When servicemembers are discussed in relation to the consumer credit industry, the discussion usually centers on the protections to military homeowners and credit card holders under the Servicemembers Civil Relief Act (“SCRA”). While SCRA remains a concern of the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), recently the Office of Servicemember Affairs has been taking aim at a more unlikely target: student loans. The CFPB is looking into the recruiting practices of for-profit colleges to determine if for-profit colleges are exploiting servicemembers in order to evade a federal financial aid rule.
Military education benefits, provided to veterans under the G.I. Bill and active military members under the Tuition Assistance program, enable servicemembers to attend college. The military funds also make servicemembers attractive recruits to for-profit colleges. Most of the students who attend for-profit colleges use federal Title IV loans to pay for their education. But due to the “90/10 Rule” under the Higher Education Act, for-profit colleges may receive only 90% of their funds from federal sources — and military benefits are not included in this 90% figure. Therefore, for-profit colleges have a large incentive to convince servicemembers to attend. For-profit colleges are able to accept (and profit from) up to nine students paying for college with federal funds for every one military member paying for college with military education benefits. In her op-ed piece in the New York Times, Assistant Director of Servicemember Affairs, Holly Petraeus, stated that for-profit colleges engaged in such practices treat servicemembers as “dollar signs in uniform.”
The CFPB’s Office of Servicemember Affairs believes that this rule leads to aggressive marketing geared toward military members and increases the number of servicemembers forced to take out pricy private loans to pay for the uncovered portion of their for-profit education. In her op-ed piece and during her testimony before the U.S. Senate Committee Roundtable on Improving For-Profit Higher Education, Petraeus outlined many of these marketing practices, including:
- Setting up non-affiliated web sites to discuss where servicemembers can use their military education benefits and highlighting their use with for-profit colleges only;
- Telling veterans that their military benefits will cover the full cost of their education when they will need to take out private loans to cover the full cost; and
- For one for-profit college, specifically recruiting and signing up soldiers suffering from brain damage.
In order to reduce the incentive to aggressively market to military members, Petraeus recommends modifying the “90/10” Rule so that military benefits are considered federal funding sources for purposes of the Higher Education Act.
The special efforts undertaken by the Bureau on behalf of servicemembers dovetails with the Bureau’s general student loan reform goals. For-profit colleges have been a focus of the CFPB’s Know Before You Owe initiative, where the Bureau sees a trend in the size of private loans made by for-profit colleges and the failure of these institutions to ensure that borrowers will have the ability to repay the debt after college. Transparency in for-profit college lending practices should also cut down on the potentially deceptive advertising practices toward military members that the Office of Servicemember Affairs is concerned with.