Reading Responses: What did you learn from this reading? How is this perspective different from the Porter’s Five Forces? Give me your best 250 words. Current Topic Discussion How does this topic relate to the resource-based view of the firm? How would a manager approach leading this company if he used the five forces theory versus the resource-based view?Give me your best 250 words.Article: https://www.marketwatch.com/story/this-man-earns-21-000-a-year-and-owes-24-000-instudent-debt-and-after-his-for-profit-college-closed-why-was-no-one-held-accountable11601987085
This man earns ,000 a year and owes $24,000 in student debt after his college closed. Why
wasn’t anyone held accountable?
Last Updated: Oct. 8, 2020 at 8:44 a.m. ET
First Published: Oct. 6, 2020 at 8:24 a.m. ET
By
Jillian Berman
The Department of Education has the legal authority to hold executives and owners
personally liable for taxpayer losses, but it hasn’t, according to a new report.
When RJ Infusino enrolled at the Illinois Institute of Art’s Schaumburg campus in 2015
after graduating high school, he thought he was starting on the path to a career in audio
production. Even when his experience wasn’t quite what he expected — the campus
consisted of a few floors in an office park, instructors would sometimes show up extremely
late to class — Infusino pressed on, thinking he could at least use the experience and
equipment to learn skills that would help him land a job. And the school was promising to
help set him up for a career.
Then one day in 2017, with less than a year left to graduate, officials announced that the
school had been sold to an organization Infusino had never heard of. “At the time, I’m crazy
stressed, trying to look at jobs, trying to look at things going forward,” Infusino, 24,
recalled.
What he didn’t know was that the sale of the for-profit Art Institute’s campus to the Dream
Center Foundation, a Los Angeles-based religious nonprofit with no experience in higher
education, had cost the school its accreditation. That meant that any credits Infusino
earned during the period the accreditation was in limbo would be difficult to transfer.
Six months after the school lost accreditation, all students, including Infusino, learned for
the first time that the school was not accredited and that it would close, according to court
documents. To Infusino, who needed just three more quarters of classes to earn his degree,
the school’s shutdown was abrupt. But court documents allege that the school’s executives
knew for months that it was in financial trouble and would likely need to close.
Infusino continued his education at one of the few institutions where his credits would
transfer, another for-profit college based in Florida, where he studied online. But the Art
Institute’s shutdown set him back nearly a year in pursuit of his bachelor’s degree, spitting
him out into the job market just as COVID-19-related shutdown orders were taking effect.
He still owes roughly $24,000 in student loans and is working as a gymnastics coach, a job
he held while he was in school. “I only make roughly $21,000 a year,” he said. “How am I
supposed to pay all that off and pay all my other bills on top of that? It’s insane.”
Meanwhile, the executives who allegedly knew of the school’s accreditation challenges
haven’t faced any financial consequences, even though the U.S. Department of Education
has the authority to hold them accountable, a new report from the Student Legal Defense
Network argues.
In addition, Congressional Democrats have alleged that officials at the Department of
Education took “extraordinary measures” that allowed Dream Center to continue to receive
federal financial-aid funds during the period when its accreditation was in limbo.
Now, Dream Center Educational Holdings, the organization Dream Center formed to buy
Art Institutes and other colleges is in receivership, a status similar to bankruptcy.
“It’s just absolute garbage how easily they can take advantage of someone like me who
genuinely wants to work hard at developing a career in the industry that he’s interested
in,” Infusino said.
Attorneys for Dream Center Educational Holdings didn’t immediately respond to a request
for comment. The Department of Education didn’t immediately provide a comment.
The feds have had the authority to hold executives accountable since 1992, a new
report argues
Attorneys from the National Student Legal Defense Network, an organization representing
students in lawsuits surrounding the collapse of Dream Center Education Holdings’ schools,
argue the government has the tools to hold such executives accountable.
In a report released Monday , the attorneys write that the Department of Education has had
this authority since 1992, but the agency, under presidents of both parties, hasn’t used it
successfully. The paper is part of a set of proposals from Student Defense that the
organization says a new Department of Education could tackle in its first 100 days.
