Representing Victims of Vocational School Fraud Alan A
Total Page:16
File Type:pdf, Size:1020Kb
Loyola Consumer Law Review Volume 1 | Issue 2 Article 1 1989 Representing Victims of Vocational School Fraud Alan A. Alop Director, Consumer Litigation Project, Legal Assistance Foundation, Chicago, IL. Follow this and additional works at: http://lawecommons.luc.edu/lclr Part of the Consumer Protection Law Commons Recommended Citation Alan A. Alop Representing Victims of Vocational School Fraud, 1 Loy. Consumer L. Rev. 33 (1989). Available at: http://lawecommons.luc.edu/lclr/vol1/iss2/1 This Feature Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Loyola Consumer Law Review by an authorized administrator of LAW eCommons. For more information, please contact [email protected]. LOYOLA CONSUMER LAW REPORTER Loyola University of Chicago School of Law, One E. Pearson Street, Chicago, Illinois 60611 Volume 1, No. 2 / Winter, 1989 Representing Victims of Vocational School Fraud Alan A. Alop* The last decade has seen an explosion in the sions of the "Private Business and Vocational number of vocational schools. Such schools, Schools Act," Ill. Rev. Stat. ch. 144, pars. 136-162 also known as trade or proprietary schools, offer (1987). These schools are regulated by the Illi- the promise of careers in diverse areas, such as nois State Board of Education. the cosmetology, secretarial, truck driving, travel The effectiveness of state regulation of trade and medical assistant fields. Most trade schools schools, while varying from state to state, has now target unemployed young people, espe- generally been inadequate. These administra- cially public aid recipients. The burgeoning tive agencies may have limited resources, and number of schools is directly attributable to fed- the monitoring of vocational school activities erally guaranteed student loans and federal may take a low priority in the agency. Moreover, grants now available to vocational school stu- students are usually unaware of the identity of dents. The dramatic growth of these schools has the regulatory agency and so seldom file formal been accompanied by a growing number of complaints. Even when such complaints are complaints from students regarding misrepres- made, the agency may not adequately investi- entations by the schools, the quality of educa- gate or adjudicate them. State legislation is fre- tion offered and other significant abuses. Stu- quently insufficient to deter improper activities dents frequently charge that promised training by proprietary schools, and most state laws do or equipment is not provided; that advertised not afford a private right of action to aggrieved "big-paying jobs" are illusory; and that some students. schools are complete shams-four walls, a text- book and little else. This article will explore pos- There is a second layer of "regulation" of sible approaches in representing victims of trade vocational schools-national or regional accred- school fraud. iting agencies. These are nongovernmental, pri- vate associations, generally formed by the I. Statutory and Regulatory Backdrop schools themselves, to provide peer evaluation. The regulatory backdrop and statutory frame- The primary function of each accrediting agency, work in which vocational schools operate in- as suggested by its name, is to "accredit" a voca- clude state licensure or approval of vocational tional school or, subsequent to accreditation, to schools and regulation of these schools through withdraw this status where necessary. A separate a state administrative agency. In Illinois, for accrediting agency exists for each type of school example, two separate statutes and administra- (e.g. cosmetology, travel, etc.). Accreditation is tive agencies regulate vocational schools. Illi- normally not a prerequisite for a school to oper- nois cosmetology and barber schools come ate in a state; most states allow non-accredited under the provisions of "The Barber, Cosmetol- schools to do business so long as the state ogy and Esthetics Act of 1985," III. Rev. Stat. ch. agency has licensed or approved the school. 