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Defrauded Student Loan Borrowers Win, but Still Lose

When Albert Paul Cruz opened a letter from the Education Department last month, he saw the words he’d been waiting for: “We approved your claim.” The government finally agreed that he’d been defrauded by ITT Technical Institute, the defunct for-profit chain where he’d racked up almost $60,000 in student loans getting what he considers a worthless degree.

Then he scrolled to the next page and saw how much of that debt would be forgiven: zero. The department, the letter said, had concluded he suffered no financial harm.

“You’re acknowledging the school defrauded its students and claiming that didn’t hurt us?” said Mr. Cruz, who earned an associate degree in computer networking systems in 2010 but never worked in that field. “How is that even possible?”

The granting of nonexistent relief is the latest maneuver by Education Secretary Betsy DeVos against a federal program meant to help student loan borrowers who were victimized by schools that offered only sham degrees and empty promises. For years she has refused to take part in what she called a “free money” giveaway, prompting dozens of lawsuits against the department.

Now, under pressure from federal courts to deal with hundreds of thousands of unresolved claims, her department is finally processing them — and saying no. More than 45,000 rejection notices have been sent in recent months, according to agency data.

And when the department is legally obligated to approve a claim, it is often granting only minuscule relief — or none at all.

“Borrowers can’t win,” said Eileen Connor, the legal director of the Project on Predatory Student Lending, a group that has represented borrowers in multiple cases against the department, including one filed last month that challenges the agency’s partial-relief approach. “To tell even borrowers who can prove they were defrauded by their school that they still get no relief is absurd and cruel.”

The Department of Education did not respond to repeated requests for comment.

Ms. DeVos has long opposed the relief program, called Borrower Defense to Repayment, which allows students to have their federal student loan debts eliminated if their schools acted fraudulently. The decades-old provision was little used until five years ago, when a coordinated state and federal crackdown toppled big chains including ITT and Corinthian Colleges. Millions of former students were left with large debts for useless degrees from bankrupt schools or credits other institutions wouldn’t accept.

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Credit…Anna Moneymaker for The New York Times

The education secretary at the time, Arne Duncan, promised to forgive the debts of students at Corinthian, and said more relief would follow. “This is our first major action on this, but obviously it won’t be the last,” he said in 2015. About 30,000 applicants received relief in the waning days of the Obama administration.

But Ms. DeVos has gone to extraordinary lengths to block other requests.

Her department processed no claims for more than a year. A judge found that it had illegally delayed rules that were written under the last administration to simplify and speed up claims. Another judge found the department had broken a federal privacy law by obtaining borrowers’ income information as it tried to justify forgiving less of their debt.

When forced to discharge certain loans, Ms. DeVos added a handwritten note to the form granting the request, saying she approved it “with extreme displeasure.” And in October, a federal judge held her in contempt for improperly billing 45,000 former Corinthian students after being ordered to stop collecting on their debts.

It was one of several high-profile losses for the department: One ruling last month ordered Ms. DeVos to fully wipe out the loans of 7,200 former Corinthian students. But judges have usually ordered her to process claims that have languished for as long as four years — although not necessarily approve them or grant them relief.

Mr. Cruz, who works as a prototype technician for an automaker, was one of more than 10,000 former students at ITT, which collapsed in 2016, who sought to use the borrower defense provision. Education Department officials concluded in a 2017 memo that ITT had engaged in “flagrant” and “pervasive” fraud, and they recommended that eligible borrowers receive “full relief.”

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Credit…Jessica Pons for The New York Times

The department had decided before Ms. DeVos’s arrival to approve claims from some of those borrowers, including Mr. Cruz, as well as students who had attended certain campuses run by ITT and American Career Institute, a trade school that admitted it falsified records and deceived students.

But she overruled the full-relief recommendation and interpreted the department’s prior decisions to the letter: The ITT decision applied specifically to those who attended the school’s campuses in California, but was intended as a model for requests from other states. Ms. DeVos has not extended it to ITT students elsewhere.

So those students are being rejected, along with those from several other chains — including the University of Phoenix, which the Federal Trade Commission recently punished for making fraudulent claims.

More than a dozen recent denial notices reviewed by The New York Times range from incomplete to opaque. A line in one reads, “We considered evidence gathered from the following sources: [INSERT BULLETTED LIST AND FORMAT BEFORE SENDING].” Another notice told the borrower that the claim “fails for the following reason(s): Other.”

But the response received by David Boyer, a former ITT student, is more typical. It included a long list of evidence the agency said it had considered, including submissions by the Consumer Financial Protection Bureau, ITT’s accreditor, the advocacy group Veterans Education Success, and the attorneys general of Iowa, Massachusetts and New Mexico.

