Table Of Content
- About the author(s)/editor(s)
- About the book
- Praise for Handbook for Student Law for Higher Education Administrators
- This eBook can be cited
- Introduction: What This Book Is and Is Not
- Origins of the American System of Higher Education
- American Higher Education Today
- The Innovator’s Dilemma
- A Perfect Storm?
- The Middle Class and the Implosion of Home Equity
- “When Everybody’s Somebody. …”
- Liberalized Credentialing
- Chapter 1: Admissions
- Advertising and Marketing the Institution
- Fraudulent Misrepresentation
- The Formation and Dimensions of the Contractual Relationship
- Reservations of Rights
- Chapter 2: Financial Aid and the Student Loan Crisis
- The Issue of “Sticker Price” v. Tuition Differentials
- What Happens When the Business Model Relies on Student Loans
- The Demise of Corinthian Colleges
- The 2016 Department of Education “Loan Relief” Regulations
- The Current Case Law on Students’ Duty to Repay Their Loans
- The Institution’s Current Role in the Loan-Repayment Obligation
- Chapter 3: Student Activities
- Athletic Programs: The Revolt of the Student-Athlete
- The Student Athlete and the Fair Labor Standards Act
- The Student Athlete and the National Labor Relations Act
- Football Players Are Subject to Special Rules
- Time Commitment to the Sport
- Impact of Bowl Games
- Reasoning and Holding
- What Came Next?
- The Student-Athlete and the Sherman Anti-Trust Act
- The District Court’s Decision
- The Ninth Circuit Affirmed in Part
- The Decision’s Reception
- Summing Up This Section
- An Introduction to Title IX
- Achieving Gender Equity by Subtraction
- The Right of Private Action and Available Remedies
- Rights of the Injured or Disabled Student Athlete
- The Student-Athlete with a Disability
- The Injured Student-Athlete
- The Concussed Student-Athlete
- Background of the Case
- Settlement Negotiations and Preliminary Approval
- The Settlement
- Monetary Award Fund
- Baseline Assessment Program
- Education Fund
- Is Hollywood in Collusion?
- Hollywood v. Real Life
- The NCAA Concussion Case
- No End in Sight
- Injuries from Other Student Activities
- Institutional Immunity from Liability for Personal Injuries
- Appellate Panel Reverses
- Liability for Personal Injuries: Standard of Care
- A Word of Advice
- Fraternities and Sororities: Liability for Your Greeks
- A Word of Advice
- Liability for Denial of Free Expression and/or Campus Facilities
- Chapter 4: Academic Standing, Probation, and Dismissal
- Due Process Requirements of Academic Probation and Dismissal in the Public Sector
- Due Process Requirements of Academic Probation and Dismissal in the Private Sector
- Chapter 5: Academic Integrity, Plagiarism, and Cheating
- Plagiarism Made Easy
- Who Cheats and Why Do They Cheat?
- How Do They Cheat?
- Cheat Sheets
- Partner-Cheating Methods
- Some Solutions
- Online Cheating
- A Model Academic-Integrity Procedure
- Denial of Due Process of Law
- Illegal Discriminatory Treatment
- Breach of Contract and/or Fiduciary Duty
- Common Law Tort Liability
- A Case That Offers Everything
- Chapter 6: Alcohol and Drugs
- Substance Abuse on College Campuses: An Overview
- Alcohol Abuse and Institutional Liability
- Lampert v. State University of New York at Albany, 116 A.D. 3d 1292, New York Supreme Court, Appellate Division, April 17, 2014
- Bogenberger v. Pi Kappa Alpha Corporation, 2016 IL App. (1st) 150128, Appellate Court of Illinois, June 13, 2016
- Court’s Decision
- Criminal Liability?
- Boston College Alcohol and Education Program
- Bowling Green State University, BGSU Peer-Based Alcohol Misperception Program
- Grand Valley State University, Alcohol Education Research and Training Laboratories
- Encouraging Reporting
- Drugs on the College Campus
- The Marijuana Revolution
- Meanwhile in the Courts
- Chapter 7: Student to Student Harassment, Discrimination, Hazing, and Violence
- Student-to-Student Harassment
- Sexual Assault
- Investigating and Adjudicating a Sexual Assault Case
- Should Colleges Be Required to Adjudicate Sexual Assaults?
- The Campus Crusade against Sexual Assault in the Context of the Ongoing Erosion of the Rights of the Accused
- Guns and Violence
- The Mother of All Campus Shootings: Virginia Technical University (2007)
- Liability for a Random Shooting
- University Safety Measures
- The Criminal Case
- Disposition of the Civil Suit
- Chapter 8: Physical, Mental, and Learning Disabilities
- ADA and Rehabilitation Act Coverage
- Major Provisions
- Qualified Individual with a Disability
- Definition of Disability
- Americans with Disabilities Act Amendments (2008)
- The “Hot” Issues of 2017
- Service Animals v. Comfort Animals
- Legal Liability
- Intent to Harm Others v. Intent to Harm Oneself
- Deafness and Other Hearing Disabilities
- The “Closed Caption” Initiatives
- Does a Student’s Disability Enhance Our Responsibility?
