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An Education in Fraud

D’ye think th’ colledges has much to do with th’ progress iv th’ wurruld? Asked Mr. Hennessey.

D’ye think,” said Mr. Dooley, “tis the mill that makes th’ wather run?’

Finley Peter Dunne [Mr. Dooley], Colleges and Degrees

Most investors couldn’t have seen it coming, but those in the business were thrilled.   The day after The Trump was given the keys to the best playroom he’d ever had, the stock in Strayer Education, Inc., the company that owns the for-profit Strayer University, jumped almost 20%.  Stock in other for profit universities enjoyed a similar increase.  Investors were prescient. Betsy DeVos was named Secretary of Education.

A fan of school choice, charter schools, and a major supporter of the Republican party, Betsy was a great choice for the position, even though she had no experience in the realm of education, other than her passionate support for the reportedly less than successful charter schools in Michigan.

After Betsy was confirmed by the Senate, she made up for her own lack of knowledge about the world of education by hiring people who had been closely identified with the for-profit college business.  Among them was Julian Schmoke, who was placed in charge of the unit that investigates fraud in higher education. From 2008 to 2012 Mr. Schmoke was associate dean of the College of Engineering and Information Sciences at DeVry University.  That university engaged in assorted fraudulent activities, for which it paid more than $1 million in fines and penalties.

Another Betsy hire was Robert Eitel who, prior to joining the Department, had been at Bridgepoint Education.  That institution was fined $30 million on account of deceptive student lending practices.

According to a report by the Associated Press, Betsy took steps designed to improve the lives of the for-profit colleges, while making it more difficult for defrauded students to be made whole. As she explained, if a former student borrows money from the government to attend a for-profit college that defrauds the student, and the debt is forgiven or reduced, the cost of the forgiveness lands on the backs of the taxpayer. The defrauded students should, she believes, share in bearing some of the pain of having been defrauded.  It should not all land on the backs of the taxpayers since they were not the ones defrauded.  Happily for students, Betsy did not have the last word.

A federal court has  now come to the rescue of the defrauded students and the Department of Education is being forced to help out the students. On December 14, 2018, a federal court ruled that Betsy’s efforts to force students who had been defrauded by for-profit colleges to bear some of the burden of paying the debt they had been induced to incur, were invalid.  The court said the Department of Education had to bear that burden, and not the student.  On December 13, 2017, the Department of Education announced that it would cancel $150 million in student loan debt for some 15,000 students who had been defrauded by the institutions they attended. Reportedly, half of the borrowers had attended Corinthian Colleges.  Corinthian went bankrupt in 2015.

Commenting on the court order, Sen. Pat Murray (D-Wash.) said it was: “disappointing that it took a court order to get Secretary DeVos to begin providing debt relief to students left in the lurch by predatory for profit colleges. . . .”  The December ruling was not the end of the good news for student borrowers.

On January 3, 2019, 49 state attorneys general announced that almost 180,000 students who had attended the for-profit college, Career Education, would not be required to repay $494 million in outstanding student debt.  The settlement was the result of a five-year probe of Career Education by the attorneys general.  That institution allegedly engaged in deceptive recruiting tactics in order to attract students.  According to a report in the New York Times, among other things, students were charged for vocational programs that did not have the proper accreditation for students to obtain licenses to work in their fields of study. The loans that were forgiven were not federal loans.  They were amounts owed to Career Education and, according to reports, Career Education had already written most of them off.  That settlement does not relieve students of any federal debt they may have incurred in order to attend Career Education.  Students will have to apply to the Education Department for forgiveness of federal loans.

Career Education expressed satisfaction at the conclusion of the litigation. Two other people who were probably delighted with the end of the litigation were Carlos Muñoz and Diane Auer Jones.

Shortly after taking office, Betsy appointed Carlos to serve as the General Counsel for the Department of Education. Before Betsy appointed him, he had provided consulting services to Career Education Corporation. Only he knows whether he was aware of the practices that caused his former client to forgive $494 million in student debt.

Diane was hired as a senior adviser to the Department of Education on post-secondary education.  Before that, she spent five years as a senior vice-president at Career Education. Only she knows if she was aware of the practices that caused her former employer to forgive almost $500 million in student debt. Not that anyone in the Trump swamp would care.

 

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