111, pars. 1701-1704 (1987), and the regulation of (continued on page 36) these schools is the responsibility of the Depart- ment of Professional Regulation. All other Illi- *Director,Consumer Litigation Project, Legal Assistance Foundation nois vocational schools come within the provi- of Chicago; B.A., University of Illinois; J.D., University of Chicago. Vocational School Fraud (from page 33) However, accreditation by a regional or national The GSLP and Pell Grant legislation and their accrediting agency is often the key to a school's implementing regulations prescribe eligibility financial success because the federal govern- rules for students and schools but contain few ment will only provide federally guaranteed substantive qualitative standards to which student loans and federal grant monies to stu- schools must adhere. dents registered in schools accredited by the 1 While Pell grants are administered directly by appropriate private accrediting agency. In fact, DOE to the accredited school, GSLP loans are the Secretary of the Department of Education not. Instead, students enter into GSLP loan agree- ("DOE") is required by federal law to recognize ments with local financial institutions, which those accrediting agencies which are deter- generally issue a check in the name of the stu- mined to be reliable authorities as to the quality dent and the school. These loan agreements provided by educational institutions.2 are of training guaranteed by a "guarantee agency," which is a A listing of all nationally recognized accrediting state governmental agency or a private agencies is non- published annually by DOE. profit organization that has an agreement with 4 Formal complaints can be lodged with the DOE to administer the loan guarantee program. school's accrediting agency in instances of egre- Ifthe student defaults, the financial institution is gious school conduct, particularly where a pat- reimbursed by the guarantee agency. If the gua- tern of misconduct may exist. The accrediting rantee agency is unable to collect the loan, the agency will normally have formal rules and regu- DOE becomes the ultimate guarantor. lations regarding student complaints and pro- Many students who are defrauded by voca- cedures which can result in sanctions against tional schools remain unemployed and, as a non-complying schools, including withdrawal consequence, ultimately default on their stu- of accreditation. Unfortunately, complaint pro- dent loan payments. Although DOE stands to cedures may provide only minimal due process lose millions of dollars as the result of fraudulent protections for the complainants. For example, conduct by vocational schools, historically it has complaint procedures of the National Accredit- failed to promulgate regulations which substan- ing Commission of Cosmetology Arts and Sci- tively govern the education provided by accre- ences ("NACCAS"), the national accrediting dited vocational schools. DOE has instead relied agency which evaluates beauty schools, do not on the policing efforts of the accrediting agen- provide students who file complaints with any cies and state administrative agencies. However, notice of the disposition of their grievances and as a result of the enormous increase in student do not allow students or their representatives to loan defaults, the DOE has recently proposed a attend hearings in which their complaints are regulation which would suspend or terminate adjudicated. 3 Accrediting agencies engage in "self-regulation" loans to schools with a student loan default rate which cannot be expected to in excess of 20 percent.s be as rigorous as independent policing. Yet, A fourth source of regulation of vocational because the legitimate schools have an interest schools is the Federal Trade Commission in weeding ("FTC"). out the unscrupulous members of In 1978, the FTC adopted a broad rule requiring the industry, an accrediting agency may occa- proprietary schools to make numerous sionally take disclo- strong action where governmental sures to prospective students regarding employ- entities have failed to act. ment, earnings and drop-out information of A third layer of regulation of vocational prior students at the school.6 Armed with this schools is federal legislation and regulations that information, students could avoid schools with govern accredited schools whose students ob- abysmal track records. However, the FTC has tain guaranteed student loans and/or grants. For recently terminated this Rule. 7 The FTC has, example, the federal "Guaranteed Student Loan however, also promulgated "Guides for Private Program" ("GSLP"), the most common govern- Vocational and.Home Study Schools" which are mental loan available to trade school students, is in effect.8 While these guides do not have the provided for in 20 U.S.C. §§ 1071-1087 (1982 & force of law, they are designed to articulate "the Supp. IV 1986). DOE regulations which flesh out factors which would guide Commission deci- the GSLP are set out at 34 C.F.R. § 682 (1987). sion[s]." FTC v. Mary Carter Paint Co., 382 U.S. Federal grant legislation-the Pell Grant Pro- 46, 48 (1965). The guides prohibit a wide variety gram, formally known as the Basic Educational of conduct including, inter alia: Opportunity Grant-is found at 20 U.S.C. § (a) use of a name or insignia which tends to 1070a (1982 & Supp. IV 1986). DOE implementing mislead prospective students with respect regulations are codified at 34 C.F.R. § 690 (1987). to the nature