The U.S. Department of Education announced Joseph A. Smith has been appointed as special master to help the department and student borrowers through the debt relief process in the wake of the Corinthian Colleges shutdown. Smith's appointment is a part of the Obama administration's debt relief plan that is expected to help federal borrowers who can prove they were defrauded by their college.
Smith was appointed in 2013 to monitor consumer relief obligations included in the $13 billion settlement between the U.S. Department of Justice and JPMorgan Chase. In 2012, he was appointed by a bipartisan group of state attorneys general, the federal government and the five largest mortgage servicers to monitor the National Mortgage Settlement -- the largest consumer financial protection settlement in U.S. history.
"Throughout my career in financial services regulation, I have worked to protect the interests of both consumers and taxpayers. That is why it is an honor and a privilege for me to work with the Department of Education on this matter, where I will extend that commitment to protect students as well. In all my work, disclosure and communication have been critical to gaining public trust," Smith said.
While he won't have ultimate decision-making authority in granting debt relief to students, Smith will create an application for borrowers to apply for loan forgiveness, make recommendations on issues and strengthen the process so the department can recover money from schools after successful borrower defense claims.
As of June 23, the department has received 4,500 applications for closed school loan discharges, 1,400 borrower defense claims and 850 online requests to enter forbearance or stop debt collection, Under Secretary of Education Ted Mitchell said.
"They're mostly Corinthian, but there are some other schools trickling in," Mitchell said, although he wasn't able to immediately identify those other institutions.
Mitchell acknowledged that while the department is currently dealing with Corinthian students, it is very likely other institutions will be headed down a similar path, which is why it was important to develop a process for recovering taxpayer dollars from institutions found to be at fault.
"We're hoping and confident that Joe will help us establish procedures that will not only address the Corinthian matter, but subsequent iterations of borrower defense," he said. "We have the right and obligation to retrieve funds from the institution itself."
The former student loan ombudsman for the Consumer Financial Protection Bureau -- who is still taking on for-profit colleges from his new perch -- sent a letter to ITT Educational Services investors Wednesday asking them to reform the for-profit institution.
Rohit Chopra, now a senior fellow with the Center for American Progress, wrote, "I have serious concerns that ITT is not properly managed. Unless investors provide more vigorous oversight over management and the board, ITT will continue to harm both its students and its shareholders."
ITT is facing lawsuits from state and federal agencies for allegedly guiding students to predatory loans and lying to investors about high default rates on those loans. The company has been compared to Corinthian Colleges.
In response to the letter, Nicole Elam, ITT's vice president of government relations and external affairs, criticized Chopra's view as endemic of Washington's bias against the for-profit industry.
"The fact that he would write such a letter to investors days after leaving the [CFPB] trumpeting mere allegations against the company demonstrates a personal bias against our institutions and an unwillingness to allow for due process to work -- the cornerstone of the U.S. legal system," Elam said in a news release. "Allegations are not facts and we think our investors will not take action based on simple assertions from someone with an ideological ax to grind."
A federal judge dismissed a second challenge Tuesday to the U.S. Department of Education's gainful employment rule.
U.S. District Court Judge John Bates upheld the department's gainful employment regulations, including the debt-to-earnings test and disclosure, reporting and certification requirements that had been challenged in a lawsuit by the Association of Private Sector Colleges & Universities (APSCU), which is the for-profit sector's trade group.
It was the second attempt at blocking this version of the Obama administration's attempt to regulate the industry by holding for-profit colleges accountable for the type of employment and debt students hold once they leave the institution. (A federal judge in 2012 largely invalidated a previous version of the rules.) APSCU argued that any employment after college should be viewed as gainful. The court disagreed, however. The department can measure the average debt load of a program's former students against their earnings and only those graduates who make enough money to service their educational debt will be viewed as gainfully employed. The court also rejected the for-profit group's argument that the metrics are arbitrary.
Hillary Clinton last week said as president she would seek to crack down on the for-profit college sector's aggressive recruitment of military veterans, the Associated Press reported. The former U.S. secretary of state and current candidate for the Democratic nomination for president said she would push to change the so-called 90/10 rule, which prevents for-profits from receiving more than 90 percent of their revenue from federal sources. Under current regulations, veterans' educational benefits like the Post-9/11 GI Bill do not count toward that 90 percent limit. Clinton said she would seek to eliminate this "loophole," as some of her Democratic colleagues in the U.S. Senate have sought to do several times before, unsuccessfully.
Career Education Corporation, a major for-profit chain, announced Thursday that it is selling Brooks Institute to gphomestay, a company that works on international student programs at high schools and colleges in the U.S.
The California-based Brooks Institute is a visual and media arts institution that offers undergraduate and master's degrees. It enrolls roughly 500 students and has campuses in Santa Barbara and Ventura.
Career Education said last month that it would sell or close everything but its Colorado Technical University and American InterContinental University holdings as part of a broad restructuring and an effort to "rightsize." Colorado Technical and American InterContinental enroll about 34,000 of the company's 45,000 students.
The Association of Private Sector Colleges and Universities sent a letter to U.S. Department of Education Under Secretary Ted Mitchell Thursday expressing disappointment in how the federal agency views the for-profit sector in the wake of the department's decision to provide debt relief to former Corinthian Colleges students.
Steve Gunderson, APSCU's president and CEO, wrote, "The challenges facing the students who attended Corinthian Colleges are a direct result of the department's actions targeting private-sector institutions. Institutions of higher education should be held accountable, but any meaningful accountability must be applied across all of higher education."
Gunderson specifically took issue with a blog post from the department that explained options available to Corinthian students.
"I was disappointed that the department used a blog post about debt relief options available for students of a school that has closed to put forth sweeping, biased criticisms of private-sector institutions serving new traditional students," he wrote.
A budget committee of Wisconsin's Legislature last week voted down a proposal by the state's Republican governor, Scott Walker, to eliminate Wisconsin's oversight board of for-profit institutions, the Wisconsin State Journalreported. In February Walker proposed nixing the Educational Approval Board as part of his budget plan. Cutting the small state agency would "decrease the regulatory and fiscal burden" on for-profits, he said at the time.
After the Legislature committee voted down the proposal last week, David Dies, the board's director, said the recent attention has been beneficial. "Ironically I think this whole process has helped create visibility and awareness for the agency," he told the State Journal.