Betsy DeVos’s Education Department quietly dropped requirements for risky for-profit colleges to set aside funds in case the schools closed, according to documents from a lawsuit filed last year. Two of the for-profit networks subsequently shut down without owing the Education Department any money; in one case, the department actually gave $10 million back to a for-profit on the brink of bankruptcy. Not only did this deprive taxpayers an offset to costs associated with refunding loans, but it also extended the life of the for-profit colleges, allowing them to enroll more students into a doomed enterprise that wasted time, money, and effort, and delivered them nothing of value. That mirrors a persistent theme of DeVos’s leadership. Though the Obama administration initially dithered while for-profit colleges preyed on students, eventually it did crack down on the sector. Not so under DeVos. Her top assistant Robert Eitel, previously a vice president at for-profit networks Bridgepoint and Career Education Corp, led the effort to block a rule making it easier for students to file for debt relief on loans when colleges defraud them. Head of student enforcement Julian Schmoke was a former dean at for-profit college DeVry, and during his tenure, a special team at the agency investigating for-profit abuses was disbanded. The agency has delayed tens of thousands of debt relief claims, and last October, it eliminated the “gainful employment” rule that would have forced for-profits to prove that students received decent-paying jobs after graduation. DeVos also reinstated a college accreditor that was terminated under the Obama administration for lax oversight of for-profits, despite her own career staffers determining that the accreditor was deficient. Now, DeVos’s reluctance to seek insurance against for-profit college failures effectively kept a predatory group of schools on life support. “It’s indicative of the coziness between politicals at the Education Department and the for-profit industry,” said Clare McCann, a former senior policy adviser to the Education Department under President Barack Obama, now with the New America Foundation. At issue are letters of credit, documents provided by an institution’s lenders that guarantee payment. Under current federal regulations, all schools that participate in student aid programs must undergo a financial audit. Through a complicated calculation of a college’s solvency, each school gets a financial responsibility score. Those with a failing grade must provide the Education Department with a letter of credit. This acts as an insurance policy for the government. When a school closes, students can apply for a discharge to cancel their loans, depriving the Education Department, which issues the loans, of expected revenue. The letter of credit covers some of those losses. The Education Department’s rules are fairly weak. Failing schools can either post a letter of credit equal to 50 percent of the total federal financial aid paid out in the last calendar year, or secure provisional certification through a letter of credit worth at least 10 percent of that figure. Not surprisingly, schools opt for the latter. Provisional status takes away some due process rights, making it easier for the Education Department to close failing schools — “It’s like being on probation,” said McCann — but it keeps student aid flowing at a drastically reduced cost. It’s not entirely clear how much these letters of credit cost colleges, but Aaron Ament, president of the National Student Legal Defense Network, believes that it’s substantial. “Typically, [a bank] requires the institution to post 100 percent collateral,” Ament said. The vast majority of schools at risk of closure belong to for-profit college networks. Over the past decade, more than 700 individual for-profit college campuses have shut down, compared to around 100 private nonprofit or public colleges. That adds up to nearly 40 percent of all for-profits in America vanishing since 2010, including closures of Corinthian Colleges and ITT Tech, two of the biggest networks. For-profit colleges soared amid the pain of the recession, but imploded amid persistent complaints of deceptive enrollments, gouging of students, and worthless diplomas. Several remaining for-profits are teetering. The Education Department has discretion to require a letter of credit whenever they determine a risk to the taxpayer, like during a change in ownership and control of the institution, which happens often as for-profits sell their stakes to keep the lights on. According to the most recent information, in the final year of the Obama administration, the Education Department held $937 million in letters of credit. But there is no up-to-date record of which colleges have supplied one. That’s the subject of a lawsuit involving the Freedom of Information Act, which the National Student Legal Defense Network filed in U.S. district court in Washington last summer. Initially, the Education Department said it would take two years to track down all the letters of credit, and committed only to an ongoing two-year lag for all updates. The National Student Legal Defense Network subsequently asked for the status of five for-profit college networks known to be in financial risk. In November, the Education Department disclosed that it did not hold a letter of credit on any of the five.

Photo: Courtesy of the National Student Legal Defense Network