Our Work

State & Local Policy Work

It is no secret that United States Secretary of Education Betsy DeVos is pursuing a sweeping agenda to eliminate protections for students seeking higher education. Through her regulatory proposals and steadfast refusal to hold predatory for-profit colleges accountable for misconduct, Secretary DeVos has created an urgent need for states to provide greater oversight of institutions of higher education.

States have long played an important role as regulators and authorizers of institutions of higher education operating within their borders. As one of the key components of the "triad" of higher education, Congress has not wavered in its support of states’ unique gatekeeping role.[1] For that reason, all fifty states, the District of Columbia, and several United States territories continue to play a vital role in protecting students.

As state executives, legislators, and administrative officials seek to enhance their state’s gatekeeping function, Student Defense is available to provide detailed technical assistance on specific policy proposals. Such assistance will necessarily include careful consideration of a state’s existing legal framework. Because such detailed proposals must be tailored to each state’s legal framework, the following includes a list of generalized proposals for states to consider.

  • Setting stronger state standards to receive state authorization and state aid. Because states authorize institutions of higher education, as well as provide a source of funding for institutions and students, states have ample authority to protect students from predatory for-profit colleges. States can, for example, set clear standards for when schools will become ineligible for state authorization and state aid based on a school’s official cohort default rate (i.e., the percentage of a school’s borrowers that enter repayment during a particular fiscal year and then default within a specific timeframe). At the federal level, schools with cohort default rates of thirty percent or greater for three consecutive fiscal years lose access to federal student loans and Pell grants.[2] Similarly, schools with cohort default rates of forty percent or greater for the most recent fiscal year also lose access to federal financial aid.[3] Using the Department of Education’s published data on cohort default rates, states can pressure institutions to improve student outcomes by setting lower cohort default rates and tying those rates to state authorization, state aid, or both.

    In addition, states can set clear standards on how much of a school’s revenue must come from sources other than federal and state aid. At the federal level, for-profit schools are required to comply with the “90-10 rule.” This regulation caps the percentage of revenue that a for-profit school can receive from the Department of Education at ninety percent. The other ten percent of a school’s revenue must come from outside sources. Importantly, the GI Bill—an education benefit for military servicemembers and veterans—counts towards the ten percent of other revenue, which has incentivized many schools to target and aggressively recruit military students. States can help close this loophole and force for-profit schools to rely on other sources of revenue to generate their profits by instituting, at minimum, a more restrictive “85-15 rule,” where both the GI bill and state aid count as part of the eighty-five percent cap on revenue from government sources.
  • Establishing and adequately funding a state tuition recovery fund (“TRF”). State TRFs can be a valuable source of relief for students who attend schools that close abruptly, defraud students, or break state or federal laws. Although the scope may vary by state, as a general matter, TRFs reimburse students for education-related expenses. For example, if a school in California closes or loses its eligibility for state or federal aid, the state’s TRF provides reimbursement for tuition payments that students paid out-of-pocket or that were paid by state aid, federal Pell grant, or GI Bill benefits. State TRFs are most helpful when they cover all students and all school-related expenses. Of course, a key component of any TRF is an adequate source of funding. Funding mechanisms may vary. States can require for-profit schools to contribute to the TRF as a condition of state authorization. Contributions can be set at a percentage of the school’s previous year of tuition and fees, a flat rate, or a combination of the two. Contributions can also be based on specific risk factors, such as a school’s over-reliance on federal student loans for revenue, big swings in enrollment, high loan default rates, low loan repayment rates, and other metrics.
  • Providing enhanced disclosures to prospective students. Accurate consumer disclosures about graduate earnings, student debt levels, program length, and regulatory or law enforcement problems enable prospective students to better assess the quality and value of a degree or certificate. As one example, the Department of Education’s College Scorecard allows students to search and filter information so that they can compare costs, average loan amounts, and the average student’s ability to repay his or her loans across multiple institutions. Regulators, accreditors, and government agencies also make use of information contained in these types of disclosures. In the past, numerous consumer protection government enforcement actions have held institutions accountable for issuing false information to students and the public through required disclosures.

