Un­cle Sam picks up the tab for stu­dents suck­ered by a for-profit col­lege

Tax­pay­ers foot the bill for stu­dents de­ceived by schools “It went on for so long that the dol­lar amounts … are mas­sive”

Bloomberg Businessweek (Asia) - - CONTENTS -

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.” −Natalie Kitroeff, with Marthe Four­cade

The bot­tom line The govern­ment will for­give about $28 mil­lion in loans taken out by stu­dents whose schools en­gaged in de­cep­tive mar­ket­ing.

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