- The Court’s Decision
- But as to the ADA …
- Chapter 9: Privacy Rights and Intellectual Property Issues
- Students’ Privacy Rights and the Federal Educational Rights and Privacy Act (FERPA)
- Security Considerations
- Intellectual Property
- Illegal File Sharing and Piracy
- Steps to Avoid Liability for Illegal File Sharing
- A New Age of File Sharing and Ethical Dilemmas: The Aaron Swartz Case
- Chapter 10: International Students
- A Short Overview of International-Student Visas
- The International Student’s Right to Work
- Other International-Student Visa Categories
- Curricular Practical Training
- International Student Safety Concerns
- What a Good “Safety” Orientation Might Include
- International Students’ Responsibilities
- Important Documents They All Should Have
- Series index
First, what this book is not. This little volume is not intended to be a comprehensive compendium of student law. Other larger and longer tomes are available, along with a plethora of other resources in print and online, if that’s what you’re seeking.
Rather, this third edition of my Handbook, far more explicitly than was implied by the preceding two iterations, is aimed at identifying and discussing in a pragmatic manner, the “hot issues” of 2017 and immediately beyond that face higher education administrators. Each chapter seeks to identify and deal with the challenges that have emerged since the second edition appeared three years ago.
I open here with context. In a very few words, my thesis is that American higher education, having evolved through four earlier eras … Waves … is now experiencing the Fifth Wave. The Fifth Wave most likely is the most revolutionary and challenging of all the eras of our industry.
Origins of the American System of Higher Education
Four distinct epochs or waves can be discerned in the history of higher education: In the 85 years between the Declaration of Independence and the ← 1 | 2 → Civil War, some 800 liberal arts colleges sprang up across the United States. A typical example is Franklin & Marshall College, which owes half its name to a modest amount of seed money donated by the great Benjamin Franklin in 1787. Another example is Case Western Reserve University, today a Research-One institution, which first saw the light of learning as Western Reserve Academy.
The undergraduate college took … the essential step necessary for a broad education for general citizenship. … These institutions were of a size and scale that could be created by a group of private individuals—not requiring great fortunes or state support. (Cox 2000, p. 14)
The end of the Civil War until the turn of the last century was the era of the great land-grant institutions. This expansion of higher education led to the first shakeout. “By 1900, only 180 of those first 800 small colleges remained active; larger, subsidized state universities consumed market share by offering more educational services, subsidized prices, and often more pragmatic and career-oriented curricula” (Cox 2000, p. 14).
Around the turn of the last century, the third great wave broke upon the shores of higher learning. Wealthy industrialists, such as John D. Rockefeller (The University of Chicago), Andrew Carnegie (Carnegie Mellon University), Cornelius Vanderbilt (Vanderbilt University), and Leland Stanford (Stanford University) founded high-quality, private universities. The institutions were often world-class in their curricula, faculty, and architecture, importing many of these elements from their great European counterparts. Thus, with Chicago, “Cambridge inspired the architecture, while Berlin inspired the pedagogy and faculty structure” (Cox 2000, p. 14).
Fast forward yet another 50 years and we see the GI Bill and the postwar technology boom, fueled in part by the Cold War, driving the creation of the “megaversity.” This term is commonly used to describe a variety of large institutions, all of which share at least the following characteristics: faculty numbering in the thousands and student bodies numbering in the tens of thousands; sprawling and/or multiple campuses containing a large number of undergraduate, graduate, and professional schools and colleges; and a large and cumbersome administrative bureaucracy overseeing these complex operations. (We have also seen the proliferation and maturation of the community college. However, this book, by and large, will focus principally upon four-year institutions, albeit some case citations will concern community colleges.) ← 2 | 3 →
American Higher Education Today
Now, fast forward to the second decade of the new millennium and meet the voice of higher education’s doom: Professor Clayton Christensen of the Harvard Business School. In March 2013, Dr. Christensen garnered headlines with his prediction that by 2028 (i.e., in another decade and a half) 50 percent of all American colleges and universities will likely be facing bankruptcy (Castagnera 2014, p. 7).
The professor’s prognostication was prompted by the then-imminent closure of Saint Paul’s College, a historically black school founded in 1888 in Lawrenceville (VA). In the three years since that closure, others have followed in its wake. During the first half of 2015 alone:
• March 2015: Two small, Southern liberal arts colleges—Virginia’s all-female Sweetbriar College and Tennessee Temple University, a Christian liberal arts institution—announced their intent to close the gates (Bidwell 2015).
