For-Profit College Fraud Has a Public Cost
Taxpayers foot the bill for students deceived by schools “It went on for so long that the dollar amounts … are massive”
Like many for-profit colleges, Chicagobased Computer Systems Institute (CSI) advertises its courses with a maximum dose of sunshine. “Get the English language training to meet your goals!” its website announces next to the image of five smiling, hugging young people. For years recruiters promised students they’d get good jobs as medical assistants upon graduation. That turned out to be a pipe dream: Graduates, many of whom took out loans of as much as $15,000 to attend, ended up doing low-wage work as cashiers, housekeepers, and package handlers.
On Feb. 1 the U.S. Department of Education said CSI students would lose access to government-backed financial aid because the school submitted false data about its job placement rates. Another for-profit chain, Beverly Hillsbased Marinello Schools of Beauty, said it would close its 56 locations on Feb. 4 after the government cut off student aid. The Obama administration described its move as a victory in the effort to reduce fraud in education loans. But there’s a catch for taxpayers: The government could be on the hook for loans already made to students whose schools have broken state laws.
Since June, when the Education Department opened a formal channel for students to ask for loan forgiveness, thousands of borrowers have applied to cancel $164 million in federally backed student loans. So far the government has agreed to forgive about $28 million. Each time the government roots out another bad apple, it opens up the possibility that thousands more people will have grounds on which to demand debt forgiveness. “The department is trying to clean up years of abuse and fraud by schools,” says Ben Miller, an education expert at the Center for American Progress, a Washington think tank. “It went on for so long that the dollar amounts involved are massive.”
Students at CSI and Marinello have taken out more than $256 million in government-backed loans since 2012. Only those who can show they were deceived would be eligible for relief under Department of Education rules. “The department is committed to making sure that students who were defrauded receive every bit of debt relief they are entitled to,” says Education Department spokeswoman Denise Horn.
The department investigated companies that CSI claimed had hired its students, including one called Home Health Consultants. According to the
government, owner Zoharel Quinn said he set up CSI students with marketing jobs or employed them to “cook and clean for the elderly.” In fact, investigators found Quinn wasn’t hiring students for permanent jobs and was paying below minimum wage. CSI representatives didn’t respond to repeated requests for comment.
Twenty-three Marinello campuses in California and Nevada accepted students without high school diplomas, misrepresented the quality of the program to participants, and charged excessive fees if students needed to make up classes, according to the Education Department. Marinello spokesman Joe Hixson says the school denies the allegations. “It’s really unfortunate that the department is trying to drive out a place that has a lot of history and that has licensed tens of thousands of students,” he says.
The for-profit education business is still attracting investment. On Feb. 8 a consortium led by Vistria Group agreed to buy Apollo Education Group, which operates the University of Phoenix, for $1.1 billion. Vistria’s chief operating officer, Tony Miller, who served as a deputy secretary of education in the Obama administration, will become chairman of Apollo once the deal is complete.
For the government, canceling debt for students defrauded by for-profit schools may just speed up the inevitable. Graduates of schools that aren’t adequately preparing students to find work are likelier to default, says Miller of the Center for American Progress: “Realistically, a lot of the loans that are going to get forgiven are ones that were never going to get repaid, anyway.” The bottom line The government will forgive about $28 million in loans taken out by students whose schools engaged in deceptive marketing.