Jose Luis Magana/AP Photo
The now-closed Everest Institute in Silver Spring, Maryland, was owned by for-profit Corinthian Colleges.
Among the more buried treasures in the American Rescue Plan, scheduled to obtain final passage from Congress today, is the closure of a loophole in what is known as the “90-10 rule.” This will prevent for-profit colleges and universities from preying on veterans in particular as ideal recruits for their predatory schemes.
The 90-10 rule prevents for-profit colleges from receiving more than 90 percent of their total income through federal student aid programs. This was intended to ensure that no school relied entirely on federal funding, theoretically forcing for-profits to create something of value that they could use as a revenue source. But there was a gaping loophole in this regulation: the GI Bill and Defense Department tuition assistance were exempt from the cap.
In practice, this made veterans an attractive target for for-profits, because schools could add an unlimited number of them to their roster without reaching the 90-10 cap. And that subjected veterans to endless sales pitches for scammy college programs that inevitably provided worthless diplomas and stuck the enrollees with mountains of student debt.
Sens. Maggie Hassan (D-NH) and Dick Durbin (D-IL) worked for years with veterans groups to close this loophole, and the American Rescue Plan provided the opportunity. Under the provision placed into the bill, all sources of federal aid count against the cap. Even Senate Republicans endorsed the provision, though they added an elongated timeline that delays implementation to the beginning of 2023.
Still, it’s a major policy victory that will begin to peel back the allowances regulators have given to for-profit colleges historically, and even more so in the Trump era, where Betsy DeVos’s Education Department was stacked with expats from the industry. So as Congress and the president, through the American Rescue Plan, state affirmatively that for-profit colleges are scourges, and recruits to them need protection, this would be a good moment to keep anyone with ties to these schemes out of the government.
That’s the choice facing the Education Department right now, as a key policy position opens up, and a former executive of one of the worst for-profit college networks in America angles for the job.
Last week, Mark Brown, a DeVos appointee who ran the Office of Federal Student Aid (FSA), was dismissed from his position, days after Miguel Cardona was finally confirmed as education secretary. (The Prospect’s Robert Kuttner first wrote about Brown back in February.) Brown was responsible for garnishing wages and tax refund payments of overdue student debtors during the pandemic, both actions that violated federal law.
The head of FSA manages the entire trillion-dollar-plus federal student loan portfolio, including its significant set of existing loan forgiveness programs, from income-based repayment to Public Service Loan Forgiveness; these programs were near-total failures during the DeVos years. They will also oversee relationships with student loan servicers, which have a history of shortchanging and defrauding borrowers. Whether President Biden forgives a slice of student debt or not—the American Rescue Plan also cleared the way for debt relief by ensuring that it would not trigger any tax liability for borrowers—the head of this office will hold the keys to financial security for millions of people.
So far, Secretary Cardona has put in place an acting director, Robin Minor, who was part of a DeVos Education Department that constantly denied defrauded borrowers loan relief and allowed servicers to do the same. But he has promised to “strengthen college as a reliable pathway to the middle class while protecting students and loan borrowers.” Closing the 90-10 loophole puts Congress in the same mindset.
But one name keeps popping up as a potential replacement for Brown: Abigail Seldin, a former executive at Educational Credit Management Corporation (ECMC), a student loan debt collector that later became one of the industry’s worst for-profit colleges, and is at this moment under active investigation by the Consumer Financial Protection Bureau.
Seldin has gotten a fair bit of attention since HuffPost mentioned that some White House officials were pushing her for the FSA position. A source with knowledge of internal deliberations told the Prospect that Seldin’s appointment was less than likely. But the possibility that Seldin is even under consideration for the job is alarming enough.
A max donor to Biden’s presidential campaign, Seldin worked at ECMC from 2014 to 2016, after selling the company a cost-comparison tool called College Abacus, which charged for cost information that colleges offered for free on their websites. ECMC’s highlights during and after Seldin’s tenure read like a rap sheet.
ECMC managed bankruptcy proceedings for the Education Department, and was accused of deception against bankruptcy courts and “ruthless tactics,” repeatedly demanding that even the most hard-luck cases pay off student debt. It assisted for-profits in avoiding regulatory scrutiny and allegedly steering borrowers into unsuitable and higher-cost repayment plans. Then in 2014, ECMC was allowed to purchase schools from Corinthian Colleges, which was imploding amid law enforcement investigations. ECMC didn’t know how to run a college, and within three years it went from 56 campuses to 3.
Last week, the CFPB appealed to a federal judge to force ECMC to produce documents in association with two civil investigative demands. The investigation involves allegations that ECMC deliberately forced student borrowers to incur additional fees when their accounts went into debt collection. In one instance, ECMC only paid third-party collection agencies commissions if the resulting payment plans added borrower fees.
Seldin went from there to a venture capital firm called NextGen, which has taken a particular interest in income share agreements, essentially an investment tool that trades college tuition for a share of future earnings. The company NextGen invested in, Vemo Education, came under fire from student advocates for deceptive marketing.
It’s not exactly the profile we should want for the head of FSA. The government’s posture toward for-profit colleges has shifted to one of skepticism. Placing one of their ranks to run the key student loan office, which has habitually had too much influence from both for-profit colleges and student loan servicers, would reverse all of this work.
Nevertheless, advocates have become concerned about how aggressively Seldin is running for the position, and what it would mean if she got the appointment. As Sen. Elizabeth Warren (D-MA) said when Brown was relieved of his duties last week, “Students deserve leadership at this office who will follow the law and make this program work for students, and I look forward to working with Secretary Cardona to reform the FSA so that it works for student borrowers instead of big student loan servicing corporations.”
Students and veterans need someone in their corner to fight off powerful organizations that look at them as cash machines. Who gets this important position will determine whether the Education Department wants to be a watchdog or a patsy.
