Flunking Out, at a Price (NYT)
This same dismal pattern is now playing out in the for-profit education arena.
For years, federal and state regulators have done little as dubious operators of for-profit colleges and trade schools have pocketed tuitions funded by taxpayer-backed loans. Many students left these colleges with questionable educations and onerous debt loads that cannot be erased in bankruptcy.
Regulators have finally woken up to this ugly reality. And, once again, taxpayers and borrowers will pay the price of regulatory failures.
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“Many of the students who have already graduated will default on their loans and will be followed by the federal government for the rest of their lives,” said Robyn Smith, of counsel to the National Consumer Law Center and author of a recent report on how states can improve oversight of for-profit schools. “If the regulators had been better at doing their jobs, this could have been avoided.”
For example, Ms. Smith pointed out that while the Department of Education had cited Corinthian in November 2012 for falling below the department’s financial responsibility standards, it still allowed the company to recruit students until last month. That put an additional $1.5 billion in taxpayer money at risk.
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It isn’t clear, though, that those lessons have been learned. Given that other for-profit institutions are also facing difficulties, I asked the Department of Education in an email what it planned to do in the future to avoid a repeat of the Corinthian disaster.
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It’s not clear what kind of an education Corinthian students have received, and it’s too soon to determine the total taxpayer burden in the collapse. Tallying that bill will depend on whether the company can sell its colleges and keep students in place.
Perhaps Corinthian’s fall will become a teaching moment for both state and federal regulators. Here is one suggestion from Mr. Safalow: The Department of Education should monitor the financial position of for-profit colleges more closely, to protect both students and taxpayers.
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Looking the other way also harms students and taxpayers. Can we all agree that something about this regulatory construct needs to change?