The department rejected Mr. Boyer’s claims, citing “insufficient evidence.” (Respondents can ask for a reconsideration, but several lawyers said they had never seen such a request succeed.)

Ms. DeVos’s time at the Education Department is most likely winding down: She has told agency employees that she does not intend to stay on if President Trump is re-elected, according to two employees who spoke on the condition of anonymity.

But her curtailing of the borrower-defense system will outlast her tenure. This month, new agency rules sharply limiting new claims took effect, even after a rare bipartisan effort in Congress to prevent it. Mr. Trump vetoed the bill — his first domestic-policy veto — and lawmakers couldn’t override him.

The agency’s stonewalling has infuriated members of Congress including Representative Robert C. Scott, a Virginia Democrat who is chairman of the House Education Committee. The committee recently released a 30-page report that concluded that the department’s methodology for granting relief was so restrictive that it was mathematically impossible for many borrowers to have their loans fully eliminated.

The borrower-defense system “is a valuable tool to give victims of fraud a second chance at a quality education,” Mr. Scott said. “Instead of using its authority to make defrauded borrowers whole, the department delayed and denied relief for hundreds of thousands of people.”

A second chance is what Mr. Boyer wants. A Navy veteran, he used the G.I. Bill to attend ITT — one of the for-profit schools that specifically sought out veterans because of their lucrative education benefits.

Mr. Boyer received a bachelor’s degree in applied science and electrical engineering that was all but worthless. ITT’s reputation was so bad that several potential employers rejected him once they realized where his degree was from, he said. He ended up taking its name off his résumé.

“All of us struggled to even make minimum wage,” Mr. Boyer said. After graduation he took a job fixing soda machines and microwaves in convenience stores.

An accepted borrower-defense claim would have restored his G.I. Bill benefits. Mr. Boyer, who is 52 and now works as a trade-school teacher in Potosi, Mo., said that if he regained those benefits he would again pursue higher education.

“I’d like to have a degree that means something,” he said.

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For-Profit Colleges, Long Troubled, See Surge Amid Pandemic

In March, as colleges and universities shuttered campuses under a nationwide lockdown, Strayer University updated its website with a simple message: “Great things can happen at home.”

Capella University, owned by the same company as Strayer, has run ads promoting its flexibility in “uncertain times” and promising would-be transfer students that they can earn a bachelor’s degree in as little as a year.

Online for-profit colleges like these have seen an opportunity to increase enrollment during the coronavirus pandemic. Their flexible programs may be newly attractive to the many workers who have lost their jobs, to college students whose campuses are closed, and to those now seeking to change careers. The colleges’ parent companies often have substantial cash reserves that they can pump into tuition discounts and marketing at a time when public universities and nonprofit colleges are seeing their budgets disintegrate.

Few of the largest for-profit colleges operating primarily online have track records to justify the optimistic advertising pitches. Some have put students deep in debt while posting dismal graduation rates amid a history of investigations by state and federal agencies, including many that have led to substantial financial settlements.

Still, there is evidence that interest in the schools has increased.

“I hate to call anybody a winner in this crisis,” said Jeffrey M. Silber, managing director at BMO Capital Markets, a financial services company, “but I think growth will increase this fall and could continue thereafter.”

For-profit colleges have long devoted large sums to advertising, spending almost $400 per student in 2017, according to research from the Brookings Institution. For nonprofit institutions, that figure was $48, and for public colleges it was $14.

“Unfortunately, because of the financial distress a lot of not-for-profits are facing, they may have to cut back on marketing,” Mr. Silber said. “I think the for-profits may be at a competitive advantage.”

Ashford University has received so many new inquiries in recent months that it has announced plans to hire 200 additional “enrollment advisers” to field them. Another for-profit school that operates largely online, Grand Canyon University, says it has had a surge in enrollments. Capella and Strayer have also reported increases in requests for information.

The trend concerns many student-protection advocacy groups, which point out that the colleges that stand to gain are among those with the most troubling records. For the most part, the largest online for-profit universities have poor graduation rates — often no higher than 25 percent, and sometimes as low as in the single digits. Several have been accused of intentionally misleading students about potential job prospects to persuade them to enroll and often to take on tens of thousands of dollars in debt.

Eileen Connor, the legal director at the Project on Predatory Student Lending at Harvard Law School, said she was worried by the prospect of a resurgence for online, for-profit schools.

