Student loan violations lead to closing of Florida for-profit college, restrictions on another
The Education Department announced a settlement with for-profit school owner International Education Corporation (IEC) and its subsidiaries for testing regulation violations.
The violations are of the ability-to-benefit (ATB) test regulations. The test allows students without a high school diploma or GED to be eligible for federal student aid if they test high enough.
A 2023 investigation found that IEC and two schools it operates, Florida Career College and United Education Institute, "pressured proctors to pass students and inappropriately influenced test outcomes to boost enrollment," according to an Education Department press release.
The Education Department has required IEC to provide a letter of credit of more than $6 million to pay for liabilities or loan discharges related to the violations.
"This strong agreement with International Education Corporation demonstrates Federal Student Aid’s commitment to holding schools and individuals accountable for abiding by the laws and regulations that govern the federal student aid programs," Richard Cordray, chief operating officer of Federal Student Aid (FSA), said in a statement.
As a result of the violations, United Education Institute and UEI College, which has campuses in California, Georgia, Arizona, Washington, and Nevada, have been placed on restricted participation in the federal student aid program and are prohibited from relying on ATB exams to qualify students for enrollment with federal student aid.
Due to the nature of Florida Career College’s wrongdoing, it has been terminated from participating in the federal student aid program.
Students who attended Florida Career College on or after April 19, 2023, withdrew, or transferred to another school before Jan. 31, 2024, are entitled to a refund from the school for any funds paid to it.
Florida Career College announces closure
The investigation found that Florida Career College test proctors and employees "changed answers after students finished their tests, helped students during testing or took tests for them, and allowed students to use calculators in violation of testing rules."
“Nearly four years ago, our clients filed a class action against Florida Career College for selling a predatory product using false representations and high-pressure sales tactics to systematically target Black students and leave them with crushing and unpayable student debts," Eileen Connor, president and director of the Project on Predatory Student Lending, said in a press release. "Our clients' dedication to exposing FCC and stopping it from harming future borrowers is finally seeing its day of justice."
From 2019-2023, around 81% of the ATB students who withdrew from Florida Career College incurred debt and exhausted their Federal Pell Grant eligibility — resulting in a denial to receive financial assistance in the future and making them worse off than if they had never attended the school.
On Jan. 30, Florida Career College informed the Education Department that the school will close on Feb. 15.
Current attendees can file a "closed school loan discharge" that allows a student to get their student loan debt discharged if their school closes while enrolled.
Former Florida Career College students can file a "borrower loan defense discharge," which allows borrowers to apply to get their student debt discharged if the school misled students.
The Federal Student Aid website provides detailed information on the refund process, type of claims that would qualify for loan discharge, how to file a complaint, and how to transfer to other schools.
For-profit schools’ impact on student loan debt crisis
For-profit colleges have a dubious track record in the student loan program.
Students who attend for-profit colleges are more likely to obtain a federal loan than those who attend a public college. For-profit borrowers are three times more likely to default on their student loans and six times less likely to receive employment after enrollment compared to public college attendees, according to a 2018 study.
To date, the Biden administration has discharged $22.5 billion for over 1.3 million borrowers who were defrauded by their schools under the borrower defense discharge, according to the Education Department.
Read more: Student loan issues? Here's how to file a complaint with the Education Department
Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on X @writesronda
Read the latest personal finance trends and news from Yahoo Finance.
