Obama’s Missed Chance to Help For-Profit College Students

Student debt, which now totals more than $1.3 trillion, is a debilitating hardship for millions of students and families. While presidential candidates will surely debate the issue all summer long, many people may not realize that a key battle over how and when student loans can be legally canceled is already underway.

On Monday, the Department of Education released a proposed rule providing a pathway to debt cancellation for students who were defrauded by a for-profit college. Unfortunately, the proposal, which is not yet final, will make it difficult for student debtors to get relief, even when the law is on the side of students.

Student loans are especially burdensome for for-profit college students, a disproportionate number of whom come from low-income backgrounds and are the first in their families to attend college. For-profit schools lure students with a high-pressure sales pitch to get them to enroll in sham degree programs. Then they load them up with debts they can never repay. For-profit schools enroll only 10 percent of all students but account for 40 percent of defaults.

Students from for-profit colleges have been leading a campaign for debt relief for well over a year using a rarely used law called Defense to Repayment which requires the Department of Education to cancel loans held by students who were defrauded by their school.

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CUNY On The Brink

Today the New York Times published a startling (if you haven’t been inside a CUNY campus lately) exposé on the shameful financial state of the City University of New York. Reporter David Chen describes an institution with a “proud legacy” in severe decline. Thanks to state budget cuts, tuition has risen 33% since 2008 and campuses are falling apart. Writing about City College, Chen tells of “leaking ceilings [that] have turned hallways into obstacle courses of buckets. The bathrooms sometimes run out of toilet paper.”

I am familiar with such conditions. As an adjunct at Hunter College, I and dozens of other part-time teachers toiled in dirty, overcrowded offices with mice droppings scattered around.

Crumbling buildings are not the only sign of a university on the brink. The NYT also reported that courses have been cancelled due to lack of funds. One campus library received a book budget of only $13,000 for the entire year, down from $60,000 ten years before.

While reports about what austerity has wrought at CUNY are usually welcome, the NYT piece promotes a mythology about higher education that requires some correction.

Chen laments the neglect of a storied institution because he worries that an atrophied CUNY can no longer be the democratizing force that it once was. “Even as the role of higher education as an engine of economic mobility has become increasingly vital,” he explains, “governments have been pulling back their support.”

One hears these sorts of claims all the time about higher education as an engine of mobility. In polite company, it is practically a criminal offense to question the assertion that college is the tide that can lift all enrollees to the middle class, or better. After the Great Recession, politicians and policy makers of every stripe insisted that the solution to our economic woes was more education (preferably the kind geared narrowly to the needs of employers).

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Against ‘Gainful Employment’

Last month, a unanimous Appeals Court ruling strongly affirmed the federal government’s ‘gainful employment’ regulation which requires “career colleges” (including for-profit schools and certificate programs in some non-profit institutions) to show they are preparing students to find good jobs. The Department will now require such schools to demonstrate that their graduates’ loans do not exceed 20% of disposable income – or 8% of total earnings – to be eligible for federal student loan money.

As an Obama administration initiative, the ruling was celebrated as a victory by democrat policymakers and by critics of the for-profit college industry. I’m writing this to offer a dissenting view. I think ‘gainful employment’ is a step in the wrong direction. In reality, GE has little to nothing to offer first-generation collegians and low-income students who seek credentials for higher-status careers and better lives. In fact, the new rules are based in an elitist policy framework in which schools that serve mostly non-traditional students are further inscribed in law and custom as solely utilitarian job training venues that require oversight according to narrow accountability measures whereas institutions that serve wealthier students are tacitly recognized as primarily providing outcomes that can’t and shouldn’t be quantified.

It’s one thing to acknowledge stratification in higher education and to recognize that our society funnels low-income students into lower-status colleges and lower-paying jobs. It’s quite another, though, to celebrate policies that further entrench the divide between the haves and the have-nots. The divide is not only occupational; it is intellectual and cultural. Working-class folks are expected to develop productive skills, while elites are expected to learn habits of mind and ways of seeing and being in the world. The ‘gainful employment’ rule accepts this divide as a given and promotes the notion that the goal of education for working-class people is a job that allows them to make regular loan payments, a paltry outcome that elite parents would never accept for their children.

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The Special Master Feels Your Pain: For-profit College Students Demand Debt Cancellation in D.C.


It is a rare occasion when policy elites sit across the table from those whose lives are affected by their decisions. Last week, I participated in just such an event when I accompanied a group of student debt strikers and defrauded former for-profit college students to a meeting in Washington D.C. with a man who has the power to cancel their loans and alleviate their suffering.

Joseph A. Smith is the “Borrower Defense Special Master” (yes, the acronym is BDSM) for the U.S. Department of Education. Formerly the federal monitor for the National Mortgage Settlement (a program that was criticized for severely limiting the number of homeowners who actually received promised relief), Smith was appointed BDSM in June after 200 hundred former for-profit students went on strike and thousands more disputed their loans through a little-known provision in the Higher Education Act called “Defense to Repayment.”

Most of the students had attended Corinthian, which enrolled hundreds of thousands of people over the years. It promised them high-paying jobs and brand-new lives and delivered little more than dashed dreams and a lifetime of unpayable debt. After raking in billions in taxpayer dollars and delivering windfall profits to wealthy investors for almost two decades, the company declared bankruptcy last year. Students, however, are stuck with their debt.

The meeting between defrauded borrowers and Smith was an unusual occasion inside the halls of power. The Department of Education is the federal agency that regulates colleges and universities. The Secretary is a cabinet-level appointee and, with 5,000 employees and a budget of around $70 billion, the Department is charged with ensuring that students receive an education worthy of the name. The agency’s dereliction of duty began years ago. During the same decade when President Bill Clinton was ramping up efforts to deregulate the financial industry as a whole, Congress authorized for-profit colleges to generate up to 90% of their revenue from federal student loans. For the last 25 years, the Department has funneled billions into hundreds of schools set up with the explicit goal of providing big profits to financial firms like Goldman Sachs (a former owner of for-profit operator, EDMC) and Wells Fargo (the largest investor in Corinthian).

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Obama Should Cancel Defrauded Students’ Debts Already

Throughout the primary, the leading candidates for the Democratic Party’s nomination have promised to take action on the $1.3 trillion student debt crisis. These calls have been echoed by President Barack Obama himself, who declared in his final State of the Union address that “no hardworking student should be stuck in the red” and called on Congress to make college more affordable.

He’s right that student debt is a debilitating burden for millions of students and their families. But Obama also has the unilateral authority to help those students now by canceling the student loans of those who attended predatory for-profit colleges. He just has to use it.

On February 17, members of the Obama administration, a representative of the for-profit college industry and borrower advocates are scheduled to gather for three days of high-stakes talks about whether defrauded students are eligible for debt relief. This process has been unnecessarily delayed for months, hurting students along the way. Now it is time for the White House to prove that it seriously wants to address the student debt crisis.

Read the rest of this editorial in Politico.

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