Photographer: Miguel Salmeron/Getty Images

Obama's Crackdown on For-Profit Schools Could Come at a Price

When the government roots out a fraudulent school, students can demand loan forgiveness.

When government officials visited Zoharel Quinn’s home in Chicago, they hoped to learn more about how he was employing graduates from Computer Systems Institute, a local for-profit school. He did not offer much clarity.

From behind a closed screen door, Quinn said that sometimes he “matched up” students with home health-care jobs, sometimes had them “cook and clean for the elderly,” and sometimes the students got “marketing” positions. The Department of Education later determined that Quinn was not, in fact, paying graduates a living wage, or giving them jobs for more than a couple of weeks. CSI had told the government that Home Health Consultants, a business registered by Quinn, had hired more than 40 of its graduates. 

On Monday, the Education Department said it would no longer provide education aid to students who attend CSI after it concluded that the school had lied to the government about its job placement rates. The department also cut off funding to several Beverly Hills-based Marinello Schools of Beauty, a separate for-profit college chain, which it accused of fabricating high school diplomas and deceiving prospective students. On Thursday, Marinello said it was closing down all of its 56 campuses.

The Obama administration described the move as the latest victory in its battle to rid the government loan program of scams and fraud, which has gained momentum in the last two years. But the accountability push comes with the risk that the government will have to pay large sums to students who were defrauded. In June, the Education Department opened a formal channel for students to ask for loans to be refunded if they can show that their schools broke state law. Thousands of borrowers have already applied to get $164 million in federal loans canceled.

Each time the government roots out a bad actor, it opens up possibility that thousands of additional people will have new grounds on which to demand debt forgiveness. The Education Department said that more than $256 million went to CSI and Marinello Schools of Beauty since 2012, which is when the government said many abuses at the schools began. 

“The department is trying to clean up years of abuse and fraud by schools, and it went on for so long that the dollar amounts involved are massive,” said Ben Miller, an education expert at the Center for American Progress. “It is really expensive.”

CSI was punished for saying that students were employed by Home Health Consultants (the company owned by Quinn) and by Dream Team Hope Health Care Services; they did not have such jobs, according to a letter written by the Department of Education to the company’s chief executive last week.

The department said that 23 Marinello Schools of Beauty campuses in California and Nevada took in students lacking legitimate high school diplomas, misrepresented the quality of the program to participants, and charged excessive fees if people needed to make up classes they had missed. “It’s really unfortunate that the department is trying to drive out a place that has a lot of history and that has licensed tens and thousands of students,” said Joe Hixson, a spokesman for Marinello. He added that school officials "flatly deny" the allegations.

Senator Dick Durbin (D-Ill.) said in a statement on Tuesday that the department should “immediately offer expedited federal student loan relief,” for the students at the two schools, which would make it easier for them to get loans canceled quickly. Marinello and CSI enrolled thousands of students during the last four years, but only those who can show they were deceived would be eligible for relief under Department of Education rules. Marinello's abrupt closure may give students another avenue to request relief if they did not finish their studies, under a separate process. 

"The Department is committed to making sure that students who were defrauded receive every bit of debt relief they are entitled to," said Denise Horn, a spokeswoman for the Department of Education, in an e-mail. She added that Joe Smith, the official in charge of the borrower relief process, would determine what the findings mean for students.

Canceling the debt held by students who went to abusive for-profit schools may not be as costly as it looks because the government would be forgiving loans for students from whom it would be very difficult to collect. "Realistically, a lot of the loans they are going to get forgiven are ones that were never going to get repaid, anyway," said Miller of the Center for American Progress. If schools are not preparing their students to make a decent living, or get a job at all, it is very unlikely that graduates would have the means to make a dent in their loan bills, Miller added. "It only gets more expensive the longer you let the [schools] run."

Since 2011, recruiters at CSI promised students, many of whom took out $15,000 loans to attend the school, that they would be guaranteed jobs medical assistants upon graduation. Instead, the graduates ended up doing low-wage work as cashiers, housekeepers, and package-handlers.

One woman had enrolled in CSI with her daughter in June 2012 in hopes that they would be working as medical assistants a year later. When the mother and daughter graduated, they called and visited CSI career counselors relentlessly in search of news of job openings, said the Department, but neither ever got a solid lead. The mother, who the department did not name in its letter, is now unemployed. Her daughter works at Wendy’s.

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