Higher education reform should start with for-profit schools

As the presidential campaign season heats up, Hillary Clinton and Bernie Sanders are talking about debt-free or tuition-free college. Using student debt as an issue to damage Republicans and to energize young voters is a smart strategy. But to make the case for why higher education should be free in the United States, 2016 candidates need look no further than the current crisis in the for-profit college industry. The government’s deep conflicts of interest as both the regulator meant to protect students and the banker profiting off student debt has led to an unmitigated disaster — one that, so far, has stuck students with the bill.

For decades, for-profit colleges have run an outrageously profitable scam: They have devoured more than a quarter of all federal student loan money and used it to lure first-generation college students into career training programs that lead to few, if any, real prospects. These schools often spend more money on marketing than on instruction. As a result, employers laugh at for-profit college degrees. 

Over the past decade, the truth about for-profit college scams has been revealed to the public over and over. These schools have been the subject of investigations on ABC’s “20/20” and PBS’ “Frontline” and of Senate committee reports, whistleblower lawsuits and federal and state law enforcement investigations, not to mention student complaints. And yet the Department of Education (DOE) has largely ignored these alarms and continued to give the schools an implicit seal of approval by allowing federal money to continue to flow in via loans. What’s worse, it has also used its punitive collection tactics — garnishing wages, taxes and disability payments — against students conned by schools the department failed to properly oversee.

It took a revolt of Corinthian College students refusing to pay their loans and the bankruptcy of Corinthian to get the DOE even to concede that it might have to enforce a law called defense to repayment, which allows borrowers to apply to have their debts canceled should a school violate state or federal law. Although Education Secretary Arne Duncan admitted that Corinthian left students in a “worse position than when they started,” his department has announced a bureaucratically tortured process that risks leaving many scammed students without relief. 

The minimum information that students applying for debt cancellation are asked to provide includes citations of which applicable laws were violated and documents such as transcripts, which former students may not be able to obtain from the now bankrupt school. This is essentially asking students to reprove they were harmed, since the DOE already has access to extensive evidence of Corinthian’s fraud through prior department findings and multiple lawsuits and investigations.

Worse still, the person in charge of guiding the debt cancellation process is Joseph A. Smith, who previously oversaw the national mortgage settlement — a settlement thatgave only 10 percent of harmed borrowers the mortgage principal reductions they were promised. He was also criticized for ignoring bad behavior by banks for two of the three years he oversaw the settlement. With each new announcement, it seems clearer that the DOE is doing everything it can to ensure that students do not get the debt cancellation they’re owed.

Given the department’s broad legal authority to automatically wipe out the debts of conned Corinthian students, it’s worth questioning why it is refusing to help the students it failed in the first place.

The most likely answer is the DOE’s conflict of interest. The department is in charge of ensuring that schools receiving federal student loan money don’t violate certain standards. But it’s also in charge of administering a massive portfolio of loans. Sen. Lamar Alexander, the chairman of the Health, Education, Labor and Pensions Committee, described the DOE as both “the banker for students” and “the regulator of their colleges.”

This dual role is very profitable for the department. As a group of senators pointed out in February, the government makes billions off its student loan program. In addition to criticizing these profits, Sen. Elizabeth Warren — the most important noncandidate politician in the upcoming presidential election — has taken even more precise aim at this conflict. She called for complaints about student loan servicers to be moved out of the DOE and into the Consumer Financial Protection Bureau.

But 2016 candidates should ask themselves if we need to go even further and strip the DOE of all oversight of student loan servicers, given its conflicting role as the loan program’s banker. This fundamental conflict of interest prevents incremental tweaks, like those recently floated by the Clinton campaign, from altering the predatory dynamics.

The problems don’t end with the conflict of interest; they extend into regulatory and political capture. For-profits spent gobs of money lobbying to keep their government-funded gravy train running without scrutiny. They litigated to death even feeble attempts to hold them accountable — paying expensive legal teams to convince a federal appeals court to strike down one version of gainful employment rules meant to bring some accountability to the industry and appealing a revised, weaker version until the courts wouldn’t let them anymore. And they were backed by advocates in Congress such as Rep. John Kline, R-Minn., the chairman of the Education and Workforce Committee, and Rep. Virginia Foxx, R-N.C., the chairwoman of the Subcommittee on Higher Education and Workforce Training — both major recipients of for-profit campaign contributions who fought viciously against regulating the industry. The industry has captured not just Republicans: Marc Morial, the president of the National Urban League, was a Corinthian College board member all the way through to its end, and Bill Clinton was an honorary chancellor of the world’s largest for-profit, Laureate University, until his resignation in April — something Hillary Clinton is likely going to need to answer for on the campaign trail.

As a result of this bipartisan support, DOE officials likely have the voices of for-profit interests resonating in the back of their minds. But for-profit colleges aren’t the only private companies that have the department’s ear. Servicers such as Navient and Great Lakes make handy profits off the student debt apparatus as well. The DOE spends more time dealing with companies making profit off student loans than it does with actual students. This explains why the DOE has been consistently outdone by the Department of Justice, the Consumer Financial Protection Bureau and state attorneys general in addressing misconduct that obviously falls under the DOE’s jurisdiction.

For-profit colleges perfectly illustrate why the privatization of public goods doesn’t work. It turns public servants into the guardians of private interests, and students are left behind as collateral damage. Politicians on both sides of the aisle proclaim education as the civil rights issue of our time. If that’s the case, it’s time to move past the model of individual indebtedness, which falls most heavily on poor and minority students, and show we value education for more than just talking points.