Betsy DeVos once announced: “Government really sucks.” She doesn’t like government regulation, and she prefers to free up the marketplace. One of the best places to observe her penchant for deregulation is in higher education, where she has regularly done everything she can to protect the investors in for-profit colleges and trade schools, where she has tried to step back from protecting students with federal loans, and where she has done little to oversee the giant government contractors who process federal student loans. Over the years, the issue of government regulation of these practices has been understood as necessary because almost all the money that props up the too-often-unscrupulous, for-profit colleges comes from the government, and because millions of students who borrow in good faith end up with huge debts run up for programs that have left them unemployable.
In her 2014 book, Degrees of Inequality: How the Politics of Higher Education Sabotaged the American Dream, Cornell University professor Suzanne Mettler tells us why we should worry about DeVos’s relaxing regulation of the for-profit higher education sector: “Defenders of for-profit universities champion them as belonging to the private sector, but in recent years as in the past, they receive nearly all of their revenues from the U.S. federal government… Notably, these institutions, with only one exception, earned between 60.8 and 85.9 percent of their total revenues in 2010 from Title IV of the Higher Education Act, meaning predominantly student loans and Pell grants. The Apollo Group, owner of the University of Phoenix, gained between 85 and 88 percent of income from these sources in each of the past three years. Most received an additional 2 to 5 percent from military educational programs, including the Post-9/11 GI Bill… In short, the for-profit schools are almost entirely subsidized by government.” (Degrees of Inequality, p. 168)
DeVos loses one battle on “Borrowers’ Defense to Repayment”
Earlier this fall, court challenges successfully blocked Betsy DeVos’s attempt to relax Obama-era rules designed to protect student borrowers. DeVos had attempted for over a year to delay imposition of a rule called “borrowers’ defense to repayment.” She had intended to replace it with her own more lenient regulation. In mid-October, DeVos lost her bid to replace and weaken this regulation. Michael Stratford reported for POLITICO: “A federal court cleared the way for Obama-era student loan borrower protections to take effect, handing a defeat to Education Secretary Betsy DeVos after she fought for more than a year to stop the rules.” The Obama-era rule, now in effect after the court challenge, protects students’ rights to petition to have their loans forgiven if they are able to prove their college knowingly deceived them about its programming or if, like Corinthian Colleges and ITT Technical Institute, the college suddenly shuts down. It also permits students who believe they have been defrauded to join together in class action lawsuits to have their debts forgiven.
DeVos Rescues Federal For-Profit College Accreditor Deemed Ineffective and Denied Standing During Obama Years
But despite her one failure to vanquish “borrowers’ defense to repayment,” DeVos persists in her attempt to protect the for-profit colleges, the loan servicing companies, and their investors. The first of her recent actions was reinstating an agency whose role has been accrediting or denying accreditation to for-profit colleges, which cannot qualify to receive federal grants and loans unless they are accredited by a Department-approved agency. The Obama Department of Education had cracked down. The Washington Post‘s Laura Meckler explains: “In December 2016, the Obama administration ruled that the Accrediting Council for Independent Colleges and Schools, known as ACICS, should no longer be allowed to serve as a gatekeeper between colleges and billions of dollars in federal financial aid. It concluded that the agency was incapable of rectifying years of lax oversight and ‘exhibited a profound lack of compliance’ with the ‘most basic’ responsibilities of an accreditor.”
ACICS was the agency that maintained accreditation for Corinthan Colleges and ITT Tech until the day they went under. Inside Higher Education‘s Andrew Kreighbaum reports that many of the other institutions it once accredited were so shaky that they have shut down or now teeter on the edge: “The accreditor oversaw 245 colleges as of 2016. But roughly 70 ACICS institutions who receive Title IV funds haven’t yet found recognition from another accreditor… And the largest chain of schools still overseen by the accreditor, Education Corporation of America, looks to be facing serious questions about its financial viability.”
DeVos left her decision up to Diane Auer Jones, a principal deputy undersecretary at the Department of Education. Auer Jones once served as a senior vice president at Career Education, which operates for-profit colleges. Meckler reports that last year career staff in the Department of Education conducted a review of ACICS and uncovered 57 findings of noncompliance, but it is not clear whether this review was considered in Auer Jones’ decision to reinstate ACICS. ACICS, of course, claims it has corrected past practices.
Department of Education Refuses to Force Its Contractor for Loan Processing—Navient—to Disclose Cheaper Repayment Options to Student Borrowers
In a stunning expose, the Associated Press‘s Ken Sweet reports: “One of the nation’s largest student loan servicing companies may have driven tens of thousands of borrowers struggling with their debts into higher-cost repayment plans. That’s the finding of a Department of Education audit of practices at Navient Corp., the nation’s third-largest student loan servicing company.”
The problem has arisen when students encounter financial problems and need to restructure their payment schedules. In a 2017 audit, the Department of Education discovered that Navient had boosted profits by “steering some borrowers into high-cost plans without discussing options that would have been less costly in the long run.” While the Department of Education uncovered the problem in its own 2017 audit, federal officials did not share the results of its investigation with plaintiffs in lawsuits filed against Navient in five states by student borrowers.
Here is how the review was conducted: “As part of their inquiry, DoE auditors listened in on about 2,400 randomly selected calls to borrowers from 2014-2017 out of a batch of 219,000. On nearly one out of 10 of the calls examined, the Navient representative did not mention other options, including one type of plan that estimates the size of a monthly payment the borrower can afford based on their income. Auditors wrote that many customer service representatives failed to ask questions to determine if such a plan known as an income-driven repayment plan might be more beneficial to the borrower.”
Sweet reports: “Navient disputed the audit’s conclusions…One point the company makes in its defense is that its contract with the education department doesn’t require its customer service representatives to mention all options available to the borrower.” “‘We are not aware of any requirement that borrowers receive all of their repayment options… on each and every call,’ the company said, adding that if the Department of Education chose to require all servicers to discuss income-driven repayment plans with all borrowers, the Department of Education needs to redo its contract with Navient.” Navient points out that its greatest business expense is paying its customer service agents. The company’s profits depend on hiring the smallest possible number of service agents,.
Sweet describes Seth Frotman who quit in disgust last August as the highest-ranking Department of Education official in charge of student loans. Frotman believes Betsy DeVos’s Department of Education’s refusal to push back against Navient’s practices is “outrageous.” Frotman says, “In short, Navient, when confronted with evidence of its bad practices, is telling the government, ‘Pay us more money or take a hike.’ And it looks like the Department of Education took a hike.”
Rep. Bobby Scott (D-VA) is expected to become the Chairman of the U.S. House of Representatives Committee on Education and the Workforce. Scott commented last week on Betsy DeVos’s decision to reinstate the ineffective Accrediting Council for Independent Colleges and Schools. But his comment also more broadly describes the the entire hands-off approach of Betsy DeVos’s Department of Education to regulating for-profit higher education in the public interest: “This decision will expose hardworking people across the country, including many service members and veterans, to schools that routinely leave students with crippling debt, non-transferable credits and no degree, while leaving taxpayers to foot the bill.”