SBPC, Winston was the Director of Consumer Advocacy and Student Loan Advocate at the New York State Department of Financial Services.
Tariq Habash is a senior fellow at the Student Borrower Protection Center. He rejoined SBPC after spending more than three years as a policy advisor at the U.S. Department of Education working on higher education issues. Prior to his government service, Tariq co-founded SBPC and worked as an analyst at the Century Foundation.