Office of the Attorney General
Attorney General Conway Testifies in Front of U.S. Senate Subcommittee
Attorney General Jack Conway today testified in front of a U.S. Senate subcommittee about his investigation into proprietary colleges and student loan debt. He advised Senators that students with private student loans do not have the same consumer protections as students with federal or federally backed loans, and the private loans are almost impossible to discharge in personal bankruptcy.
"The great tragedy is that students at some of these career schools obtain loans to further their educations and change their lives, to get higher-paying jobs and to improve their standards of living," General Conway said. "Unfortunately, for many of these borrowers, they are unable to complete their educations or the school closes and they are left with no job and a mountain of debt that bankruptcy experts tell us is almost impossible to discharge."
General Conway first became aware of the tremendous debt burden carried by students at some proprietary colleges through the investigations of possible consumer protection violations by Decker College and the American Justice School of Law in Paducah.
Decker College closed and declared bankruptcy in 2005. The bankruptcy trustee then tried to collect on millions of dollars in student loans that the school made directly to students. The Office of the Attorney General stepped in, and the trustee released the loans of 2,200 students that totaled more than $4.5 million.
The Office of the Attorney General also acted on behalf of consumers after the closing of American Justice School of Law (AJSL), subsequently known as the Barkley School of Law. The office secured a release by the Barkley bankruptcy trustee of the institutional loans made directly by the law school. With respect to other students, the Office of the Attorney General secured a settlement with a private lender that had a questionable relationship with AJSL. The settlement included $3.6 million in debt reduction in the loan obligations for students who attended the school. The average loan reduction per student was $25,000.
But there are students who attended both of these schools who still owe tens of thousands of dollars in private loans. The private loans do not afford students the same consumer protections as federal or federally backed student loans. Those protections include a "closed school discharge," which allows students to have their loans forgiven if the school closes before he or she finishes a degree. Federal loans also have a fixed-interest rate that is capped, an income-based repayment plan and the ability to defer repayment.
"I am concerned because there is a growing trend of proprietary colleges issuing private loans to students and with such harsh consequences for failure, these students are trapped in a cycle of dodging bill collectors, wage garnishment and no meaningful path to financial recovery," General Conway said.
According to the most recent data available from the Project on Student Debt, an estimated 96 percent of graduates from four-year proprietary schools have student loans – 42 percent of these students have private loans. This is in contrast to 14 percent of students at public four-year institutions and four percent of students at two-year public institutions who have private loans.
In December, 2010, due to concerns raised during the Decker and law school investigations and other information obtained by the office, including information about high student loan default rates, General Conway launched an investigation into seven proprietary colleges operating in Kentucky. General Conway's office has received more than 500 complaints about practices including misrepresentations made about the transferability of credits, financial aid and job placement. To-date, he's filed suit against Daymar College and National College with other investigations still pending. General Conway is also leading a national multistate working group of 23 state attorneys general.
Sen. Dick Durbin (D-IL), who chairs the Judiciary's Subcommittee on Administrative Oversight and the Courts, invited General Conway to testify at the hearing entitled, "The Looming Student Debt Crisis: Providing Fairness for Struggling Students." Illinois Attorney General Lisa Madigan also testified at the hearing.