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For-Profit School Accountability

For years, the Trump Administration has sought to undermine higher education by coddling the very same predatory for-profit schools that spent the last decade ripping of students at every turn. After stacking her senior staff with for-profit industry executives, Betsy DeVos rolled back a series of federal protections designed to help defrauded student loan borrowers. Now, millions of borrowers have been left with nowhere to turn.

States have the power to fight back against the abuses perpetrated by for-profit colleges. States can use their long-standing authorities to protect their residents from being swindled by this multi-billion dollar industry. Read below to see all of the ways states are holding the for-profit school industry accountable.

Banning mandatory arbitration when students are defrauded

For-profit schools are notorious for engaging in fraudulent and deceptive tactics to entice students to enroll—often targeting vulnerable populations and charging more than double the cost of these schools’ nonprofit counterparts. To add insult to injury, for-profit schools use intimidation and scare tactics to pressure students into taking out high cost loans for poorly designed programs that too often fail to pay off for students.

After being saddled with worthless degrees and tens of thousands of dollars in debt, students often seek justice and accountability for these predatory schools, only to find that the courthouse doors are slammed shut. Why? Because buried deep within the fine print of the contracts are mandatory arbitration clauses that force students to sign away their legal rights.

This needs to end.

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States across the country are stepping up to protect their students and limited state resources from flowing to schools using aggressive and opaque forced arbitration clauses. From New York to Connecticut to New Jersey to Colorado, there is a movement to increase transparency around arbitration proceedings and limiting the enforcement of these clauses for schools receiving state funding.

States can balance the scales and provide increased transparency of arbitration proceedings to help consumers navigate the marketplace. By prohibiting the enforcement of mandatory arbitration clauses in college enrollment agreements, state can ensure students are not prevented disclosing the terms of the enrollment agreement, not required to submit to arbitration proceeding before taking legal action against the school; and not threatened or discriminated against when they do not consent to arbitration or other internal dispute resolution processes.


Prohibiting transcript withholding

One of the most harmful debt collection tactics is “transcript withholding,” where a school refuses to allow a student access to their transcript or diploma because of an outstanding debt to the school, often called an “account receivable.” Withholding a student’s transcript creates a dangerous Catch-22 for millions of borrowers—because the borrower lacks the cash needed to pay their debt, the school renders the student unable to reenroll, transfer schools, or otherwise obtain a higher paying job. And while millions of borrowers are caught in the trap of transcript withholding, this collection tactic is disproportionately favored by for-profit schools.

Transcript withholding hinders individual access to higher education and gives schools an unusual and unnecessary debt collection tool. It also hinders economic growth by holding ransom the educational achievements of these Americans.

This needs to end.

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Research shows that 36 million Americans—nearly 11 percent of the entire U.S. population—have attended some college but did not leave school with a completed degree or certificate. These so-called “non-completers” are particularly vulnerable to this type of debt collection. As one researcher notes, “a withheld transcript puts a student in a Catch-22. She may need the transcript to complete her degree to get a higher paying job. But without the higher paying job, she cannot get the extra income to pay off her debt and have her transcript released.” Prohibitions on transcript withholding would ensure that students are not handcuffed in pursuing educational and career opportunities by the practices of certain schools and colleges.

Transcript withholding is a harmful practice that disproportionately impacts borrowers of color and for-profit school attendees. Moreover, there is no indication that the tactic actually drives revenue collection.

  • In one study of university account debts in Ohio, public records found almost 400,000 open university accounts at public schools in Ohio—enough for one in every 30 Ohioans. The state collected only 7 cents on the dollar in its open university account portfolio each year.
  • Data shows that the successful collection rate for public colleges that withhold transcripts is generally low. Instead, schools that have tried debt forgiveness programs to get re-enrollment have seen far bigger returns than when seeking to collect on old debts through transcript withholding.


Protecting borrowers when predatory schools abruptly slam the doors shut

The for-profit college business model is built on a simple concept—drive profits to executives and shareholders while driving the student and school into the ground. When a college or university unexpectedly shuts down, students are often left on the hook with no recourse. These school closures often leave students with mountains of debt and no degree. Schools like Corinthian Colleges, Argosy University, ITT Technical Institute, and The Art Institute all closed down without warning, leaving hundreds of thousands of students saddled with billions of dollars in debt with no clear path forward.

While some borrowers with federal student loans may receive a discharge of their debt if their school closes, many borrowers are still left owing on private student debt. In fact, predatory for-profit schools are notorious for creating institutionally held debt and then partnering with financial companies that continue collecting money long after these schools shut their doors.

This needs to end.

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When a school abruptly closes, students should not be on the hook for the debt they took out to attend. States can ensure that predatory private student loans owned by the closing schools are forgiven unless schools engage in orderly closures that provide students with tangible and affordable opportunities to continue and complete their education.

In 2020, Maryland Attorney General Brian Frosh championed bipartisan legislation to do exactly this—create strong protections for students. This law creates a comprehensive set of requirements to increase accountability for schools and bolster protections for borrowers. Under this law:

  • All schools licensed to operate within the state are required to file a plan for how the school will wind down operations in the event that the school must close;
  • A closing school must arrange for all students to transfer to another institution at which they can complete their same course of study, for the same number of credits, at the same cost; and
  • If students cannot reasonably transfer schools, the school must release borrowers from any institutional debt obligations upon closure.


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