Academic journal article Harvard Law Review

Forgive and Forget: Bankruptcy Reform in the Context of For-Profit Colleges

Academic journal article Harvard Law Review

Forgive and Forget: Bankruptcy Reform in the Context of For-Profit Colleges

Article excerpt

Rosalyn Harris was a single mother determined to make life better for herself and her son. Unemployed and without a college degree, Harris believed enrolling in the two-year criminal justice program at the for-profit Everest College was the right step toward the opportunities that higher education would provide. (1) Unfortunately for Harris, that was not the case. Despite Everest's claims of a 75% job-placement rate for students in the criminal justice program, she spent months unsuccessfully applying for jobs in her field after graduating with over $22,000 in student loan debt. (2) The only job she was able to secure was a minimum-wage position stocking shelves at Victoria's Secret. (3)

Harris's story, while concerning, is not unique. The growth of the for-profit-college sector has not met the promise of its potential. Rather than provide quality, affordable education to its students--many of whom belong to vulnerable populations--some for-profit institutions have created learning environments that impose significant costs without much benefit. The average tuition is more than four times higher than the average in-district tuition at a public two-year college and 67% higher than the average in-state tuition at a public four-year institution. (4) Yet the increased costs of attending for-profit institutions do not translate to a better employment outlook for their graduates. In fact, six years after initial enrollment, for-profit students tend to have higher unemployment rates and lower earnings than do their peers who attended public and nonprofit institutions. (5) Further, research has found that employers find graduates with for-profit degrees and online degrees the least desirable to hire. (6) As one education advocate recently noted, "[s]tudents go into the marketplace and they're told that no one is going to take their degree seriously[.] ... They're considered suckers." (7) Despite their good-faith work, many students find that a for-profit education isn't a reward; it's a racket.

These factors have combined to create a toxic financial situation for many students who are simply trying to attain an education as a means to access the middle class. Even though for-profit students are only 11% of the higher education population, they are 44% of all federal student loan defaults. (8) Perhaps more striking, about one in five for-profit students will default on their education loans within the first three years of entering repayment. (9) 10 11 12 13 14 To address this issue, the Department of Education has promulgated rules that aim to ensure that for-profit programs are preparing students for gainful employment in recognized occupations. (10) Under the regulation, for-profit programs will only qualify as leading to gainful employment if the annual loan repayments for graduates of the programs do not exceed on average either 8% of their total earnings or 20% of their discretionary income. (11) For-profits that surpass these limits would be subject to the revocation of their eligibility to participate in federal student-aid programs. (12)

Although these regulations provide a meaningful step toward holding some of the worst-performing for-profit institutions accountable, they provide little solace to dropouts and graduates of underperforming institutions who struggle to repay their loans. Unfortunately, when it comes to debt incurred at underperforming for-profit institutions, the existing bankruptcy regime continues to deny retrospective relief to those who need it most. Yet a core principle of debt relief is the notion of a "fresh start." (13) As one bankruptcy court has put it, seeking relief for student loans incurred at an institution that failed to deliver adequate training and employable skills "is not the intentional abuse of bankruptcy laws for which denial of discharge was intended as a remedy." (14)

This Note advocates for two different reforms to current bankruptcy law that can complement the ex ante regulations adopted in 2014 and that would more fully address the role of for-profit institutions in the student debt crisis. …

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