HELP Committee Report Sheds Light on Predatory Lending Practices Within For-Profit College Industry, Underscores Need to Boost Student Borrowers' Access to Courts

Note: Today, U.S. Sen. Tom Harkin (D-Iowa), chairman of the Health, Education, Labor and Pensions (HELP) Committee, issued a comprehensive report on for-profit colleges titled "For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success," available at https://www.help.senate.gov/imo/media/for_profit_report/Contents.pdf.

A congressional report issued today, the culmination of a two-year investigation, underscores the fact that the for-profit college industry is rife with unfair, deceptive and abusive acts that gravely harm student borrowers.

Some of the unscrupulous practices highlighted in the report:

* Charging higher tuition than comparable programs at community colleges and state public universities. Internal company documents reveal examples of tuition increases being implemented - without connection to increases in academic and instruction expenses - to satisfy company profit goals;
* Partnerships with Wall Street investment firms to devise creative and "impressively complex" lending programs to students. These lending programs often target subprime student borrowers and charge them interest rates ranging from 11.2 percent to 18 percent;
* Coordination with third-party companies, known as "lead generators," to gather and analyze contact information of prospective students;
* Aggressive and sometimes misleading and deceptive recruiting practices to expand enrollment and satisfy investors' demands for revenue growth. For-profit colleges often prey on prospective students who are not familiar with traditional higher education. Some institutions' recruiting materials train admissions representatives "to locate and push on pain in students' lives" to attract them; and
* Disparities between resources allocated to recruitment staff, and student services and career placement staff. Overall, the companies examined in the report employed almost three times as many recruiters as student service representatives and about 10 times as many recruiters as career placement services staff.

These practices allow for-profit institutions to succeed financially (thus benefiting their investors) when their students fail, leaving borrowers of all ages with few job prospects and trapped under crushing levels of debt, with little means to repay it.

Additionally, as Public Citizen explained in a report issued last week called "Between a Rock and a Hard Place: Courthouse Doors Shut for Aggrieved Private Student Loan Borrowers" (available at https://www.citizen.org/Page.aspx?pid=5515), when many borrowers of private student loans have grievances with the predatory private student loan industry, they often find that they have no legal recourse. First, many are blocked from accessing the court system due to arbitration clauses buried in the fine print of their promissory notes or their enrollment contracts. Second, borrowers in deep financial despair are largely unable to seek assistance in bankruptcy court because their student loan debt cannot be extinguished unless they meet an arbitrary and undefined standard of "undue hardship."

Borrowers should not be denied their ability to access the court system simply because they want an education. As the Public Citizen report states, the Consumer Financial Protection Bureau (CFPB) and Congress can restore consumers' access to the court system in the private student loan market by restricting forced arbitration clauses in private student loan contracts and allowing private student loans to be dischargeable in bankruptcy.

We applaud Senator Harkin for his committee's important report and urge Congress and the CFPB to move quickly in helping student borrowers as they deal with the double threat of denied access to the courts and excessive student debt.