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Education Department Sued Over Defrauded Borrowers

Four plaintiffs who attended Corinthian Colleges programs are suing Secretary Betsy DeVos and the Department of Education in U.S. district court over a plan to award partial relief of student loan debt to borrowers defrauded or misled by their institutions.

The department in December announced plans to award relief of approved borrower defense to repayment claims based on the earnings of graduates who pursued a particular program of study at career education programs.

The Associated Press reported last week that students who attended Corinthian programs had begun receiving notices of specific award amounts.

The plaintiffs asked the court to order the Department of Education to grant complete loan relief to borrowers with approved claims and argued that its use of the earnings formula violates the Administrative Procedure Act and constitutes "arbitrary and capricious" rule making.

The plaintiffs are represented by Harvard Law School's Project on Predatory Student Lending and Housing and Economic Rights Advocates.

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Gainful-Employment Negotiators Fail to Reach Consensus

Negotiators appointed to revise the federal gainful-employment rule failed to reach consensus Thursday, leaving it up to the Department of Education to issue its own version of regulations for career education programs.

The Obama administration issued the rule to hold vocational programs accountable when they consistently graduate students with debt they can't repay. The rule was finalized in 2014 and the first set of earnings data was released in November 2016, followed by repayment data in January of last year. But in June Education Secretary Betsy DeVos said she would overhaul gainful employment -- along with, separately, borrower-defense regulations -- to establish a more "fair and balanced" set of rules for colleges and universities.

The department by law was required to pursue the negotiated rule-making process, which involves an appointed panel representing various stakeholder groups. Without consensus from negotiators on a revised rule, the Trump administration will issue its own proposed rule by Nov. 1.

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Ashford University is latest big for-profit to attempt nonprofit conversion

Ashford University is the latest big for-profit bidding to become nonprofit. The university's owner, Bridgepoint Education, will seek to become an online program management company.

Loan Discharge for Students of Failed Law School

The Department of Education last week announced it was extending the window for students who withdrew from a failed for-profit law school before its closure to request discharge of their federal student loan debt.

The decision means that about 300 students who attended Charlotte School of Law could be eligible to have their student loan debt cleared.

Federal regulations state that students who withdrew from a college or university not more than 120 days before its closure can apply to have their loans automatically cleared, a process known as closed-school discharge. But the secretary of education has the authority to declare exceptional circumstances to extend that window so students who withdrew earlier can be eligible for loan forgiveness.

The department in August designated April 12, 2017, as the earliest date students could have withdrawn from the law program and still receive automatic loan forgiveness. Now, Charlotte students who withdrew on or after Dec. 31, 2016, can be eligible for closed-school discharge. That date fell shortly after an announcement from the Obama administration that it would cut off the law school’s access to Title IV federal aid, a major blow to its viability as an institution.

North Carolina attorney general Josh Stein, since well before Charlotte’s closure last year, was asking Secretary Betsy DeVos to extend the closed-school discharge window and praised the decision in a statement Friday.

As of November, when the more narrow eligibility guidelines were in place, just 79 Charlotte students had applied for loan forgiveness. Kyle McEntee, the executive director and co-founder of Law School Transparency, said expanding eligibility for loan discharge was unexpected but the right decision by the department.

“This signals to other for-profit institutions that the ED will not necessarily let them wiggle out of accountability by stringing students along,” he said.

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Accreditor Approves For-Profit Conversion to Nonprofit

Grand Canyon University's accreditor, the Higher Learning Commission, approved the for-profit institution's application to convert to a nonprofit entity. 

"We appreciate the Higher Learning Commission's due diligence in thoroughly examining our proposal," said Brian Mueller, president of Grand Canyon, in a news release. "This is consistent with GCU's history and puts us on a level playing field with other traditional universities with regard to tax status and among other things the ability to accept philanthropic contributions, pursue research grant opportunities and participate in NCAA governance." 

The conversion means the company will sell the university and its academic-related assets to a nonprofit entity. The company, Grand Canyon Education, will continue as a for-profit entity that operates as a third-party provider of services like recruiting, counseling and human resources to the new nonprofit university.

Grand Canyon announced in January it would attempt to change its tax status after failing to make the conversion in a similar bid a few years ago. 

The deal still needs approval from the Education Department and the Arizona State Board for Private Postsecondary Education. 

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Accreditor Backs Purdue-Kaplan Deal

A regional accreditor has approved Purdue University's acquisition of Kaplan University, clearing the way for Purdue University Global, a boundary-testing online venture that is slated to launch in April.

The Higher Learning Commission was the final regulatory hurdle for Purdue Global, which had previously gotten green lights from the U.S. Department of Education and the state of Indiana.

