February 17, 2016

Dept. of Education Takes on the University of Nowheresville


Last week, Secretary of Education John King and Undersecretary Ted Mitchell announced the creation of a new enforcement division, headed by an experienced Federal Trade Commission lawyer, to crack down on deceptive practices by colleges, particularly in the abusive for-profit college sector. It was one of those days when it looked like the Department, long the lapdogs of the aggressive lobbyists and lawyers for for-profit colleges, and of the Members of Congress in the pockets of that industry, was finally facing up to its responsibilities to protect students and taxpayers.

This morning, at the Department’s second round of negotiated rulemaking regarding student debt relief and related issues, the Department seemed to return to Planet Lapdog.

After months of senior Department officials expressing a strong interest in students being made whole after being deceived and abused by predatory for-profit colleges, the Department unveiled draft language for new regulations that seemed to sharply narrow the rights of students to seek loan forgiveness and their practical ability to get relief. For example, the language would allow students to raise only narrow categories of school misconduct – breach of contract and substantial misrepresentations – which, pro-student negotiators wrote in a memo last night, “do not begin to capture all of the misconduct that is covered under state law.”

The Department’s proposal also includes a two-year statute of limitations for students to raise defenses to repayment, even though it takes many students much longer to realize that they have been deceived, and even though there is no time limit on the ability of debt collectors to go after students.

One negotiator, Massachusetts Assistant Attorney General Mike Firestone, called the proposed two-year statute of limitations on student defenses, as well as other aspects of the Department proposal, “out of step” with and “antithetical to” what the multi-state group of attorneys general investigating the industry had urged.

Negotiator Margaret Reiter, who worked for 20 years as a consumer law prosecutor with the California Attorney General’s office, was even more blunt. She called the proposals “despicable” and “outrageous” in increasing barriers to student debt forgiveness.

As Department officials sought to clarify, it seemed their intentions were perhaps not as bad as their draft, and Reiter said she now understood the proposal better but still did not like it.

Negotiator Dennis Cariello saw an opportunity to jump in. Cariello represents for-profit colleges in the discussions. Which is fitting, because he has long represented companies in this industry. Recently, Cariello served as an expert witness for the awful for-profit Globe University, and he represented another supposed expert, Mark Schneider, in an industry lawsuit to defeat the Obama Administration’s “gainful employment” rule. One of the clients at Cariello’s former law firm DLA Piper during his tenure there was Corinthian Colleges, the now-shuttered fraud that was receiving as much as $1.4 billion a year in taxpayer money, and the one company that even industry advocates mostly have stopped defending.

Cariello pointed to the enormous, nearly $1 trillion federal student loan portfolio, and he said that student debt forgiveness, if it reached 5 percent of the loans, would be an “astronomical” amount of money. He called on the Department to bring some of its budget staff to the rulemaking sessions to talk about the financial implications of not making students pay back loans for fraudulent college programs.

Cariello’s industry has not seemed so concerned about taxpayer money as it has taken up to $32 billion a year in federal dollars, and as it has fought aggressively against rules that would hold colleges accountable for deceptive practices, sky-high prices, and poor student outcomes.

Technically, it is taxpayers, not the schools, who will be on the hook for forgiveness of federal student loans. But for-profit colleges are clearly concerned that the Department might go after individual schools for money if large numbers of student want their money back because of school misconduct.

Department negotiator Gail McLarnon quickly echoed Cariello, naming the first of three priorities for the rulemaking to be the Department’s interest in protecting the “federal fisc.” After that she mentioned “due process.” And, third, the interests of students.

There is a still a ways to go in this rulemaking process, and the Department tends to swing back and forth, like your great aunt who always takes the side of the last person she talked with. One critical issue is a new proposal by student advocates, echoed by a group of U.S. Senators, to condition a school’s receipt of federal aid on the school not restricting the rights of students to bring claims against the school to court – a proposal that would go along way toward deterring abusive behavior and thus that is sure to be freaking out some for-profit colleges.

But the tone set today is worrisome. Near the start of the session, the mediator hired by the Department to run the process made a statement asking that the negotiators not make reference to particular schools during the meetings. The reason she cited was that the companies who own the schools were calling and emailing the Department to complain, creating work for Department staff.

Negotiators offering concrete examples of conduct by particular schools would seem like a helpful way to discuss policy issues and to inform the public. Barring such mentions, just to avoid hectoring calls from industry lawyers, seems like a return to the bad old lapdog days, where school interests were prioritized over those of students. As if to confirm that, the mediator proposed that negotiators refer to schools by a name used moments earlier by Cariello in discussing a hypothetical school: The University of Nowheresville.

UPDATE 02-18-16 12:50 am: I wrote about the afternoon part of this meeting here.

This article also appears on Huffington Post.