“In times of economic downturn, that’s when the for-profit colleges start to thrive,” she said. Online colleges “have a running start, especially now, when there’s an economic downturn keeping people in their homes,” she added. “That is a perfect storm for the thing that they’re trying to do.”

These schools often attract low-income, nontraditional college students who tend to have lower completion rates than those who enroll straight from high school and attend full time. Many have family pressures that interfere with study.

In recent earnings calls, many companies emphasized the quality of the education they provide. Karl McDonnell, the chief executive of Strategic Education Inc., the parent company of Capella and Strayer, told investors in March, “We’re going to continue to focus on maintaining the highest possible academic quality figuring that that’s really the best way to sort of position yourself vis-à-vis any kinds of regulatory or legislative initiatives.”

In the first quarter, Strategic Education took in $46.5 million in profit, up from $36.7 million over the same quarter last year. Its executive chairman, Robert Silberman, told investors that the company had a “fortress balance sheet with over $500 million in cash.”

Before the broad market decline last week, Strategic’s stock price had climbed steadily since early April, as had those of other publicly traded companies that own universities and college-related education services, including Grand Canyon Education Inc., Perdoceo Education Corporation and Zovio. But for many of their students, the future is precarious.

At Capella, only 11 percent of undergraduates earn a degree within eight years, according to the most recent federal statistics. At Strayer, graduation rates range from 3 percent at its Arkansas campus to a high of 27 percent in Virginia.

Fewer than a third of students at Perdoceo campuses graduate within eight years. The company’s schools were recently barred from receiving G.I. Bill money from new students after the Department of Veterans Affairs found that they had used sales and enrollment practices that were “erroneous, deceptive or misleading.”

Ashford University, owned by Zovio, had a 25 percent graduation rate, according to the most recent federal data. Those completing degrees had a median debt of $34,000 on leaving. Zovio is being sued by the California attorney general, accused of making false promises to students and using illegal debt collection practices. The company denies any wrongdoing.

For-profit schools made a similar play for students during the 2008 recession, as people searching for work in a shrinking job market sought new credentials at low cost. Enrollment at for-profit colleges climbed 24 percent at the height of the recession, according to an analysis by BMO Capital Markets.

Along with that surge came increased scrutiny. Government investigators concluded that two of the biggest for-profit operators, Corinthian Colleges Inc. and ITT Technical Institute, had mismanaged or failed to account for millions of dollars in federal financial aid. They were subsequently barred from receiving such aid, which led to their collapse. The companies were also accused of pushing students to take loans they could never expect to repay.

The Obama administration put rules in place to shut down programs whose graduates didn’t earn enough to pay back their student debt and to make it easier for students who had been defrauded to have their loans forgiven. Experts say conditions are ripe for new growth in the for-profit sector because the Trump administration has rolled back those changes.

“A lot of the pieces are in place to be right back where we were in 2008, and the regulations that had come out of lessons learned are being whittled away,” said Yan Cao, a fellow at the liberal-leaning Century Foundation who studies higher education.

The Trump administration’s Department of Education has disputed criticism of its oversight of for-profit colleges. It notes that it has expanded information on its websites to help students make informed choices.

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Credit…Caitlin O’Hara for The New York Times

Shawn Cooper, an Air Force veteran, said he was twice given approval for his dissertation project at Capella and worked on it for months, only to be told that he needed to start over with a new topic. He said he was forced to leave, despite a 4.0 grade-point average.

Mr. Cooper says he owes more than $100,000 in student loans after his time at Capella. “At the end of the day, I feel like it’s all just a facade on their end,” he said. “Get people in, take their money and get them out, usually without anything to show for it.”

A lawsuit was filed against Capella seeking class-action status for students like Mr. Cooper who say the school intentionally and needlessly prolonged their doctoral programs, costing them tens of thousands of dollars. Last year, a judge allowed three counts in the suit to continue, all regarding the time it took a “typical” student to complete programs, but dismissed most other counts, including those about how long the programs were “designed” or “structured” to take.

  • Frequently Asked Questions and Advice

    Updated June 16, 2020

    • I’ve heard about a treatment called dexamethasone. Does it work?

      The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.

    • What is pandemic paid leave?

      The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.

    • Does asymptomatic transmission of Covid-19 happen?

      So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.

    • What’s the risk of catching coronavirus from a surface?

      Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

    • How does blood type influence coronavirus?

      A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.

    • How many people have lost their jobs due to coronavirus in the U.S.?

      The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.

    • Will protests set off a second viral wave of coronavirus?

      Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.

    • My state is reopening. Is it safe to go out?

      States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

    • How can I protect myself while flying?

      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • Should I wear a mask?

      The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.