For-Profits Set For Potentially More Regulations and a Bumpy Road Ahead

HEAG ., Business Office Operations, Compliance, Federal Student Aid Programs, General Issues in Financial Aid

Proprietary Schools Accreditation Concerns

In mid-June, the Department of Education (ED) announced a new round of proposed regulations aimed at the proprietary sector of higher education. “We won’t sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag,” Secretary of Education John King said in a statement. “All students who are defrauded deserve an efficient, transparent, and fair path to the relief they are owed, and the schools should be held responsible for their actions.”

Streamlining Student Loan Debt

Some of the proposals on the table include streamlining student loan debt, similar to a program that the Federal Housing Administration offers for mortgages, and removing so-called “mandatory arbitration clauses” seen in many for-profit school’s Enrollment Agreements. Undersecretary of Education Ted Mitchell said in a statement, “By allowing students to bring lawsuits against a school for alleged  wrongdoing, the regulations remove the veil of secrecy, create increased transparency, and give borrowers full access to legal redress.” The other proposals would also help create group-wide loan discharges when pools of students have been impacted by schools guilty of misconduct. Finally, it would establish baseline triggers for schools that have violated federal regulations or are proven to be at risk of potentially closing. The school in question would have to increase its typical “letter of credit” from the usual 10% to 20% or possibly higher and notify current and prospective enrollees regarding statistics on students struggling to repay debt at their locations.

Trouble for the Accrediting Council for Independent Colleges and Schools

The issues with for-profit education are now two-fold as their accrediting body has also come under fire. The Accrediting Council for Independent Colleges and Schools (ACICS), with 363,000 undergraduate students under its governance, had a federal panel that oversees college accreditors, de-recognize the council. ED will have 90 days to decide what will happen next to ACICS, followed by potential rounds of appeals and lawsuits. If the courts don’t block a shutdown, the 245 schools currently accredited by ACICS would have 18 months to find a new governing body. This process would likely prove to be fairly easy for some institutions, but a struggle for others who may have metrics that are not at the required levels of the new accreditor.

ACICS has been under intense political pressure to change their processes after a handful of high profile schools closed while under their governance. They have made reforms, including a freeze on new member institutions, protection on conflicts of interest from the agency’s board and creation of a new advisory committee to review its processes and staffing. ACICS leadership continues to fight and believes they will be in compliance with all new regulations within 12 months and are pushing for a second chance. In its staff report and during a recent meeting, the department said it did not believe ACICS would be able to clean up its act in12 months.“To not terminate their agency would be to sanction egregious behavior,” said Gail McLarnon, the department’s student aid program manager.

“I don’t want anyone to think that this is an evil agency,” said Steve Porcelli, a longtime department staffer who wrote the report recommending termination for ACICS. Yet Porcelli and other department staff said recently that ACICS had been too lax and inconsistent in many cases. According to a Government Accountability Office (GAO) report, accreditors revoked the accreditation of just 0.8% of schools from 2009 to 2014. A combination of the new regulations along with ACICS’s current woes could lead to the closure of yet more schools and the taxpayers on the hook for the federal aid that was granted to students who attended these institutions. It will be interesting to see how the entire for-profit education sector shakes out over the next few years and deals with the issues and new proposed regulations at hand.

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