When fraudulent colleges go bankrupt, it’s the taxpayers who get stuck with the bill.
With the collapse of Corinthian Colleges Inc., the Department of Education announced its students can qualify for debt relief, according to Business Insider.
The Consumer Financial Protection Bureau had previously sued Corinthian and it was ordered to repay $531 million to students for deceptive practices. More than 8,800 former students have received debt relief for Corinthian-related loans, but now that number could swell to new heights.
More than 100 of Corinthian’s former campuses have already been found guilty of fraud; the department’s announcement covers 91 former campuses nationwide in 24 states, a press release noted.
“Through these important partnerships with states’ attorneys general, we are pleased to offer relief to Corinthian students who were defrauded. And we will continue to take action to protect students and taxpayers from unscrupulous companies trying to profit off of students who simply want to better their lives,” Education Secretary John B. King Jr. said.
Were it not for easy access to student loans, the college would have had a difficult time in defrauding students. Students at for-profit schools borrow at “drastically higher rates” than students at non-profit schools, The Atlantic noted. The more they borrow, the higher the profit margin can be. Corinthian students alone borrowed more than $3 billion.
For-profit schools disproportionately rely on federal dollars. About 86 percent of their funding comes through federal money.
Federal largesse, fueled by a belief that anyone who wanted a college degree should receive funding, left students the victims of a fraudulent company. Taxpayers were left with the bill, and the responsibility, to clean up the mess.
By 2014, for-profit schools were responsible for $229 billion of student loan debt. Every for-profit school isn’t guilty of fraud, but the success, academic and financial, of for-profit students are questionable.
Forty-seven percent of borrowers at for-profit colleges defaulted on their loans within five years, compared to 38 percent at community colleges, 27 percent at nonselective public and private four-year colleges, and 10 percent at selective four-year colleges.
For graduation rates at two-year institutions, for-profit colleges fare better. Almost 63 percent of students graduate with a certificate or associate’s degree within three years, compared to 54 percent at non-profit colleges and 20 percent at public colleges. Four-year for-profit colleges, however, only graduate 23 percent of their students, compared to 53 percent at non-profit colleges and 34 percent at public colleges.
Those students, while determined, have been misled about their job prospects upon graduation by some of the companies.
As the federal government gets serious about investigating fraud, the public bailout could grow. The sheer amount of debt from for-profit colleges is a stumbling block. It raises questions about why it’s taken the federal government so long to engage in quality control of what its programs have funded. It might also be time for the department to investigate non-profit colleges as debt levels climb and graduation rates remain relatively low. If colleges advertise post-graduate success as a way to recruit more students, the department should investigate any college that deceives its students.
Otherwise, the next bailout won’t be for banks. It will be for students who unknowingly gambled with public money.