For-profit colleges need greater oversight to protect students from financial harm

By Features Consumer Reports

TV and Web ads promoting for-profit colleges paint a rosy picture of higher education and good jobs. But some of these schools might not be delivering the training or the job placements they tout in an effort to attract students.

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To make matters worse, some schools are accused of luring students into predatory loans to cover high-priced tuitions, leaving students with little more than a pile of debt.

Take the case of Corinthian Colleges Inc., a for-profit college chain with more than 100 campuses across the country. The publicly traded company operates schools under the names Everest, Heald, and WyoTech. Many of Corinthian’s 65,000 students are economically disadvantaged and often are the first in their families to pursue education past high school. Corinthian Colleges students receive $1.4 billion in federal financial aid annually, according to the U.S. Department of Education.

Last month, the Consumer Financial Protection Bureau filed a lawsuit against Corinthian Colleges, alleging it misled students into taking out unaffordable loans by lying about future job prospects, and then used illegal and abusive debt-collection tactics to press students to pay up.

Some of the allegations against the schools are jaw dropping. The CFPB said Corinthian played up its success in job placements, leading students to believe they were likely to land good jobs to pay off the private loans extended by Corinthian. But the CFPB said Corinthian inflated its job-placement rates by making up names of phony companies in which it said students had been placed, while it paid real employers to hire students only temporarily to boost its numbers. If a student got a job that lasted one day with the promise of a second day, Corinthian counted that as a “career,” the bureau said.

Tuition and fees for some Corinthian programs were estimated to be more than five times the cost of similar programs at public colleges, and the interest rate on some loans for Corinthian students was twice as high as the rate in federal loans. What’s more, while a typical student loan is not required to be paid until after graduation, loans at Corinthian had to be paid every month while students were still in school. The CFPB said the company would actually pull students out of class to shame them into making payments, and employees allegedly got bonuses based in part on their success in getting students to pay up.

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Corinthian has said it “strongly disputes the allegations” in the CFPB’s lawsuit, which it said “mischaracterizes both the purposes and practices of its students loans program.”

Last summer, the U.S. Department of Education stepped up its oversight of Corinthian and delayed the company’s access to federal student-aid dollars. Corinthian is scaling down its operations as part of an agreement with the Department of Education, but as of last month, Corinthian was still enrolling students in classes, according to the CFPB.

At Consumers Union, the policy and advocacy arm of Consumer Reports, we strenuously support tougher standards and enforcement to ensure that for-profit colleges provide the training and career services they promise rather than just focus on aggressive marketing, recruiting, and boosting their profit margins.

Taxpayers invest billions in federal aid for students to attend these schools, and we need tighter rules to ensure that this aid goes only to programs that effectively prepare students for gainful employment. That’s why we’re pushing for bills in Congress and other reforms to help clean up the for-profit-college industry.

The Federal Communications Commission voted on Sept. 30 to drop its long-standing rule on sports TV blackouts. The NFL and other sports leagues have deals with local TV stations to not air home games if the stadiums don’t sell out. In the 1970s, the FCC said, if games are blacked out on local stations, cable and satellite providers can’t air them locally either. Last year, the FCC said it would consider getting rid of the rule, pointing out that the economics of pro sports had changed dramatically since the days when teams got most of their revenue from ticket sales. The NFL lobbied hard to preserve the rule, but the FCC voted unanimously to dump it. Leagues will still have room to negotiate blackouts, but lawmakers and groups such as Consumers Union will keep up the pressure to curb these outdated policies, which we believe are anti-consumer and anti-fan.

This feature is part of a regular series by Consumers Union, the policy and advocacy arm of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.

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