How Can a Consumer Protection Framework Help Protect Students from For-Profits?

Written by Neal Hutchens, Frank Fernandez, and Macey Edmondson

Students at for-profit colleges and universities too often fall victim to predatory practices, resulting in individuals being overburdened by debt, failing to earn a degree, or possessing poor career prospects. Much of the conversation around bad actor for-profit colleges and universities has focused on the federal government’s role in protecting students. In a study supported by the State Higher Education Executive Officers Association (SHEEO) and Arnold Ventures, we conducted a review of laws and legal standards focused on state legal authority over for-profit colleges and universities. Our project shows that states possess important legal authority to curb the actions of bad actor for-profit institutions, including areas where state and federal law can play complementary roles in protecting students.

In the study, we specifically focused on ways that states can engage in legal and regulatory actions to provide better consumer protections for enrolled students and disclosures that help potential students make more informed decisions regarding enrollment at for-profit colleges and universities. Part of our analysis drew from a search of legal decisions from state and federal courts. The goal of our review and analysis of legal decisions was to gain a sharper understanding of the potential types of legal challenges that for-profit institutions may bring in court in response to the exercise of state authority and, most importantly, the scope of state legal authority to impose rules and requirements on for-profit schools.

One strategy to help individuals make better informed enrollment decisions relates to mandatory disclosures that for-profit providers must make to potential or current students (Shelton, 2012–2013; Taylor, 2010). In reviewing such standards, the research team focused on the nature of disclosures as well as the legal authority of states to impose required disclosures on for-profit colleges to potential, enrolling, or enrolled students. Our review of cases and state laws revealed several types of disclosures to students and potential students that states can require, including:

· graduation rates for particular programs,

· student passage rates on required licensure or certification exams,

· information regarding student loan debt, such as the requirement to repay loans even if an individual does not finish a program or information regarding the percentage of students at an institution who have defaulted on or failed to repay student loans, and

· placement rates of graduates in full-time, permanent employment

A second strategy for helping students is to regulate aggressive marketing by for-profit colleges and universities. For-profits often target vulnerable populations — and use huge sums of public financial aid and student loan revenue to do so (Cellini & Chaudhary, 2020). States may find that focusing on recruiter compensation is an effective strategy for limiting how for-profit colleges and universities induce students to borrow to pay for-profit tuition. For instance, states may adopt, and state regulatory agencies may enforce, policies that align with the federal False Claims Act (Taylor, 2010). We also found that states like Arkansas, California, and Massachusetts hold for-profit colleges accountable for statements made by their recruiters and limit recruiters’ high-pressure sales tactics (such as aggressive, repeated phone calls).

Finally, states can apply existing laws that exist to protect consumers from other types of businesses to protect students from predatory for-profit institutions. For example, when arbitration agreements prevent students from suing for-profits, state attorneys general (or other state agencies) may sue bad actor for-profit institutions. These offices have the ability to act as regulators on behalf of students in issues where fraud, misrepresentation, misleading advertisements, and deceptive trade practices take place by proprietary institutions (Pridgen et al., 2020). Unlike an action brought by an individual or group of individuals, state agencies, if appropriately resourced, are better able to engage in enforcement to take on incidents where large numbers of students have been the victims of misleading or fraudulent actions by for-profit providers. Several state attorneys general have recognized the need for reform and have cracked down on for-profit institutions to protect students from misrepresentation (Schade, 2014).

Our legal analysis shows that states have been active players in the regulation of for-profit higher education, even if the state role has tended to receive less attention than that of the federal

government. A review of legal cases indicates that states possess meaningful legal authority in the regulation of for-profit higher education, authority that goes beyond the initial permission of an institution to operate in the state, whether physically or through distance education. In working alongside other state officials and agencies, state higher education officers can benefit students and potential students by understanding the array of state-based laws and regulations available to target bad actor for-profit institutions and how state and federal laws can play complementary roles in curbing and addressing excesses by for-profit schools.

This blog post is based upon a report that is one in a series coordinated by the State Higher Education Executive Officers Association (SHEEO) and supported by Arnold Ventures. The series is designed to generate innovative empirical research regarding state authorization processes and policies that can serve as a foundation for future research and policy in this understudied area.

You can find our full report here: https://sheeo.org/wp-content/uploads/2021/08/Hutchens-et-al-Toward_-a_Consumer_Protection_Framework.pdf

References

Cellini, S. R., & Chaudhary, L. (2020). Commercials for college? Advertising in higher education. Brookings. https://www.brookings.edu/research/commercials-for-college-advertising-in-higher-education/

Pridgen, D., Alderman, R.M., Cuaresma, J.C. (November 2020 Update). §7:1. Introduction. Consumer Protection and the Law. Westlaw Thomson Reuters.

Schade, S. (2014). Reining in the predatory nature of for-profit colleges. Arizona Law Review, 56(1), 317–340. https://arizonalawreview.org/reining-in-the-predatory-nature-of-for-profit-colleges/

Shelton, C. (2012–2013). Private actions against proprietary schools. Rutgers Law Record, 40, 81–117. http://lawrecord.com/files/40_Rutgers_L_Rec_81.pdf

Taylor, A. N. (2010). “Your results may vary”: Protecting students and taxpayers through tighter regulation of proprietary school representations. Administrative Law Review, 62(3), 729–782. https://scholarship.law.slu.edu/cgi/viewcontent.cgi?article=1056&context=faculty