The Wall Street Journal recently reported that the Consumer Financial Protection Bureau has expanded an earlier probe into for-profit colleges. The CFPB is joining with 32 state attorneys general in the investigation. Recent regulatory filings by Corinthian Colleges Inc., and ITT Educational Services Inc., indicate the CFPB is considering legal action over the companies’ lending practices related to student loans they issue.
The Journal cited a 2010 report by the Center for Analysis of Postsecondary Education and Employment which stated that for-profit colleges have accounted for an increasing share of federal financial aid over the last decade, increasing from 11 percent of student loans in 2000 to 23 percent in 2010. The industry receives about $30 billion annually in taxpayer-funded grants and loans. ITT says it has awarded more than $170 million in scholarships during the past year.
The for-profit college industry has also drawn recent scrutiny from the Justice Department and the Securities and Exchange Commission. The Department of Education has announced a policy to deny federal money to vocational programs at for-profit and community colleges if their students showed high default rates or high debt-to-income ratios after graduating.
The probe has two areas of focus. One is loans provided by outside investors through the colleges. The other is job-placement promises made by the institutions. Also, the CFPB appears concerned about high-interest loans issued with inadequate disclosures about loan terms and exaggerated claims about students’ future earnings potential.
The Journal quoted an ITT representative saying, “We believe that all of our actions were lawful and we intend to vigorously defend ourselves” against any legal action on the part of the CFPB. A Corinthian spokesman was quoted by the Journal stating that all students have been provided with detailed descriptions of the terms of their loans, and that all students are informed “clearly and in writing that no student or graduate can be guaranteed employment.” According to the Journal, ITT said it has “not identified any third-party private education loan programs for our students’ use since 2011,” and a Corinthian spokesman said loans made through its programs are “well-below” market rates, with a maximum rate of 9.9 percent.
Nonetheless, the Journal quoted Kentucky Attorney General Jack Conway saying that the states are working with the CFPB to ferret out unfair or deceptive student lending and other practices. “I expect in 2014 you’ll see action by the CFPB in coordination with states,” Conway said. The Journal reported that a CFPB spokeswoman declined to comment on any investigation or pending action.