    In crafting disclosure language, the content, timing, and method of disclosures all matter. In terms of content, states can require schools to provide certain disclosures to help students make informed decisions about whether to pursue higher education. Such disclosures might include: the school’s unaccredited status; the cost and length of the program; the school’s refund policy; the transferability of credits; the licensure and certification requirements of the student’s chosen profession in the state where the student resides; the cohort default rate; the job placement and earnings data of prior graduates; and any adverse actions (e.g., investigations, fines, lawsuits) taken against the school by the Department of Education, the state, the school’s accreditor, or others. In terms of timing and methodology, NSLDN believes that disclosures are most helpful when made via plain language, directly to students, and before a student makes an enrollment (or re-enrollment) decision. Such disclosures should also go through rigorous consumer testing.
  • Prohibiting schools from forcing students into mandatory arbitration or banning class action lawsuits. Many schools include clauses in enrollment agreements that require students to resolve disputes through mandatory arbitration and/or prohibit students from pursuing class action lawsuits. These requirements put students with legitimate grievances at an extreme disadvantage. Discovery can be limited, making it difficult to uncover evidence of misconduct. The outcome of an arbitration proceeding is usually not appealable (or, when it is, involves a standard of review that is exceedingly deferential to the arbitrator’s ruling) and often kept secret. Moreover, when a clause limits the use of class actions, students are forced to pursue claims individually, even when there is evidence of widespread misconduct, and may face the prospect of doing so without legal representation. All of these factors serve to help for-profit schools hide evidence of their fraud and abuse from other students and the public. 

    States can play a role in ensuring that aggrieved students get their day in court. Whenever a state fund part of a student’s tuition, that state can prohibit schools receiving its funds from including mandatory arbitration clauses and class action bans in their student enrollment agreements.[4]
  • Requiring programs that provide training in fields with state licensure requirements to meet the minimum standards necessary for graduates to sit for the state licensing exam where they reside. Students who enroll at institutions of higher education in order to work in a specific profession have, too often, ended up with costly, worthless degrees. Although for-profit colleges typically have institutional accreditation to receive federal financial aid, the individual programs these schools offer are not always properly credentialed. When this happens, students graduate only to find out that they are not qualified to obtain employment in their field or that they cannot sit for or pass the required state licensing exams. Lack of programmatic accreditation affects many fields, from medicine and law enforcement to massage therapy. States can prevent students from obtaining these costly, worthless degrees by requiring, as a condition of state authorization, that any programs offered by for-profit schools for the purpose of preparing students for employment in a particular field meet the minimum accreditation standards of the field’s state licensing board and permit graduates to be eligible for state licensing or certification. Similarly, states can require these programs to meet any requirements set by the field’s trade or professional organizations.
  • Repealing laws that allow for the suspension of professional licenses whenever a borrower goes into default on his or her student loans. More than twenty-five percent of workers in the United States now require a professional license to practice their professions[5], including occupations as diverse as teachers, interior designers, nurses, lawyers, and hairstylists. In the 1990s, the Department of Education encouraged states to adopt laws that would suspend or revoke a professional license whenever a student defaulted on his or her student loans.[6] Currently, eighteen states still allow government agencies to revoke the professional licenses of student loan borrowers in default.[7] Such a practice makes little sense: borrowers who are already struggling to repay their debts are stripped of the licenses they need in order to make money to pay back those same loans. With nearly nine million borrowers in default today,[8] the majority of whom attended for-profit and community colleges[9], it is crucial for states to prohibit the punitive practice of government agencies denying, suspending, or revoking professional licenses as the result of defaulted student loan debt.
  • Banning all forms of incentive-based compensation in the college admissions and financial aid process. The Higher Education Act prohibits schools—and any third-party entities with which the school contracts—from compensating employees for their successes in securing student enrollments or financial aid packages. This is intended to ensure that the admissions process focuses on whether the school is a good fit for an individual student, rather than on how much money the student can bring to the school. For-profit schools routinely flout this ban in creative ways. Rather than providing additional pay, for example, many schools have switched to disciplining or firing employees who do not meet enrollment or financial aid targets. States can prevent schools from engaging in this sort of gamesmanship by making clear that an employee’s pay, promotion, demotion, or firing cannot be linked in any way to that employee’s success in securing enrollments or financial aid packages.
  • Banning higher education institutions from withholding students’ transcripts, diplomas, or other academic records due to disputes about unpaid debts. Colleges routinely refuse to release transcripts, diplomas or certificates, and other academic records until former students agree to pay in full all debts—such as tuition and fees and private institutional loans—owed directly to the school.[10] This type of refusal is especially problematic at for-profit schools that have been accused of misconduct. Such schools use students’ academic records as a weapon, placing pressure on students to stop pursuing claims for relief. Unfortunately, there is no federal law prohibiting schools from engaging in this type of behavior, although the Family Educational Rights and Privacy Act of 1974 (“FERPA”) does require schools to release at least one unofficial transcript upon request.[11] But many students need official transcripts or copies of their diplomas or certificates in order to transfer to other schools or apply for and secure employment.  States can prevent institutions from holding these students’ futures hostage by prohibiting schools that operate within their borders from withholding a student’s academic records due to disputes over unpaid bills.
  • Providing no-cost independent financial counseling for prospective and current students. The decision to take on student debt is an important one, but the federally mandated entrance and exit counseling offered by schools rarely prepares students to understand the ins and outs of the repayment process. For example, many students leave school confused about the difference between deferment and forbearance, the advantages and disadvantages of each loan repayment plan, and what to do if they are unemployed or cannot afford their monthly payments. States can offer free financial counseling through an entity not associated with the school at two critical decision points: before a student enrolls and shortly before graduation. This type of independent, free counseling would ensure that students understand how to manage their student loan debt. Such counseling might include: an explanation of the financial aid application process; the difference between scholarships, loans, and grants; projections of future monthly payment amounts; projections of earnings post-graduation in the student’s chosen field; repayment plans that may be most beneficial to the student; how to create and stick to a monthly budget; strategies for quickly paying off loans whenever extra funds are available; and the student’s eligibility for federal and state loan forgiveness programs, among others.

