A federal judge in Northern California is mulling whether to distribute $6 billion in taxpayer money to settle a class action lawsuit brought against the Department of Education on behalf of student loan borrowers. They claim they were misled or defrauded by one of 151 trade schools and colleges, nearly all of which are for-profit entities.
The controversial settlement, initiated by the Biden administration, is the latest chapter in progressive Democrats’ regulatory and legal targeting of propriety schools, which dates to the Obama era. Progressives claim their efforts are designed to ensure that all student loan borrowers receive a marketable set of skills from their chosen education program. But their seeming refusal to acknowledge that traditional college programs often fail to open a career path for graduates prompts speculation about other motives, including the advancement of the administration’s prioritization of taxpayer-funded student debt relief.
The Biden team’s decision to continue the push against proprietary schools, also known as “career colleges,” at a time when the economy desperately needs the types of skilled workers they produce has raised questions about motives. Are these for-profit schools more problematic than their traditional counterparts, or are the interests of traditional Democratic allies — unions and community colleges — the real driver behind these policies?
Career colleges first came under fire a decade ago when the Obama administration, stung by complaints of inaction from progressive student debt activists, launched an aggressive regulatory effort that Buzzfeed would later call a “withering war on for-profit schools.” The Obama Department of Education adopted a “Gainful Employment” rule that allowed the DOE to cut off aid to a school’s students if a statistical pool of that school’s earlier students had too much debt relative to their earnings.
That rule was nearly always wielded against for-profit schools despite the reality — well-known to parents and economists — that traditional college undergraduate programs often don’t result in gainful employment or even a diploma.
Only two-thirds of students who start at a traditional four-year college earn a degree from that school in six years or less, according to a 2020 report from the National Center for Education Statistics. Just one-third of students who enroll full-time at a two-year community college finish their degrees in four years or less.
In a 2020 Wall Street Journal column, public policy analyst Andrew Gillen and economist Richard Vedder identified numerous prestigious college programs that fail the Gainful Employment test. They included Columbia University’s bachelor’s program in rhetoric and composition, a master’s degree in fine and studio arts at Yale, a law degree from the University of North Carolina at Chapel Hill, and a degree in optometry from the University of California, Berkeley.
The Obama DOE also launched the Borrower’s Defense to Repayment (BDR) initiative, which allows student borrowers to receive debt relief if they can demonstrate that their school misled them or otherwise engaged in fraudulent activity.
Predictably, the administration’s policies took a heavy toll on the for-profit education sector. For example, when Obama took office the seven largest publicly traded proprietary education school operators were worth a combined $51 billion. By 2016, their value had dropped to $6 billion.
Also predictably, as proprietary schools were pushed out of business, the Department of Education was flooded with BDR applications from students of the shuttered schools.
Trump Secretary of Education Betsy DeVos tightened the definition of fraud in the department’s BDR policy, thus raising the bar to students seeking loan relief. But it was too late. Midway through the Trump administration, the DOE was buried under an insurmountable pile of BDR claims, each of which required evaluation and a response from the school cited in the request for relief.
In 2019 Trump’s DOE was sued for allegedly dragging its feet in resolving the BDR claims backlog. The class action suit, Sweet v. DeVos (now Sweet v. Cardona), was brought by the Harvard Law School’s Project on Predatory Student Lending, a non-profit organization with ties to the former Obama administration Department of Education officials who created the BDR policy.
In June 2022, the Biden administration, which has prioritized student debt forgiveness, agreed to settle Sweet with a $6 billion taxpayer-funded blanket acceptance of 200,000 pending BDR claims against 151 schools decided upon in secret by the Sweet plaintiffs and the Biden DOE. In a break with Obama-era BDR policy, which required that schools be allowed to defend against BDR claims, the 151 schools listed in the settlement were notified of the settlement just one day before its announcement. Judge Alsup approved the settlement in November.
Last month, Lincoln Educational Services Corp., American National University, and Everglades College, Inc., all of whom appeared on the settlement agreement’s list of 151 schools, appealed the court’s approval of the deal. The plaintiffs argue the settlement has damaged their reputations and that mass approval of BDR claims denies schools the right to defend themselves. The schools also filed the request for a delay of the $6 billion pay-out that Judge Alsup is currently weighing.
“Schools began to see the impact as soon as the agreement came to light,” Nicolas Kent, Chief Policy Officer at Career Education Colleges and Universities (CECU), a trade association representing proprietary higher education institutions, told Inside Sources. “We had calls from schools saying that students are asking about backing out [of their commitment to the institution, even though the settlement agreement doesn’t mean there was any wrongdoing [by a school on the settlement agreement list].”
In a July statement on the settlement, Grand Canyon University echoed that opinion.
“GCU students are included in the settlement because the Department of Education, rather than evaluating underlying factual claims or analyzing the merits of applications, simply presumed students attending approximately 150 for-profit institutions were entitled to relief — purportedly based on some generalized ‘strong indicia’ of misconduct that is unsupported, unverified and not particularized to any institution.”
GCU officials claim a close examination of the GCU BDRs that would be approved under the Sweet settlement reveals few complaints hold up to scrutiny. According to the school, most are not supported by the student’s academic record or are incomplete.
Even as it was negotiating the Sweet settlement, the Biden administration was advancing more direct efforts to make life difficult for proprietary education entities. A 2022 Department of Education rulemaking process tightened regulations on how much revenue for-profit schools can generate from federal programs and attempted to impose a more rigid “Gainful Employment” rule on privately-owned educational institutions. The latter regulation would have required for-profit schools to prove that their graduates are employed and can repay student loans. The gainful employment rule would not have applied to public and private colleges and universities.
Critics of this renewed targeting of private schools say it seems at odds with the nation’s best interests. The post-COVID economy is struggling to fill millions of skilled positions in such critical industries as healthcare, aviation, and construction. For-profit schools are a vital source of such employees.
Fred Freedman, CEO of the Pima Medical Institute, a proprietary healthcare school, says his industry plays a crucial role as the healthcare industry struggles to meet its staffing challenges.
“[In health care], at the technician level, jobs that require a bachelor’s or associate degree, proprietary schools provide a huge percentage of hospital employees,” said Fred Freedman, CEO of the Pima Medical Institute, a proprietary healthcare school. “We’re talking about nurses, radiology techs, ultrasound technicians, respiratory therapists, surgical technologists. I can’t tell you what percentage of these positions we provide, but it’s significant enough that hospitals would find it difficult to fill those jobs without us.”
Supporters of proprietary trade schools and colleges note that the Biden policies play to three of the administration’s allies. The initiatives no doubt please progressive lawmakers like Sen. Elizabeth Warren (D-Mass.), who philosophically oppose for-profit involvement in higher education. Other beneficiaries of these policies, said CECU President Jason Altmire, include labor unions and community colleges which often view private schools as competition for their training programs. The state of Georgia, for example, recently invested heavily in the expansion of truck driver training at its four technical community colleges. Those schools vie with proprietary driving schools for the same students.
Policies that continue to weaken the for-profit education sector could cost the country something more valuable than even $6 billion in taxpayer funds. Young Americans might see their education options limited, while the economy could lose a valuable source of skilled and motivated employees it needs to keep growing.