02 November 2016

Another For Profit College (Heritage College) Bites The Dust

WHEAT RIDGE - More than a dozen former students sat outside the Heritage College campus off Harlan Avenue in Wheat Ridge Wednesday afternoon, wondering what to do after the private medical arts school closed 10 campuses without warning. Students say they paid the college roughly $15,000 in tuition. Many are days away from their graduation date from the nine-month program. 
Left without a degree or certification, some students wonder if the internships and jobs they've lined up will now fall through. Many are wondering what will happen to their student loans. 
A sign on the door says the school ran out of money, and offers an email address for further communication. 
PREVIOUS STORY: For-profit Heritage College shutters Denver campus
From 9News

The federal government has recently set new tougher eligibility standard for federal student aid in the form of grants and loans that disqualifies many for profit institutions that overwhelmingly have much higher tuition, much higher student loan default rates by their former students (see also here), and lower graduation rates than comparable state, federal and non-profit higher educational institutions.

Marketing for for profit colleges (which makes up a huge share of their expenses while only a modest percentage of the budgets of other colleges), also often exaggerates the extent to which degrees from these college's increase a student's earning potential (see also here). 

While for profit colleges are generally accredited (they aren't "diploma mills" that grant decrees and certificates to students who haven't done the work necessary to earn them at ordinary colleges), many two year and certificate programs at "for profit" colleges either do nothing to increase a graduate's earning potential or actually tend to decrease a graduate's future earnings, and more are net negatives after the cost of earning the degree or certificate is considered. 

In contrast, public community colleges offer comparable programs at a fraction of the price on a more or less open admissions basis (at a much lower cost per student), and routinely provide graduates with significant personal economic returns (on average).

The business model of for profit colleges is heavily dependent on federal student aid because a larger share of their students than comparable institutions which aren't "for profit" institutions receive federal student aid which is the only way it is possible for them to finance their educations.

This said, it is hard not to be sympathetic to the plight of current students at colleges like Heritage who have invested considerable sums of money into programs and are in some cases close to graduating, yet will have nothing to show for their efforts. One suspects that even getting a transcript necessary to transfer to another college to complete a degree will be difficult.

Sure, going to a "for profit" college is usually a poor decision in the first place (with some focused on narrow exceptions including two or three such institutions in Colorado* such as the Rocky Mountain College or Art and Design which has a statistical profile much more similar to non-profit higher educational institutions than to for profit colleges), which is why these colleges tend to target their marketing at less sophisticated students.

And, the writing has been on the wall ever since the federal government adopted the new regulations for federal student aid (something most people, including students at "for profit" colleges, are unaware of). 

But, the abrupt nature of the shutdown and the timing of this inevitable turn of events, have made the closure much harder on innocent (indeed, often exploited) students than it had to be.

It doesn't appear that Heritage College has filed a bankruptcy petition, which makes a certain amount of sense. Limited liability entities like the one that own's Heritage College, can't receive a discharge of its debts in bankruptcy, a reorganization of the business isn't possible because the business model itself, and there is no compelling argument for a stay of actions by creditors to enforce their rights against it when it is liquidating anyway and if the money really is all gone, the shareholders have no interest in further funding a money losing enterprise. 

Creditors of the company could intervene to force an involuntary Chapter 7 bankruptcy to assure the orderly disposition of its remaining assets to creditors and to determine if any money can be clawed back from creditors who received preferential treatment before it shut down, or the attorney-general of Colorado could force a formal state law dissolution of entity process which also allows for an orderly disposition of its assets (albeit with less power for the person involved in shutting it down).

To make matters worse, students who were cheated out of a chance to finish their degrees which were financed, at least in part, in most cases with federal student loans, will generally find that it is virtually impossible to ever discharge those loans in bankruptcy without paying them in full (many federally guaranteed student loans are routinely discharged as a matter of course rather than pursued as probate claims when a student dies, however, although there is no legal requirement that this be done that I am aware of). This provision is particularly harsh in the case of students who don't graduate who make up a disproportionate share of defaulting student loan debtors.

Students loans now make up about a third of all outstanding unsecured consumer debt (something that excludes mortgage and car loans and business loans, but includes most credit card debt and other consumer loans for which there is no collateral).

There have been isolated instances when student loans outstanding for all or for some subset of students at a failed for profit institution are forgiven en masse, but I'm not aware of this ever being done on a case by case basis, and students with loans incurred for educations at Heritage College right now certainly can't count on receiving this kind of relief.

This is a situation that is likely to recur in the near future and really calls for federal intervention so that students can receive orderly transfers to complete their studies, can access transcripts of their studies when needed in the future, and can receive relief in appropriate cases from their student loans. Indeed, the entire regime of harsh treatment of student loan debtors in bankruptcy really needs to be revisited, either through the bankruptcy code or through reforms to the student loan program that issues these extraordinarily preferred debts.

* Full disclosure. I was a full time associate professor of estate planning for a while in the Master's Degree program at the "for profit" College for Financial Planning, an institution that invented the "Certified Financial Planner" designation before it was converted from a non-profit college to a for profit sister college of the University of Phoenix under its holding company, Apollo. Management of the CFP designation was spun off into a separate Denver based non-profit at that time. I was the most recent hire there and as a result my employment was terminated on October 31, 2005 when the College was required to lay off professors because the College for Financial Planning failed to meet the sales growth targets set for it by Apollo and was forced by Apollo to cut its costs as a result. (I've been self-employed ever since, that was the last W-2 job I ever held.) The College doesn't offer tenure to any of its professors that I know of, although I can't say that I ever faced any interference in the content of what I taught in that position, but even if it had, tenure does not ordinarily protect professors from participating in layoffs, at least if non-tenured faculty are laid ooff first.

In connection with that post, I had to sign a non-disparagement provision which may or may not be legally valid at this point, eleven years after I left that post, that effectively limits my ability to comment on Apollo or its subsidiaries in particular if it is still in force. (I'm not sure I even have a copy of the contract any more and it may be a moot point soon in Apollo goes out of business as many other firms in the for profit higher education industry have, although I have no idea whether it will do so or not, and if it did it would have little or nothing to do with its particular flaws in an industry whose overall business model has been rendered obsolete by new regulations.)

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