When schools collapse amid wrongdoing, it can be costly to the government. For one,
federal student-loan borrowers are entitled to be made whole in these cases. In addition,
students who are attending the school at or near the time of closure have the right to have
their federal student loans discharged. In the report, the attorneys argue that the owners
and executives of these schools can be held personally liable for those lost funds.
When “you look at what the extent of the liabilities are that taxpayers have the burden of
now,” related to for-profit college closures, “billions of dollars have gone out the door and
those dollars are not recovered,” said Dan Zibel, one of the authors of the paper and the
vice president and chief counsel at Student Defense.
“Congress, in the early 1990s was very clear in adding these personal liability provisions
for this exact reason that when schools close or otherwise fail to meet that responsibility to
students, the owners are left to profit and taxpayers and students are left to pay the bill,” he
said.
The idea laid out in the National Student Legal Defense Network’s report appears to have
bipartisan support among voters. When asked as part of a poll commissioned by Student
Defense whether the Department of Education should hold executives personally liable for
wrongdoing, 78% of 3,199 of likely voters in swing states said they agreed or strongly
agreed with the proposal.
The idea also has backing from a prominent lawmaker. In a statement released with the
paper, Senator Elizabeth Warren, a Massachusetts Democrat, criticized the role of
“predatory for-profit colleges” whose executives and owners “got filthy rich off of taxpayer
dollars with zero accountability,” in the nation’s more than $1.5 trillion student loan
problem.
“We need a Department of Education that will end this boondoggle, protect students, cancel
fraudulent student debt, and, as Student Defense’s report shows, use every tool available to
hold college executives and owners who defraud students personally accountable,” Warren
wrote in the statement.
‘History clearly repeats itself’
The report notes that as part of the reauthorization of the Higher Education Act in 1992,
Congress granted the Department of Education the authority to recover financial losses
from individuals who “exercise substantial control over [an] institution.”
The provision came in the wake of an investigation and hearings, led by then-Georgia
Senator Sam Nunn, a Democrat, on fraud and abuses in federal financial aid.
The investigation uncovered evidence of colleges with robust recruiting operations and
little educational infrastructure in some cases targeting homeless shelters to lure
prospective students — echoes of some of the accusations leveled against for-profit
colleges today. “History clearly repeats itself,” Zibel said.
Over the past several years, multiple large for-profit college chains have collapsed,
including most prominently Corinthian Colleges and ITT Technical Institutes, costing
taxpayers at least hundreds of millions of dollars, but the Department of Education hasn’t
held their executives liable. Zibel admits that when he was at the agency, working as the
deputy assistant general counsel for postsecondary education, they didn’t take that step.
“We’ve seen the liabilities grow as student debt has grown and as costs have grown,” Zibel
said. “It seems like the Department needs to take a new look at this.”
The agency has used its authority to try to collect from schools themselves in cases of
abrupt closure amid fraud. But if a school disappears before the feds get their money, the
liability still exists. Holding executives personally responsible for those losses could be a
way to recover those funds, the report argues. (The agency does have the authority to hold
executives and owners responsible even when the school they operated still exists, the
paper argues).
The Department of Justice has the ability to take the owners to court. In addition, the
government, through the Treasury Department, uses extraordinary collection powers,
including garnishing Social Security benefits, tax refunds and wages, to collect when a
borrower defaults on a student loan.
“These same tools could be equally at play,” in the case of former college owners or
executives, Zibel said.
Other federal agencies have settled with college executives over alleged harm to
investors
Other government agencies have taken steps to hold for-profit college executives
accountable. The leaders of Corinthian and ITT settled with the Securities and Exchange
Commission over accusations they misled investors.
‘Those are for harms that they caused to investors. There’s not a clear
connection to protecting students and students are suffering here.’
— Dan Zibel, vice president and chief counsel at Student Defense.
“Those are for harms that they caused to investors,” Zibel said. “There’s not a clear
connection to protecting students and students are suffering here. They’ve caused harm to
students.”
Infusino said he hates thinking about the way he was targeted and taken advantage of by
his former school, but continues to share his experience — whether as part of lawsuits, in
front of lawmakers or in the media — in hopes that he can help prevent similar situations
from happening in the future.
“I coach kids, I don’t want them to grow up in a world where this can happen to them,” he
said. “I want them to go to school and not think about whether or not they’re being
swindled.”
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