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For-profit college crackdown coming: FTC 'is resurrecting a dormant authority to deter wrongdoing'

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The Federal Trade Commission (FTC) is cracking down on for-profit schools by rolling out new fines for colleges that mislead students about jobs and earnings prospects.

The regulatory agency sent notices to 70 for-profit higher education institutions on Wednesday with the warning that any false promises they make about their graduates' jobs and earnings prospects and other outcomes could lead to "significant financial penalties," the FTC said. 

“For too long, unscrupulous for-profit schools have preyed on students with impunity, facing no penalties when they defraud their students and drive them into debt,” FTC Chair Lina M. Khan said in a press release. “The FTC is resurrecting a dormant authority to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers. Working closely with our state and federal partners, we’ll be monitoring this market carefully.”

That authority is the "Penalty Offense Authority, found in Section 5 of the FTC Act, to ensure that bad actors pay a price when they break the law."

The notices that were sent informed operating for-profit schools of the fact that they could incur significant sanctions if they engage in certain unlawful practices. They also outlined how the FTC has found for-profit schools to be unfair or deceptive.

UNITED STATES - FEBRUARY 14: Rohit Chopra, nominee to serve on the Federal Trade Commission, testifies during a Senate Commerce, Science, and Transportation Committee confirmation hearing in Hart Building on February 14, 2018. (Photo By Tom Williams/CQ Roll Call)
UNITED STATES - FEBRUARY 14: Rohit Chopra, nominee to serve on the Federal Trade Commission, testifies during a Senate Commerce, Science, and Transportation Committee confirmation hearing in Hart Building on February 14, 2018. (Photo By Tom Williams/CQ Roll Call)

In a press call, FTC Commissioner Rohit Chopra, who has also been newly confirmed as the Consumer Financial Protection Bureau Director, added that "there is a great deal of work to do to restore the public's faith in oversight of our student loan and higher education system" and that "activating the FTC penalty offense authority is one of many examples where the FTC needs to put its tools to use, rather than letting them languish or pretending that they don't exist."

'Restore the public's faith in oversight of... higher education'

Consumer Protection Director Samuel Levine noted that the FTC, which only has jurisdiction over for-profit colleges, sent the first set of notices out in October 2021 and that "nothing is stopping us from sending it to additional schools."

The 70 schools on notice were the largest for-profit schools, and the full list of schools can be found here. Schools that were sent a notice include big names like Capella University, DeVry University, Full Sail, and Grand Canyon University among others.

While the fact that a school has been put on notice is not directly an indication that it has done anything wrong, Levine said that "if we can show that a school has actual knowledge of the practices that the FTC is condemned and that it nevertheless engages in those practices, then we have a basis to seek civil penalties."

The civil penalties schools would ultimately have to pay if the FTC finds sufficient evidence of continued deceptive practices could go up to $43,792 per violation, though the penalties will vary depending on the violations, the degree of harm, and other factors. And debt relief may be a possibility further down the road, the FTC said. 

"The kind of fraud we're uncovering may in fact be a basis for students to seek debt relief from the Department of Education," Levine said. 

The Education Department has a separate process called borrower defense that's geared at helping defrauded student debtors who attended predatory for-profit schools receive loan forgiveness.

Indianapolis, US - November 18, 2016: ITT Educational Services Location. ITT Technical Institute has closed all its campuses in the wake of devastating federal sanctions IV
ITT Technical Institute closed all its campuses in the wake of devastating federal sanctions IV in 2016.

Education complaints surged by 70% in two years

According to the FTC, this initiative to stop for-profit college fraud is the first time the agency has used its Penalty Offense Authority to protect students and their families. 

"Many of us are familiar with these practices, because we encounter them year after year. You may have seen ads in schools promising the job of your dreams and your chosen field," said Levine. "These pitches sound good, especially to Americans who may be struggling. But we have seen that these claims can be baseless designed to drive students in the door, but ultimately drive them into debt."

The moves come after the Trump-era Education Department loosened several Obama-era regulations intended to hold for-profit schools accountable, including rules based on whether their graduates were able to repay their student loans and how information about colleges was presented on department’s website.

According to the FTC, complaints about education-related issues surged roughly 70% from 2018 to 2020.

The practices that schools are allegedly engaged in consist of misrepresentations about "career outcomes of their graduates, including whether a particular career field is in demand, the percentage of graduates who get jobs in their chosen field, whether the institution can help a graduate get a job, the amount of money a graduate can expect to earn and other related practices."

Federal Trade Commission seal is seen at a news conference to announce that Facebook Inc has agreed to a settlement of allegations it mishandled user privacy at FTC Headquarters in Washington, U.S., July 24, 2019. REUTERS/Yuri Gripas
Federal Trade Commission seal is seen at a news conference to announce that Facebook Inc has agreed to a settlement of allegations it mishandled user privacy at FTC Headquarters in Washington, U.S., July 24, 2019. REUTERS/Yuri Gripas

The FTC previously brought enforcement actions including against the for-profit chain University of Phoenix, securing payments for former students over the school's use of deceptive ads.

"To be clear, sending notices to the 70 for-profit schools, does not indicate that they are currently engaged in any wrongdoing... we are sending a decisive message to the industry at large that the conduct described in our notice of penalty offenses, is a violation of the FTC," stressed Levine. "If your school engages in that conduct, we can take action, and we will." 

The for-profit lobby group said it was disappointed with the FTC's actions.

“The FTC announcement includes no findings of wrongdoing at any for-profit institution. Publicly announcing that it is sending warning letters to 70 of the largest for-profit institutions arbitrarily impugns the integrity of institutions that are in full compliance with FTC regulations," Career Education Colleges and Universities President and CEO, Jason Altmire said in a statement. "We were also surprised that only for-profit institutions will be subjected to these enhanced civil monetary penalties, while other bad actors under the FTC’s jurisdiction will not be held to the same standard.”

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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