Department of Consumer Affairs Introduces Rules to Protect New Yorkers from Predatory For-Profit Schools

NEW YORK, NY – Department of Consumer Affairs (DCA) Commissioner Lorelei Salas today announced new proposed rules to regulate for-profit schools that are not already regulated by the state. The new rules will require certain disclosures and prohibit false or misleading statements and representations to prospective students. DCA made the announcement at a National Consumer Protection Week press conference with multiple federal, state, and city agencies at the Internal Revenue Service (IRS).

“As the federal government seeks to deregulate the student loan and for-profit school industries, we are stepping in to protect New Yorkers,” said DCA Commissioner Lorelei Salas. “Many for-profit schools make significant investments in aggressive recruitment, are supported almost entirely by state and federal loans, and then often offer little to no actual value for what students pay, leaving them saddled with debt. To make matters worse, many of the victims of these school’s practices are New Yorkers of color and/or who live in low-income neighborhoods. These aggressive recruiting tactics are designed to prey on the hopes and dreams of people as they try to better their and their families’ lives and we must protect our fellow New Yorkers.”

DCA has found, through consumer complaints, research, and investigations, that for-profit schools sometimes aggressively recruit prospective students and mislead them about the availability and impact of different types of financial aid, the quality of the programs, and the actual cost of attendance. When students leave the school—many without a degree as indicated by low graduation rates—they can be left with debt they cannot afford and few meaningful job prospects. For-profit students also default at nearly four times the rate of community college students nationwide and, in New York, one in four residents in default on student loans attended a for-profit school. In New York City, the highest rates of attendance at for-profit schools are in the Bronx, among older students, black and Hispanic students, and students from neighborhoods with low incomes.

DCA’s proposed rules, which would strengthen the Agency’s authority to regulate for-profit schools under the City’s Consumer Protection Law, address specific problems that consumers often experience in dealing with for-profit schools. The rules would require for-profit schools to provide prospective students with disclosures about:

The disclosure would need to be provided 72 hours before an individual enrolls in the school. DCA’s rules would also prohibit for-profit schools from making false or misleading statements generally and specifically about potential salaries, job placement services or rates, the time to complete a program, and more.

DCA will hold a public hearing on the proposed rules on April 4, 2019 at 10:00 a.m. at 42 Broadway, 5th Floor. Comments on the proposed rules can be submitted in person at the hearing or online, by email to RuleComments@dca.nyc.gov, by fax to 646-500-5962, or by mail to the address in the proposed rules. The deadline to submit comments is April 4, 2019 by 5:00 p.m.

The new rules fulfill one of the policy recommendations in DCA’s new report, Student Loan Debt Distress Across NYC Neighborhoods: Public Hearing and Policy Proposals, which highlights the current local, state and federal landscape of student loan debt, summarizes testimony heard at its June 2018 public hearing on student loan debt, and outlines policy recommendations on the local, state, and federal level to help the more than 1 million New Yorkers with student loan debt.

Advocacy is one prong of DCA’s efforts to combat predatory practices in the for-profit school industry and to address the student loan debt crisis. DCA has also engaged in enforcement, education, and research efforts. Last fall, DCA sued Berkeley College in New York Supreme Court for violations of the Consumer Protection Law and local debt collection rules. DCA also recently released new tips for student loan borrowers and prospective students. Any New Yorker struggling with debt can make an appointment for free, one-on-one financial counseling at one of DCA’s more than 20 Financial Empowerment Centers throughout all five boroughs. To make an appointment or for financial counseling or to download tips about student loans, visit nyc.gov/studentloans or call 311. You can also visit our event calendar for upcoming student loan debt clinics and workshops.

“As the largest provider of financial counseling services in New York City, Neighborhood Trust Financial Partners applauds this step by DCA to bring increased transparency and consumer protections to an industry plagued with bad actors,” said Justine Zinkin, CEO, Neighborhood Trust Financial Partners. “The additional disclosures outlined by DCA Commissioner Lorelei Salas are an invaluable addition since they will allow prospective students to more accurately evaluate school programs before enrolling and taking on burdensome student loans. Now more than ever, it is imperative for local government to fill the void being left by those charged with upholding consumer protections at a federal level, and Neighborhood Trust is privileged to be headquartered in a city that continues to demonstrate such policy leadership.”

