Editorial: Better oversight of for-profit colleges overdue

The Consumer Financial Protection Bureau sued ITT Educational Services Inc. this week, another sign federal and state officials are finally addressing abuses by for-profit schools feeding on billions of government dollars.

Students, and the U.S. Treasury, are past due for some relief.

According to a 2010 study the for-profit industry itself commissioned, the default rate on loans made to its students is almost triple that for those going to four-year public colleges, and double that for community colleges. A two-year investigation by the Senate Committee on Health, Education, Labor and Pensions concluded the situation was far worse: “Students who attended a for-profit college accounted for 47 percent of all Federal student loan defaults.”

These are not cut-rate educations. ITT, with 140 campuses nationwide, charges as much as $88,000 for a four-year degree.

In its complaint against the company, the CFPB alleges students were pressed to take out loans carrying interest rates as high as 16 percent despite its own projections 64 percent of those private loans would go into default.

But default is seldom a problem for the worst industry offenders. They leave that to taxpayers and students, who cannot discharge federal education loans by filing for bankruptcy.

The operators of many small colleges and trade schools take the money and run. The website of the Washington Workforce Training & Education Board lists 80 colleges and trade schools that have closed over the years, including something called the Northwest Nanny Academy.

Most recently in Spokane, 160 students of Alpine College were locked out of their classrooms in May 2011. But the record of sudden closures goes back at least as far as 1994, when Trend Colleges folded, taking with it the former Kinman Business College, which had flourished in Spokane for decades.

Concerned about the burdens imposed on students and losses to the treasury, the U.S. Department of Education has been drafting rules intended to assure these colleges give students the chance at employment they say they can. On Feb. 4, a coalition of more than 50 labor, consumer and veterans groups sent a letter to President Barack Obama urging him to insist the department not yield to intense industry pressure for standards too weak to correct misbehavior.

Meanwhile, several state attorneys general are pursuing their own investigations. In October, California sued Corinthian Colleges Inc. alleging, among other things, predatory advertising, securities fraud – for lying to shareholders – and unlawful use of military seals in advertisements, which suggests just how low some of these enterprises will go.

Publicly traded corporations – answerable to shareholders first – account for about three-quarters of all students enrolled in for-profit institutions.

Students desperate for the post-high school education employers demand are seizing on every option – publicly funded or for-profit, brick-and-mortar or Web-based – to get it. For-profits belong in the marketplace. But a few performance benchmarks that protect 18- and 19-year-olds, and the U.S. taxpayer, are overdue.