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August 22, 2014

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Risky for-profit colleges need better oversight to end rampant abuse

Jennifer Kerr took a mighty leap of faith when she sued a for-profit college for misrepresenting what kind of degree she’d be earning and its value to her future. Tucked into her contract with Vatterott Educational Centers Inc. was a provision that, should she sue and lose, Kerr would be responsible for Vatterott’s legal costs.

The Kansas City-area woman’s gamble paid off last month when a jury ordered the corporation to pay her $27,676 in actual damages — about the amount of money she took out in student loans — and a stunning $13 million in punitive damages. The verdict is outside the limits set by Missouri law and will be lowered, but it is a validation of Kerr’s case and a shining example of the justice system coming through for an underdog.

But Kerr’s story is also a depressing tale of an industry that frequently uses unscrupulous tactics to deceive people who are striving to better themselves, but which rarely faces consequences for its misdeeds.

Some trade schools provide quality training for reasonable prices. But throughout the so-called for-profit college industry, abuses are well-documented. Admissions offices are often a guise for aggressive sales operations targeting disadvantaged students, who enroll with greatly inflated expectations of their employment and salary prospects upon graduation, and the amount of debt they’ll be bearing.

Kerr alleged that she enrolled in Vatterott after an admissions representative encouraged her to seek a medical assistant’s degree, which supposedly would lead to a job paying at least $15 an hour. But more than a year later, Kerr learned she was actually in the preliminary medical office assistance program. To get the degree she wanted, she’d need to enroll for about 30 more weeks and pay about $10,000 more. At the trial, other Vatterott students and two former employees testified that they’d witnessed the same bait-and-switch tactic.

But the for-profit college industry won’t be cleaned up in the courtroom. Juries are unpredictable, and not all aggrieved students have a legal case. Most are simply the byproducts of a screwed-up system that allows unscrupulous schools to collect federal loan and grant money from students regardless of outcomes. If educational opportunities and job prospects don’t turn out as promised — and they rarely do — the student gets the debt and the federal government bears the risk. The school pockets the tuition dollars and goes about its merry way.

The spigot for many of the for-profit schools is Title IV student aid, which offers grants to needy students and loans to low- and middle-income borrowers. The for-profit sector receives about one-fifth of all federal aid. It also accounts for almost half of all student loan defaults.

Federal U.S. Department of Education regulations state that schools which engage in “substantial misrepresentation” about a program, its financial charges or the employability of its graduates could be denied access to Title IV money. But critics of the industry say the department rarely follows through with investigations and sanctions. The actions that Kerr alleged against Vatterott could be interpreted as substantial misrepresentation. My inquiries to the Education Department as to whether any action is being contemplated were not answered.

Some state attorneys general have begun cracking down on schools for consumer protection violations. Ultimately, though, abuses in the for-profit college industry will continue until the Education Department gets serious about policing it for fraud, and Congress becomes offended enough by the terrible outcomes and squandered taxpayer dollars to do something substantial.

Barbara Shelly is a columnist for the Kansas City Star.

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