For-Profit Schools as Covered Persons under the CFPA

A cornerstone of for-profit schools’ business model is to encourage students to borrow as much as possible to finance their college attendance. After drawing people in with misleading advertisements, for-profit colleges quickly hand prospective students off to financial aid officers who rush students through the process of explaining the financial aid system—if they explain it at all. These employees drive students to take on massive federal and private debt loads, including loans that the school itself originates. They will sometimes fill out or even fraudulently sign forms on students’ behalf, all the while insisting that they are working in the students’ interest. Each of these tactics has one goal: boosting schools’ revenues by inflating students’ debt balances, regardless of how unmanageable those loans are likely to be for borrowers.This issue brief argues that each of these areas of conduct place for-profit colleges squarely within the authority of the Consumer Financial Protection Bureau (CFPB), and that the Bureau can therefore intervene to protect borrowers. The CFPB’s authorizing statute states that anyone providing a consumer financial product or service is a “covered person” and therefore falls under the Bureau’s purview, including with respect to the prohibition on unfair, deceptive, and abusive acts and practices. As this issue brief outlines, each one of the common features of the for-profit college business model described above is alone sufficient to make a for-profit college a “covered person,” including the practices of lending to students through institutional loan programs, brokering student loans through third parties, and providing students financial advisory services in the financial aid process (regardless of the quality of the advice).With for-profit college enrollment surging due to COVID, the need to rein in the industry has never been more pressing. The CFPB has the tools to combat the rampant illegal practices that the for-profit college industry relies on.