By Ted Mermin and Seth Frotman | March 10, 2021
For decades, the for-profit college industry has systematically preyed on and taken advantage of student loan borrowers. A seemingly endless line of lawsuits and narratives of ruined financial lives point to an industry too often premised on outright fraud, pushing loans designed to fail, and peddling worthless degrees—but which regularly generates windfall profits for private investors on Wall Street. These companies target historically marginalized communities and people of color, loading students with massive debt burdens that the schools often know could not possibly ever be repaid. And until January 2021, these schools had zealous defenders at the highest levels of the American government.
Now, as the Biden administration takes the reins, it is time for the Consumer Financial Protection Bureau to wield the full range of tools at its disposal to combat the rampant illegal practices that the for-profit college industry relies on. An issue brief published today by the Student Borrower Protection Center and the Center for Consumer Law & Economic Justice at the UC Berkeley School of Law makes clear that the CFPB, America’s top consumer watchdog, already has the power to hold for-profit colleges accountable for many of their worst practices and to protect borrowers from abuse.
A cornerstone of for-profit schools’ business model is to encourage students to borrow as much as possible to finance their college attendance. Schools can take the balance of those loans as revenue today regardless of whether students have any hope of being able to pay them back down the line. In particular, after drawing people in with misleading advertisements, for-profit colleges quickly hand prospective students off to financial aid officers who rush students through the process of explaining the financial aid system—if they explain it at all. These employees drive students to take on massive federal and private debt loads, including loans that the school itself originates. They will sometimes fill out or even fraudulently sign forms on students’ behalf, all the while insisting that they are working in the students’ interest. Each of these tactics has one goal: boosting schools’ revenues by inflating students’ debt balances, regardless of how unmanageable those loans are likely to be for borrowers.
As the issue brief published today makes clear, each of these areas of conduct place for-profit colleges squarely within the authority of the CFPB. The CFPB’s authorizing statute states that anyone providing a consumer financial product or service is a “covered person” and therefore falls under the Bureau’s purview, including with respect to the prohibition on unfair, deceptive, and abusive acts and practices. As the issue brief outlines, each one of the common features of the for-profit college business model described above is alone sufficient to make a for-profit college a “covered person”, including the practices of lending to students through institutional loan programs, brokering student loans through third parties, and providing students financial advisory services in the financial aid process (regardless of the quality of the advice). And that means the Bureau can intervene to protect borrowers.
For too long, the for-profit college sector has turned borrowers’ suffering into a multi-billion-dollar industry, leaving individuals’ financial lives shattered and entire communities scarred. Now, with these institutions jumping to capitalize on the COVID-19 crisis, the need for the CFPB to end this cycle of abuse has never been more urgent. The CFPB has the tools to rein in the for-profit college industry on behalf of the millions of borrowers who have been—and who, in the absence of action, certainly will be—harmed by for-profit colleges. It’s time for the Bureau to use them.
Read the issue brief: For-Profit Schools as Covered Persons under the CFPA
Read more about the SBPC’s Work to Protect Borrowers from Predatory For-Profit Colleges: Combating Exploitative Education: Holding For-Profit Schools Accountable for Civil Rights Violations
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Ted Mermin is the Executive Director of the Center for Consumer Law and Economic Justice at the UC Berkeley law school. For the past two decades he has been involved in efforts to prevent abuses by for-profit colleges and to help students who have been harmed by predatory schools.
Seth Frotman is the Executive Director of the Student Borrower Protection Center. He previously served as Assistant Director and Student Loan Ombudsman at the Consumer Financial Protection Bureau, where he led a government-wide effort to crack down on abuses by the student loan industry and protect borrowers.