For-Profit Colleges Warned about False Promises

The FTC vows to crack down on schools that charge a lot but deliver little

James R. Hood
James R. Hood

The Federal Trade Commission has warned 70 for-profit colleges to be careful. The agency is cracking down on false promises about the jobs and salaries graduates can expect and warning schools that violators face "significant" financial penalties.

“For too long, unscrupulous for-profit schools have preyed on students with impunity, facing no penalties when they defraud their students and drive them into debt,” said FTC Chair Lina M. Khan, adding that the agency is "resurrecting a long-dormant authority to hold accountable bad actors who abuse students and taxpayers."

For-profit schools are a big part of the student debt problem. For-profit colleges only enroll 10% of students but they account for half of all student-loan defaults, a recent Chicago Booth Review study found.

The Brookings Institute says that 71% of students in for-profit colleges borrow federal loans, as compared to only 49% of students in four-year public schools. Students at for-profit schools have higher debts and poorer job prospects than students at non-profit institutions, Brookings found.

Most educators agree that students would be better off going to a community college instead of paying high tuition rates at a for-profit school whose certificate may prove to mean little in the job market.

The for-profit college system is broken and the Biden administration needs to fix it
Ariel Gelrud Shiro and Richard Reeves write that the incoming Biden administration must prioritize regulating for-profit colleges in order to protect students and taxpayer dollars.

Bad actors may pay a price

The Penalty Offense Authority will be used to ensure that bad actors pay a price when they break the law, Khan said. That provision allows that FTC to impose civil penalties of up to $43,792 per violation.

Many of the practices that could come back to haunt schools relate to claims made by institutions about the career outcomes of their graduates, including whether a particular career field is in demand, the percentage of graduates who get jobs in their chosen field, whether the institution can help a graduate get a job, and the amount of money a graduate can expect to earn.

Complaints to the FTC around education-related issues surged roughly 70 percent between 2018 and 2020, and the Commission says it is committed to rooting out practices that harm students and their families.

The Notice cites a number of administrative cases brought by the FTC against for-profit institutions in which the Commission found practices like those outlined in the Notice unlawful.

A full list of the institutions that received the Notice from the FTC is available on the FTC’s website.  

Many Student Borrowers are Underwater, Paying Interest on Interest
Even students who continued paying their student loans during the payment pause made little if any progress in paying down the balance.


       
                 

Money

James R. Hood

Jim is a publishing entrepreneur and journalist. He founded ConsumerAffairs in 1998 and earlier was the founder of Zapnews, after holding executive posts at the Associated Press.