“A postsecondary credential has become more important than ever for a shot at economic opportunity. But New Yorkers need accurate information to make the best possible decisions about their educational futures. These common-sense rules can help ensure that for-profit schools are held more accountable to the promises made to students,” said Jonathan Bowles, executive director, Center for an Urban Future.

“The work of the New York City Department of Consumer Affairs has helped pull back the curtain to show how for-profit colleges deceive the public with little regard for the truth and hurt the financial health of low-income students and their communities,” said Yan Cao, a fellow at The Century Foundation, a progressive think tank. “As Betsy DeVos undermines students and their rights, it’s more important than ever that cities like New York use strong tools to combat ongoing abuses, protect students, and hold schools accountable.”

“The majority of calls we receive from consumers in default on their student loans are from those who attended for-profit institutions, often because of misleading statements and false promises by the schools’ recruiters,” said Evan Denerstein, Senior Staff Attorney at Mobilization for Justice. “With the federal government disavowing its obligation to protect students, it is essential that states and municipalities step up and take action to reign in abusive practices by the for-profit education industry.”

“For decades, for-profit schools in New York City have engaged in fraudulent and deceptive practices that cause irreparable harm to students, disproportionately impacting low-income students, women, and students of color,” said Beth Goldman, President and Attorney-in-Charge of the New York Legal Assistance Group. “NYLAG has represented countless student clients who were misled and lied to by for-profit schools and who paid high costs for nothing of value in return. Instead they often incurred massive debt without any new job prospects because of a useless degree. NYLAG applauds the NYC Department of Consumer Affairs for taking steps toward preventing further harm to students. We look forward to participating in the rule-making process to ensure that strong student protections are put into place.”

“A postsecondary education is the most important investment a young person can make towards a financially secure future. But in New York City, students often don’t have the basic information they need to ensure they’re getting a quality degree and understand the actual cost of attending school,” said Melanie Kruvelis, Northeast Policy Analyst for Young Invincibles. “By requiring for-profit colleges to tell prospective students the total cost of their program, their recent graduation rates, and their median time to completion, we can ensure students have transparent, trustworthy information as they choose where to enroll. New York City’s for-profit schools have already misled too many students, and we applaud Commissioner Salas and the Department of Consumer Affairs for protecting students from these institutions.”

In terms of research, DCA explored the impact that attendance at a for-profit school has on student loan distress in its second report on student loan debt, Student Loan Debt Distress Across NYC Neighborhoods: Identifying Indicators of Vulnerability, which was released November 2018. DCA analyzed neighborhood levels of for-profit college attendance as an indicator for loan default due to these colleges’ longstanding history of predatory practices, high tuition, low graduation rates, and the low amount of money spent on instruction. DCA’s research demonstrates that, as the percentage of college students in a neighborhood attending a for-profit institution increases, so does the neighborhood’s rate of student loan borrowers with debt in collections. DCA found higher rates of attendance at for-profit schools in the Bronx, among older students, students from neighborhoods with higher populations of black and Hispanic students, and students from neighborhoods with low incomes – all communities with higher rates of loan distress.

Last year’s report was a follow-up to Student Loan Borrowing Across NYC Neighborhoods, the first neighborhood-level examination of student loan outcomes, which DCA’s Office of Financial Empowerment (OFE) and the Federal Reserve Bank of New York released in December 2017. This report found that there are approximately one million student loan borrowers in New York City, representing approximately 15 percent of New York City adults. New York City borrowers’ average student loan balance ($34,900) was $5,400 higher than American borrowers’ average balance ($29,500). Also, although New Yorkers’ delinquency and default rates are slightly lower than the national average, certain New York City neighborhoods are experiencing significantly higher rates of delinquency and default despite the fact that their residents have low average loan balances. These higher levels of student debt delinquency and default also tend to be among older borrowers and those in lower-income neighborhoods.