Students Without Good Options

Former officials raise concerns over whether for-profit law school's response to loss of federal aid funds denies students options while protecting parent institution from liability.

May 17, 2017
 

As for-profit Charlotte School of Law lobbies to have its access to federal student aid restored, several former government officials and law school watchdogs say the institution is gaming by the system by blocking students from applying to have their federal loans forgiven.

The Department of Education in December cut off Charlotte's access to Title IV student aid funds, a decision that would be a death sentence for most colleges. But the law school's leaders scrambled to stay open and to help current students find funds to remain enrolled at the law school. And the school crafted a teach-out plan to allow students to finish their degrees at another institution operated by parent company InfiLaw.

Normally, students of a college that goes under have the option of applying to have their federal loans forgiven, although they would not be eligible if they completed their program through a teach-out arrangement or transferred credits to another institution. Critics say the law school is no longer viable but by remaining open keeps students from choosing which option to pursue. And that protects the institution from the financial liability of loan-discharge claims.

The Department of Education told Charlotte this month that it would make some Title IV funds available for students already enrolled at the law school as of January. But despite assurances to the contrary from Charlotte leadership, those critics say the writing's on the wall for the institution.

“It strikes me that InfiLaw is trying to avoid the consequences of running an utterly awful law school by running out the clock as long as possible,” said Ben Miller, a senior director for postsecondary education at the Center for American Progress.

Charlotte looks to be doing everything it can to avoid closing and giving students loan discharges they would probably be better off getting, he said. Miller added that the situation points to a broader need to pay more attention the quality and enforceability of the teach-out plans institutions are required to submit if they announce plans to close or lose access to federal aid. Typically, institutions file those plans planning to get students through the end of a semester and help them transfer thereafter.

In a letter to Education Secretary Betsy DeVos last month, North Carolina Attorney General Josh Stein pointed out that most Charlotte students have left the school and that the school’s current enrollment is well below the target it identified to stay afloat.

“Realistically, CSL’s ability to continue to operate is in considerable doubt,” Stein wrote.

The law school would be at risk of closure even if the department restored Title IV funds, Stein wrote. But while Charlotte continues operations, the number of students who would qualify for loan forgiveness drops off because they either transfer or move to another institution operated by InfiLaw.

“Indeed, since CSL and its associated companies are liable to the department for any closed-school discharges granted, CSL would appear to have a vested interest in continuing to operate to decrease their potential liability to your department,” Stein wrote. “The department should not allow any self-serving delay.”

Stein urged DeVos to extend the 120-day window within which current and former students could apply for a closed-school discharge -- a pathway under federal law by which student loan borrowers can have their loans forgiven if their institution shuts down. Borrowers are eligible if their college shuts down within 120 days of their withdrawal.

In a letter to DeVos days later, Charlotte President Chidi Ogene argued that Stein’s request that the window be extended was “premature and improper.” He outlined several developments apparently underlining the law school’s continued viability: a decision by North Carolina regulators to lift suspension of veterans’ education benefits, an improved student-to-faculty ratio, and continued accreditation through the American Bar Association. Charlotte School of Law declined a request to interview Ogene. InfiLaw did not respond to a request for comment.

Ogene countered Stein's letter by proposing that the department reinstate the school’s Title IV eligibility. If the department declined, Charlotte is committed to “an orderly teach-out process during which students would utilize Title IV funds to pay for their remaining education.”

The law school previously rejected a negotiated agreement with the department that would have released some Title IV funds in exchange for a closure plan. The department did not respond to an inquiry this week about whether the release of new funds was contingent upon closure plans.

While Ogene said Stein’s call to extend the window for loan-discharge applications was overly hasty, he wrote that the law school fully recognizes the department’s authority to do so.

“We point this out to dispel any impression, as alleged by the [North Carolina attorney general], we are attempting to limit our students’ rights to a loan discharge,” Ogene said. “We are simply striving to maintain the program and services provided by our school for current, and we hope future, students.”

Clare McCann, a senior policy analyst at New America's education policy program and a former Education Department official in the Obama administration, said it was clever of the law school to pin that decision on the department. The department rarely extends the window for loan-discharge claims, she said. And in cases where it has, the window was extended months, not years.

McCann said the Charlotte case raised broader questions about how accreditors and the department handle the closure of colleges and the options made available to students in those cases.

“Any of these big corporations that have multiple institutions under them have a reason to be concerned about whether or not they're going to be responsible for closed-school liabilities,” she said.

McCann added that any scenario where the school’s operations are extended, even if the window for loan-discharge claims is extended, would mean more students either transfer or accept a teach-out plan for another InfiLaw institution. That means fewer liabilities for Charlotte’s owner.

According to both the law school and its accreditor, the American Bar Association, Charlotte’s current ordeal began with an overreach by the Department of Education. Although the ABA placed Charlotte on probation in November, it remains accredited.

Barry Currier, managing director of the ABA’s section of legal education and admissions to the bar, said pulling federal aid money is typically tantamount to a decision to close a school. Currier said the ABA considers closure of a school a decision for the accreditor, not the department, to make. Making programmatic assessments -- basically, whether a college is offering students a quality education -- has been the realm of accreditors. The department has traditionally taken steps to cut off federal loan access when an institution is found to have improperly used those funds.

The ABA placed the law school on probation after finding it was out of compliance with standards, including one barring programs from admitting applicants who do not seem capable of completing the program and passing the bar. The department, in announcing the decision to cut off federal aid the next month, cited “substantial misrepresentations” to current and prospective students. Others, including Stein, have observed extremely low bar-passage rates -- as low as 25 percent for the February 2017 state bar exam. The North Carolina attorney general observed that in recent years Charlotte administrators had systematically lowered admission standards in response to declining enrollment, leading to those poor results. And other InfiLaw institutions have similarly unimpressive passage rates, critics say.

The law school was required to submit a plan to get back into compliance after the ABA placed it on probation. And after federal aid was cut off, Charlotte was required to submit a teach-out plan detailing how it would continue operations. Currier said he does not consider the law school to be gaming the system with the response it's taken.

“They have not announced they’re closing. The mission going forward is figuring out a way for students to pay for their education,” he said. “To the best of my knowledge, I think they’re taking steps they should be taking to try to make that happen.”

Like most law school programs, Charlotte was reliant on revenue from federal student loans to operate. It took in nearly $50 million in such funds last year. In recent years, the Obama administration showed a willingness to use the levers of federal financial aid to hold institutions accountable -- especially for-profits. The department’s decision to ban ITT Technical Institutes from enrolling new students with Title IV money, including Pell Grants and federal direct student loans, led the for-profit chain to close within weeks.

Kyle McEntee, executive director of Law School Transparency, said the Charlotte case is limited as a model for other colleges facing loss of Title IV funds, because the back-and-forth has unfolded during a transition between U.S. presidential administrations. The law school went from facing a department that had staked out a position that was skeptical of the for-profit sector to one that is much more open to the role of those institutions in higher ed.

McEntee said if the Department of Education does fully restore access to Title IV funds at Charlotte, that would send a negative signal about how it values which institutions receive government funds.

“The plan seems to be squeeze as much money from people still here as possible and preclude closed-school discharge,” McEntee said. “That way, they’re not on the hook in the event the school closes.”

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