[1] See, e.g., 20 U.S.C. § 1001 (defining “institution of higher education” to include only such entities that are “legally authorized within such State to provide a program of education beyond secondary education”).

[2] 34 C.F.R. § 668.206(a)-(b).

[3] Id.

[4] States interested in doing so should consult carefully with NSLDN or other lawyers to ensure that any policy proposals do not violate the Federal Arbitration Act.

[5] Andrew Wagner, “License Suspension for Student Loan Defaulters,” Legis Brief (Oct. 1, 2018), available at: http://www.ncsl.org/research/labor-and-employment/license-suspension-for-student-loan-defaulters.aspx.

[6] Id.

[7] Preston Cooper, “Nonsensical State Laws Yank Licenses from Student Loan Defaulters,” Forbes (June 22, 2018), https://www.forbes.com/sites/prestoncooper2/2018/06/22/nonsensical-state-laws-yank-licenses-from-student-loan-defaulters/#73aecf5928ad.

[8] Id.

[9] Preston Cooper, “Most Student Borrowers Fix Their Default – Except This Group,” Forbes (Aug. 15, 2018), https://www.forbes.com/sites/prestoncooper2/2018/08/15/most-student-borrowers-fix-their-defaults-except-this-group/#21c56a423f5a.

[10]See, e.g., Neil Swidey, “Colleges must stop holding student transcripts hostage,” Boston Globe (June 17, 2016), https://www.bostonglobe.com/magazine/2016/06/17/one-simple-way-colleges-should-help-students-debt-right-now/koN0t1ccYhgA3qSYJBpFqK/story.html; see also Fed. Student Aid, U.S. Dep’t of Educ., Understanding Delinquency and Default, https://studentaid.ed.gov/sa/repay-loans/default (noting that “[y]our school may withhold your academic transcript until your defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school's decision—not the U.S. Department of Education’s or your loan holder’s—whether to release the transcript to you.”).

[11] See 20 U.S.C. § 1232g(a)(1)(A); 34 C.F.R. § 99.10(d)(1).