Advocates seek to help trade school students burned by debts

Schools accused of exploiting students for their aid

  • "Everybody was basically just sitting around," Janice Peete-Bey said of trade school experience. "I don't even remember the instructor being there. It was more of a hangout spot as opposed to a school. ... I knew there was definitely something wrong with this whole scenario."
"Everybody was basically just sitting around,"… (Kenneth K. Lam / Baltimore…)
April 06, 2014|By Jamie Smith Hopkins, The Baltimore Sun

Janice Peete-Bey didn't stay long at the Baltimore trade school where she enrolled 25 years ago, leaving after the class seemed useless. But the student loan debt from her noneducation haunts her to this day.

Her wages have been garnished, her tax refunds seized. Those payments total more than $13,500 on a loan that was originally $5,600, according to the Reisterstown woman's pro bono attorney, thanks to interest and collections fees that mounted for years.

And the school? It closed long ago, and its CEO pleaded guilty to defrauding the government and students by concealing its dropout rate so federal student aid kept flowing.

As debate rages about the country's spiraling levels of student debt, some advocates want more focus on making sure people don't get suckered into bad educational deals — and on helping those who have already been scammed. The debt is a hole some might never dig out of, they say.

"The idea that the government will extend you a subsidized loan to get educated is great in theory," said Jane Greengold Stevens, director of the special litigation unit at the New York Legal Assistance Group, which recently filed a lawsuit involving students of a closed school. But for those wrongfully saddled with debt, "it's a nightmare."

"People who went to these schools in order to better themselves so they could get a job and didn't get decent training … are not in a good position to pay off these loans," she said.

Robyn C. Smith, an attorney who works with the National Consumer Law Center, estimates that "thousands and thousands" of former students fall in that category.

The U.S. Department of Education proposed rules last month that target career colleges, an industry buffeted by criticism and lawsuits.

The proposal would apply to most coursework at for-profit colleges, plus the certificate programs at public and nonprofit institutions. It sets a cap for those schools on the rate at which former students default on their loans and on how much loan payments can take from typical graduates' projected earnings.

Colleges that fall short no longer would be eligible to receive students' federal aid, the predominant source of revenue for most for-profit institutions.

For-profit colleges account for 13 percent of the higher-education student population but nearly half of all loan defaults, the Department of Education said when announcing the proposal. It said some programs "produced graduates who on average earned less than high school dropouts."

The industry, which persuaded a federal judge to toss out a similar regulation in 2012, calls the new proposal arbitrary because it doesn't include associate's and bachelor's degree programs at colleges that aren't run for profit.

"Shouldn't we apply this to all institutions?" said Noah Black, a spokesman for the Association of Private Sector Colleges and Universities. "The real issue that we're talking about here is: Do we want to continue to provide access and opportunity for everybody who wants to go to postsecondary education?"

James Rosenbaum, a social policy professor at Northwestern University who researches for-profit colleges, said the best schools do innovative work that should be encouraged: strong career help; consistent schedules across semesters; and guiding students to earn certifications and associate's degrees as they work toward a bachelor's.

The problem for students sorting through their options? The range in quality in the sector is vast, Rosenbaum said.

Smith, who is also a staff attorney at the Legal Aid Foundation of Los Angeles, said the fraud that prompted crackdowns on trade schools in the 1980s and '90s often was blatant — like "enrolling homeless people off the streets." Now, she said, bad schools are accused of being sophisticated, misrepresenting what they offer and requiring students to sign away their right to sue.

She sees the proposed federal rule as a step in the right direction but said it offers no relief to students who have already been taken advantage of.

There's no statute of limitations on student-loan collection. Only in rare cases can the debt be erased in bankruptcy, and it's also hard to qualify for a loan discharge from the Department of Education.

Attending a school whose executives are prosecuted for fraud doesn't, in itself, qualify a former student for a discharge, the agency said.

One of those schools was the PSI Institute, a national chain run by the once-publicly traded Programming & Systems Inc. CEO Irwin Mautner pleaded guilty after a 1996 indictment accused him of defrauding the government and students from 1988 to 1993. He was fined and served eight months in a federal prison.

He did not return a message left at his home in Palm Beach County, Fla. A man who answered Thursday hung up on a reporter seeking comment.

A federal court called PSI's students "vulnerable victims" because they were often poor, out of work and "academically unprepared" — targeted purely for their aid eligibility.

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