Is ITT Tech the Canary in the Coal Mine? For-Profit Colleges and the Student Loan Crisis

With the recent publicity surrounding the closure of the massive for-profit college ITT Technical Institute, many may be wondering why the business practices of ITT and other high profile for-profit colleges (FPCs) have come under such scrutiny in recent years. Being a consummate advocate for consumers, FPC abuses have long been of serious concern to Eric Pavlack. Just this past summer, Eric presented to the Sagamore American Inn of Court on the dramatic negative effect of student loan abuses by FPCs. So what are FPCs and why should students and taxpayers be concerned about their business practices?

Everyone has seen the endless FPC ads on television—ITT Tech, DeVry, University of Phoenix, and even Trump University, just to name a few— offering potential students an easy degree that will result in a lucrative job placement. Sadly, this promising scenario is a far cry from what many students at FPCs are left with: no degree and a crushing amount of student loan debt.

FPCs predominantly market to and prey on low-income people, minorities, and veterans who are struggling to make ends meet and looking to better their standard of living. Once a potential student is identified, FPCs utilize high-pressure sales tactics leading the student to believe they need to immediately enroll and acquire student loans or they may not qualify for the loans in the future. A U.S. Senate Committee report released in 2012 highlighted some of these unethical techniques recruiters were using to secure commitments and federal student loan money from students. These tactics included trolling for potential students at hair salons and Wal-Mart or “any stores that may have people that need to get an education,” asking probing questions that “slowly peel away pain layers,” and the “quick close” in which recruiters were instructed to create a sense of urgency and make candidates feel they would not be accepted unless they signed up that very moment.

In a whistleblowing case filed in 2007, it was found that admissions recruiters for Education Management Corporation were actually paid bonuses for enrolling students, an illegal and unethical strategy. The lawsuit alleged that because of these illegal incentives, recruiters were signing up students they knew would not succeed or finish the program despite incurring massive amounts of federal loan debt.

Unlike Private Non-Profit colleges, who receive most of their funding from student tuition and endowments and operate under the supervision of a board of trustees, FPCs may receive up to 90% of their revenue from federal student aid and are run by larger companies who answer to shareholders and investors. Simply put, FPCs exist largely in part to make profits for the shareholders and investors, and therefore driving revenues through obtaining federal student loans is more important than individual outcomes.

A 2015 report published by the Brookings Institute demonstrates how students attending FPCs disproportionately burden the student loan system and are overwhelmingly contributing to a “student loan crisis” that many believe is akin to the housing bubble that created the Great Recession of 2008. The amount of debt owed by those attending FPCs has grown from $39 billion in 2000 to $229 billion in 2014. Although FPC students represent only about 13% of all college enrollment, they make up over 30% of borrowing and approximately 50% of the defaults on student loans.

Additionally concerning are the tuition rates at FPCs. It is typical for an associate degree at a FPC to cost up to four times as much as the same degree from a comparable public college, while a bachelor’s degree may cost twice as much. So, while FPCs are charging top-dollar, the students are receiving an abysmal education and are unable to find jobs upon matriculation. Even worse, only 49% of those enrolling will actually complete their programs. The remaining 51% are much worse off than when they started: still no degree and substantial student loan debt. It is not difficult to see why the likelihood of a student at a FPC defaulting on their loans is four times greater than a student at a community college and three times greater than at a four-year public or non-profit college.

The Education Department tried to increase regulation of these colleges in 2009 by beefing up standards for an existing requirement know as the “gainful employment rule.” This rule would require colleges that receive federally subsidized loans to be able to demonstrate statistically that students receiving degrees were able to achieve gainful employment in their chosen field following matriculation. Unfortunately, like other big businesses desperate to protect their profits, a conglomeration of FPCs employed aggressive lobbying tactics in attempt to defeat the new requirements, and they were successful in watering down the regulations to the point of being meaningless.

For nearly 20 years, Indianapolis attorney Eric Pavlack has been a fierce advocate for consumers whose rights have been violated. Pavlack Law has extensive experience in representing consumers in class action cases who have been damaged by fraudulent sales tactics and statutory violations. If you feel you have been a victim of fraudulent sales tactics, contact an attorney at Pavlack Law now. The consultation is free, and there is never a fee until we are successful for you!

https://www.brookings.edu/wp-content/uploads/2016/07/ConferenceDraft_LooneyYannelis_StudentLoanDefaults.pdf