The federal government is continuing to allow schools accused of defrauding students access to federal financial aid funds, putting students at risk of accumulating debt for degrees with little value in the labor market and taxpayers shouldering the bill.
That’s one conclusion of a report released Monday by the National Student Legal Defense Network, a litigation and advocacy group founded by Obama-era members of the Department of Education’s office of general counsel.
The report focuses in part on program participation agreements, or the contracts with the Department schools sign to be able to draw down student loans and Pell grants — the money the federal government provides to low-income college students — on behalf of their students. The organization found that the Department renewed the program participation agreements of multiple schools facing scrutiny from state attorneys general, their accreditors or the Department itself. These contracts allow the schools to keep tapping financial aid funds into 2024.
The findings come as the Biden administration’s broad-based debt forgiveness plan is mired in litigation. They also follow several efforts by officials to cancel billions of dollars in debt for students who attended for-profit colleges that defrauded them. As part of these announcements, officials have vowed to increase accountability on unscrupulous schools, but the report noted that in addition to allowing schools facing scrutiny to access federal financial aid funds, the Office of Federal Student Aid hasn’t pursued an enforcement action against a school since the Biden administration took office.
“Can you imagine if the Securities and Exchange Commission just didn’t bring an enforcement action for two years?” said Aaron Ament, the president of NSLDN. “It’s almost unheard of — just allowing these institutions to continue operating and giving them new participation agreements while saying that there’s evidence of misconduct.”
Clearing out a backlog
The Department of Education has announced steps to increase oversight over colleges that pose a risk to students and taxpayers, including by reestablishing the Office of Federal Student Aid’s enforcement unit, which investigates colleges and imposes fines and other actions against schools found to have engaged in misconduct. The office was essentially disbanded during the Trump administration.
In addition, the agency denied recertification, revoked provisional program participation agreements or ended participation for about 20 schools and imposed fines of $2.6 million, according to a Department of Education spokesperson. In March, the Department said that in some cases it would require more parties with ownership ties to or control over an institution to sign its PPA. FSA also issued a bulletin this month soliciting tips about potential violations of the Higher Education Act.
“The U.S. Department of Education is committed to holding schools accountable for serving students’ best interests,” the spokesperson wrote in an email.
Officials from the Office of Federal Student Aid have also said that one of the office’s strategic goals for the next five years is to strengthen accountability for institutions participating in the student loan program. FSA plans to do this in part by working with other agencies, including the Consumer Financial Protection Bureau and the Federal Trade Commission.
“FSA is committed to strengthening oversight and taking appropriate actions against entities to protect the interests of students, families, and taxpayers from harmful practices,” officials wrote in a draft strategic plan.
Ament, who served as chief of staff in the Department of Education’s Office of General Counsel during the Obama administration, praised the Department’s efforts to discharge the debt of students who attended schools accused of wrongdoing. “They’re clearing out a backlog,” he said.
Since the Biden administration took office, officials have been more eager than past administrations to discharge the debt of students who have been wronged by their schools in large batches. In these situations, the wiping away of this debt has been based on widespread evidence of fraud and not contingent on students who attended the schools raising their hands for relief individually. In at least one case, the agency also said it would attempt to hold the school liable for the funds discharged on behalf of students who attended.
But without more robust efforts to protect current and future students on the front end from taking on debt to enroll at for-profit colleges believed to be misleading students, “it’s a real dangerous cycle,” Ament said. “Yes, we discharged billions, but bilions more are going to the same schools.”
School facing scrutiny continues to access federal financial aid
The Department’s approach to the Lincoln College of Technology, a chain of schools owned by the publicly traded Lincoln Educational Services Corporation
is indicative of this dynamic, the report notes.
At the end of 2021, the Consumer Financial Protection Bureau sent a letter to Lincoln Tech, which is based in New Jersey, requesting information related to how the school extended credit to its students, according to the report. The CFPB has said it’s scrutinizing more closely the loans that schools, particularly for-profit colleges, extend to their students. As part of that effort, the Bureau has said it’s taking a closer look at practices like withholding transcripts or restricting enrollment that are sometimes associated with these loans.
Also that year, the Department of Education asked Lincoln to provide a letter of credit to the Department, essentially a document indicating that the school could guarantee the liabilities the agency would incur if it closed suddenly, like discharging the debt of students who attended the school at the time it shut down, according to the report. The letter came after the Department notified the school that some of its locations had failed to comply with requirements surrounding refunds, according to securities filings. Earlier this year, the Massachusetts’ attorney general’s office said it was investigating possible misconduct at Lincoln Tech related to fee refunds and disclosures to potential students.
The Department of Education also sent a letter to the school this year regarding a request filed by former Lincoln students in Massachusetts to have their federal debt discharged. By law, student loan borrowers can have their debt canceled through a process called borrower defense if there’s evidence their school defrauded them. In securities filings, Lincoln officials said they were contesting the application, but that if the Department disagreed with their “legal and factual grounds” for protesting it, the agency “may impose liabilities on the Company based on the discharge of the loans at issue in the pending application.”
A couple of weeks after the Department sent this letter, it renewed Lincoln Tech’s program participation agreement, according to the NSLDN report, allowing the school to draw down federal financial aid funds through the end of 2024.
Lincoln Tech didn’t immediately respond to a request for comment.
A quicker way to protect students
The report cites other examples of for-profit schools who have had their program participation agreements renewed while facing scrutiny from their accreditors or state attorneys general. In addition, as part of a class action lawsuit that the Department recently settled — and which is slated to provide at least $6 billion in relief to 200,000 borrowers who say they were scammed by their schools — the agency has determined students who attended the five schools highlighted in the report, including Lincoln Tech, are eligible to have their debt canceled because of the schools’ past conduct. The Department renewed these schools’ program participation agreements in the late summer and early fall and they don’t expire until some time in 2024, according to the report.
In the past, the government has used program participation agreements to protect students, Ament said. He cited the example of ITT Tech, an Indiana-based for-profit college chain. In 2016, the Department said it wouldn’t renew the company’s PPA unless it could increase the letter of credit it had already posted, amid allegations of wrongdoing from its accreditor. The company couldn’t post that amount and so it stopped participating in the federal financial aid program and filed for bankruptcy.
“It’s a much quicker way to protect students,” than going through some kind of enforcement action on the backend after a school is accused of wrongdoing, Ament said of using the leverage associated with the program participation agreement. Still, the Biden administration doesn’t appear to be using that tactic.
“Almost nothing has been done over the last two years to prevent these schools from continuing to enroll students in failing programs,” Ament said.