Hello and welcome back to MarketWatch’s Additional credit Column, a weekly look at the news through the lens of debt.
I have this week written about the collapse of some well-known college chains, the dissolution of their parent organization Dream Center Educational Holdings, and pressure from advocates and students to hold school executives accountable for their collapse.
For this week’s extra credit, I figured I’d stick with the topic and talk a bit about the impact of school closings on students and taxpayers.
When college chains like the Dream Center – including the Art Institutes and Argosy University – collapse, students are left with few good options. You can try to transfer your credits to another school. Or they can have their federal student loans canceled, putting taxpayers at risk for any canceled debt. But the people who ran the schools often escape responsibility.
Proponents urge the Biden government to hold executives personally accountable for their role in the demise of these schools, a move they believe could protect students and taxpayers in the future. When schools collapse, the Department of Education, which is usually one of many creditors, doesn’t have much money left to claim and use to mitigate losses.
In the case of the Dream Center, the Department of Education has already canceled more than $ 100 million in loans to borrowers who attended schools when they closed.
“Pursuing personal liability is the only way to prevent hasty closings and reimburse taxpayers for the costs associated with fraud and closings that are most harmful to students,” said Yan Cao, senior fellow of the Century Foundation.
Still, some are skeptical of the idea of holding school principals personally accountable. While executives who break the law and are knowingly involved in misconduct should not be immune from legal scrutiny, “the proposal goes way beyond that,” said Jason Altmire, president of Career Education Colleges and Universities, a trade group that promotes for-profit corporations represents universities.
“This is a bit of a departure from the traditional rules of personal responsibility in American corporate law,” he said.
Further than the Ministry of Education has ever gone
Holding executives accountable would be further than the Department of Education has ever gone in overseeing for-profit colleges. Still, the agency has had powers to do so since the 1990s, the National Student Legal Defense Network, which represents student loan borrowers in litigation, including former students of the arts institutes, argued in a memo last year.
Senator Elizabeth Warren, a Massachusetts Democrat and former long-time university professor, confirmed that conclusion in a press Publication for the report. She urged the department “to use every available tool to hold executives and university owners personally accountable who defraud students”.
This week, Rep. Bobby Scott, a Virginia Democrat and chairman of the House Education and Labor Committee, said: wrote to The Ministry of Education is calling on the agency to use its powers to hold executives personally responsible for the liabilities of their collapsed schools to the federal government.
“We want them to use whatever leverage they have to achieve progressive profits, and that includes curbing abuse of for-profit colleges,” said Jeff Hauser, executive director of The Revolving Door Project at the Center for Economic and Policy Research Bidener administration. “In general, dishonesty and consumer fraud must be taken very seriously by the executive branch.”
One way to do this would be to take a closer look at the agreements colleges are making with the Department of Education to receive federal grants, said Beth Stein, senior advisor at the Institute for College Access and Success. “We have to think a little more proactively about what the terms of the contract look like,” said Stein. The contracts could, for example, include personal liability on the part of managers in the event of a college failure.
“This is something the new boss of [the Office of Federal Student Aid]”And his team” could contribute to how they might approach these things in the future, “she said.
“The people who are held accountable will not be held accountable”
Meanwhile, students like Cherisse Hunter-Southern struggled with the aftermath of the turmoil for the school chains for years before they became part of the Dream Center portfolio and eventually collapsed.
Hunter-Southern, 40, is about the age she would like to consider buying a home, but the damage to her creditworthiness from the $ 188,000 student loan she is struggling to repay has made it difficult.
Hunter-Southern, who sued Argosy University shortly after it was sold to Dream Center by Education Management Corporation, chose the school’s campus in Ontario, California to get her PhD in psychology because they are attending college wanted to be close to her home, which was flexible enough to accommodate work, school and her duties as parents.
But the education was below average, she said even before the school closed.
The schools owned by the Dream Center collapsed in 2019 when it was alleged that college executives knew of accreditation problems at some of the art institutes’ campuses and failed to inform the students. and that students at many colleges in the Dream Center chains did not receive scholarships – the financial resources that students received in addition to tuition for living expenses – and more.
Earlier this year, Hunter-Southern wrote to the judge overseeing the bankruptcy administration, asking him to block a proposal by court-appointed bankruptcy administrator Mark Dottore that would rule out litigation against the executives for their behavior in relation to the schools.
Dottore, through his attorneys, urged the judge to overturn their objection, saying that “the overwhelming majority” of Hunter-Southern’s training took place while the school was owned by EDMC and the bar association’s order would not prevent them from filing claims filing against them of the entities that preceded the bankruptcy administration, including EDMC, or the bankruptcy administration. Dottore wrote through his attorneys that he may decline their request in the future.
Following a Zoom hearing earlier this week in which the judge announced he would approve the bar association’s order, Hunter-Southern said she was “confused” by the situation.
“The people who need to be held accountable will not be held accountable,” she said, adding that if the leaders “want to work elsewhere, they have the opportunity and potential to do the same, not just for me . but for other students. ”
Hunter-Southern found that consumers have the opportunity to get their money back with much smaller purchases than with higher education.
“If you go to the store and get broken sunglasses, you should be able to return the sunglasses and get the one you want,” she said.
“You stole my money and I owe $ 188,000 in debt and what for? The worst education ever. “