NEW YORK (MainStreet) — The legacy of bankrupt Corinthian Colleges is its abandoned students, left without a school which they discovered--too late--drew them in through deceptive marketing, then overcharged them for a sub-standard education as they were saddled with loans that they couldn't repay.
To prevent a replay, Senators Dick Durbin (D-Ill.) and Chris Murphy (D-Conn.) and Maggie Thompson, campaign manager of Higher Ed, Not Debt at the Center for American Progress, announced on Tuesday the introduction of a bill to protect students from bad actors in the for-profit college sector. The Students Before Profits Act will enable the government to recoup federal dollars from the owners and executives who reap huge profits from failed, fraudulent for-profit institutions.
This legislation comes with teeth that current laws don't have. It would authorize enhanced civil penalties against offending institutions--and their executive officers--if it is determined that a school misrepresented its cost, admission requirements, graduation rates, employment prospects for students and loan default rates.
"When one of these schools collapses under the weight of its own wrongdoing, as was the case with Corinthian, students are displaced, taxpayers are left on the hook and company executives scatter to the winds,” said Durbin in Washington yesterday. “This bill would change that. Among other things, it would make executives--like Corinthian CEO Jack Massamino who made more than $3 million a year--personally liable for the taxpayer losses they create by taking advantage of students. This will bring real fairness to students who have been victimized and to taxpayers who have been fleeced by bad acting for-profit colleges.”
These monetary penalties would go to a student relief fund to help defrauded students. If nothing else, the unseemly spectacle of having the Department of Education provide a "cash make-good" for defrauded student could be avoided.
Executives of failed colleges would be forced to pay the price for bad management paid for with public money. ED would have broader discretion to require owners and executives to assume personal liability for financial losses associated with Title IV funds, the source of student loans.
The new law would also prohibit so-called "repeat offenders," or executive officers at schools against which the Department has brought an enforcement action, from serving in leadership positions at another college.
It also coincides with the Obama administrations plans to write regulations that would create new standards for the discharge of the federal student loans of defrauded borrowers and give ED new powers to recover money from schools that ripped off their students and Uncle Sam.
As it stands now, for-profit colleges make up 10% of all postsecondary student enrollment but account for 44% of all student loan defaults. A 2014 Senate HELP Committee investigation found that, on average, for-profit colleges allocate about 23% of revenue to recruiting and marketing, 19% to profit, and just 17% to academic instruction.