Higher education writers are calling attention to a lawsuit that alleges a proprietary college that operates in Little Rock, the University of Phoenix, has misused the federal student loan program.
Back in the early 90s there were a series of scandals involving unscrupulous for-profit colleges that tricked students into borrowing lots of money through federal loan programs for which the students received little or nothing in return. The students would quickly default on the loans, the colleges would keep the money, and the federal government, which guarantees student loans, would be left holding the bag. In response, the feds prohibited students from using federal loans to attend colleges where more than 25 percent of borrowers default within two years. (Last year Congress changed the provision to 30% within three years).Now three former Phoenix students have filed a class-action suit in Arkansas alleging that after they dropped out of the university, Phoenix paid off their federal loans without their knowledge and then turned around and demanded repayment on more onerous terms than the students would have gotten under the federal loan program. Other for-profit institutions have allegedly used similar tactics in the past, involving collection agencies and other high-pressure tactics. Basically, it’s a way of lying about default rates that hurts students in the bargain. Phoenix disputes the allegations. Here's the Little Rock-filed lawsuit. Article here calls on new Education secretary to investigate the national university chain. And more from the business research end of commentary. UPDATE: The blogosphere is behind the times. The plaintiffs filed a motion to dismiss this suit two days ago. No reason given.