Purdue first announced the proposed acquisition last April. The public university will pay only a nominal fee up front for Kaplan, which enrolls 32,000 students, has 15 campus locations and employs 3,000. Kaplan, however, will continue to run a large portion of the new online university's nonacademic functions, including marketing and advertising, admissions support, financial aid administration, technology and human resources support, accounting, and facilities management.

Critics worry that Kaplan will have too much influence over Purdue Global, which will enjoy certain advantages as a public institution. Some faculty members at Purdue also have complained about the governance structure of the university.

However, Mitch Daniels, Purdue's president and a Republican former governor of Indiana, has said that Purdue Global will extend the university's land-grant mission by making its credentials more accessible to working adults in the state who lack college degrees. He also has pledged that no state money will flow to the new university. With HLC's decision, Purdue "hopes to take a leading role in online learning nationally," Daniels said.

"It opens a new era for our institution, with the opportunity to expand our land-grant mission to millions of adult students around the country," he said Monday in a written statement. "That opportunity brings with it the responsibility to provide the highest quality online education, not only to our new adult learners, but to all residential and online Boilermaker students."

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Inspector General Urges Keeping College Accountability Measures

Although some federal higher ed accountability measures have been ineffective, they should be preserved and strengthened, not scrapped, the Department of Education's inspector general says in a report released Monday. 

The report's conclusions contradict the approach Republican lawmakers would take to accountability for colleges and universities in House legislation and a Senate GOP white paper. And it appears to give ammunition to critics who argue that a reauthorization of the Higher Education Act must maintain existing protections, especially those targeting for-profit colleges.

The PROSPER Act, which House Republicans advanced out of committee in December, would eliminate separate definitions of nonprofit and for-profit institutions. It would also kill the 90-10 rule, which limits the proportion of revenue a college can generate from federal student aid, and the gainful-employment rule, which holds career education programs accountable for producing too many graduates with debt they can't repay. 

The inspector general's report found that both measures could be improved but said the for-profit sector was deserving of special scrutiny. 

"As the OIG has testified before Congress on issues involving proprietary schools over the years, the sector continues to present itself as a high-risk area for the Department," the report says. "This sector, unlike public and nonprofit schools, must produce profit for owners and stockholders, which can create an incentive to evade compliance with obligations to students and taxpayers."

The report found that eliminating existing accountability rules without a proven substitute would create higher risks for students and taxpayers, including loan defaults and loan discharges that would hurt long-term viability of federal programs. But a single loan repayment metric offered by the PROSPER Act would require massive data collection and be subject to manipulation, the report found. 

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Accreditor's decision on Grand Canyon's nonprofit bid coming soon

Grand Canyon University's accreditor soon will decide whether or not the institution can become a nonprofit, the latest among several similar -- and controversial -- conversion attempts.

Borrowers With High Debt Levels Struggle to Repay Loans

The share of borrowers graduating with high student loan debt balances has shot up in recent years. And, increasingly, those borrowers are struggling to pay back those loans, according to a Brookings Institution paper released last week.

The paper's authors, Adam Looney and Constantine Yannelis, find that between 2000 and 2014, the share of those borrowers graduating with $50,000 in student loans more than tripled, from 5 percent to 17 percent. Those borrowers now hold the majority of outstanding student loan debt.

The profile of those borrowers has also changed. Before, large-balance borrowers typically attended graduate or professional schools and saw strong salary returns. But today, those borrowers are often parents or independent undergraduate students and see a much higher share of their income go to loan payments. Meanwhile, the share of borrowers taking out those kinds of high loan volumes only for graduate school has declined. And high-balance borrowers were more likely to have attended less-selective institutions and for-profit colleges.

Those borrowers have taken advantage of options like income-driven repayment but are seeing interest accumulate on their loans faster than they can pay them down.

Looney and Yannelis recommend policy makers consider targeted responses, including smaller loan limits and accountability measures for colleges based on outcomes for graduates and parent loans.

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After Borrower Defense Negotiation Fails, Department to Craft New Rule

Negotiators failed to reach consensus Thursday on new language for borrower-defense regulations, clearing the way for the U.S. Department of Education to craft its own version of regulations designed to protect defrauded student borrowers.

The Obama administration crafted the borrower-defense rule to establish a national standard for student fraud claims after the collapse of Corinthian Colleges and ITT Tech led to a flood of loan-relief claims. Education Secretary Betsy DeVos blocked the rule from going into effect last year and said she would rewrite the regulations to better balance the concerns of students, taxpayers and institutions.

The department was required by law to go through the negotiated rule-making process, in which a panel representing various higher-ed interest groups attempts to seek consensus on the details of a new rule. Without negotiators reaching consensus, the department will aim to issue its own proposed rule by Nov. 1. Members of the public will have another opportunity to comment on the proposed regulation at that point.

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