June 7, 2022
A previously undisclosed memo to the Education Department offers a step-by-step guide to closing predatory schools before they suck up more federal loans.
Last week’s announcement that the Education Department would automatically cancel all $5.8 billion in student loans from the defunct, predatory for-profit chain Corinthian Colleges gives a measure of (belated) restitution to over half a million fraud victims. But debtors at other for-profit schools with similar business models have reasonably asked why they haven’t gotten the same treatment.
Department officials have vowed to assess whether other colleges acted so fraudulently toward students that they, too, meet the standard for blanket cancellation. “We will continue to ensure that all Americans with federal student loans get the protection they deserve,” a senior administration official said on a press call last week. But the best way to do that, rather than engaging in convoluted analyses that last years, is to prevent loans to for-profit diploma mills from ever being made.
The Education Department has that authority, according to an 11-page memo that activists from the Debt Collective delivered to Rich Cordray, chief operating officer of the Office of Federal Student Aid (FSA), last July. The memo, which has not previously been reported on, outlines a variety of ways that FSA could shut down the for-profit college industry on its own.
Key to the strategy is the fact that for-profits derive nearly all of their revenue from federally issued student loans. The industry “siphons public money to private investors via the federal student lending system,” the memo states. Cutting off that spigot of federal loans would make it impossible for for-profits to finance their operations. FSA could do this through regulations that have not been enforced much, the Debt Collective argued in its memo. Additional congressional approval would not be needed.
The Education Department has not yet responded to a request for comment.
“Schools like Corinthian College would not have been able to scam their students without the full cooperation of the Department of Education,” Thomas Gokey, co-founder of the Debt Collective, told the Prospect. “When we are asking the Department to cut off federal funding to for-profit schools, we are not asking them to interfere with a business, we are simply asking them to stop being partners in crime.”