• April 2015: The for-profit Corinthian Colleges, once one of America’s largest chains, abruptly closed its remaining 28 campuses, leaving some 16,000 current students stranded (Zillman 2015).
• May 2015: For-profit Education Management Corporation announced the closure of 15 out of 52 Art Institute locations (Zillman 2015).
• May 2015: Career Education Corporation indicated its intent to terminate its 14 Sanford Brown College campuses (Zillman 2015).
While somewhat startling, this list might not seem cause for concern, considering that institutions of higher education number somewhere between 3,000 and 5,000, depending upon how inclusive one wants the list to be. Nonetheless, these failures have led some leading prognosticators to join Clay Christensen in predicting an accelerating trend. Notably, in September 2015 Moody’s Investor Service released a report that highlighted “a persistent inability among small colleges to increase revenues,” with the result that some 15 more such schools will close by next year (Woodhouse 2015).
Yet again, one might retort that these closures represent a miniscule percentage of the 2300 private college that dot the American landscape (Woodhouse 2015). The multi-million dollar question thus became: Is Dr. Christensen correct? Or, put another way: Are the current closures the crest of a coming deluge of institutional demises, or merely an extension of a steady state historical tendency of a few colleges and universities to fail almost ← 3 | 4 → every year, since time out of mind? (See Index of Colleges and Universities That Have Closed, Merged, or Changed Names 2014) An attempted answer to this question must begin with a summation of Dr. Christensen’s “Disruption” theory.
The Innovator’s Dilemma
In 1997, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Christensen 1997), was a disruption in its own right. It quickly made Dr. Christensen one of the most influential business thinkers on the planet. The Economist anointed his book one of the half-dozen best of the twentieth century’s second half. Thinkers twice appointed him to a top ranking (Goldstein 2015, p. B6)
In his introduction, Christensen says,
This book is about the failure of companies to stay atop their industries when they confront certain types of market and technological change. … Such seemingly unaccountable failures happen in industries that move fast and in those that move slow; in those built on electronics technology and those built on chemical and mechanical technology; in manufacturing and service industries. (Christensen 2015, 1, p. 7)
His opening example is Sears Roebuck. He cites Fortune for the proposition that in 1964 “everybody in its organization simply did the right thing, easily and naturally. And their cumulative effect was to create a powerhouse of a company.” But, continues Christensen in 1997,
[N]o one speaks about Sears that way today. Somehow, it completely missed the advent of discount retailing and home centers. In the midst of today’s catalogue retailing boom, Sears has been driven from that business. Indeed, the very viability of its retailing operations has been questioned. (Christensen 1997, p. 7)
The Innovator’s Dilemma is replete with additional examples of once-prosperous companies falling from grace in the face of cheap competitors. Some 165 pages later, he offers a summation of his thesis in seven succinct points:
(1) “[T]he pace of progress that markets demand or can absorb may be different from the progress offered by technology.” That, he claims, means that products apparently not useful to today’s customers, i.e., disruptive technologies, may be just the ticket tomorrow. ← 4 | 5 →
(2) Managing innovation means giving enough resources to the right technologies and letting others starve.
(3) Then you need to match the market with the new technology.
(4) Most companies’ capabilities are a lot more specialized that their managers realize.
(5) The information may not even exist to make large and decisive investments in new, disruptive technologies.
(6) Disruptive technologies favor “first movers.”
(7) Bottom line, despite their technology, brands, manufacturing prowess, managerial experience, distribution clout, and cash on hand, successfully, established firms have a hard time flexing to innovations that don’t immediately make money. “Because disruptive technologies rarely make sense during the years when investing in them is most important, conventional managerial wisdom at established firms constitutes an entry and mobility barrier that entrepreneurs and investors can bank on.” (Christensen 2015, pp. 173–174)
Application of this theory to higher education was but a short step for Christensen. The application of his thesis to higher education runs roughly like this: Higher education has never before faced a core technology capable of disrupting the status quo.
[A]n Ivy League wannabe could follow only one route: intensive investment in facilities, faculty and the other indicia of a first-tier university. By contract, Christensen contends, today online learning is that missing core technology. Almost any one now can capture, stream and distribute Ivy League-level content over the Internet. And this will blow the walls off traditional higher education. Put another way, why should a student borrow money, pay exorbitant tuition, and sit in a traditional classroom listening to a mediocre professor, when she can learn the same material from the top expert in the world in a MOOC (Massive Online Open-enrollment Course), for which her college will give her course credit? (Castagnera 2014, p. 7)
Christensen spun out this higher education adaptation to book length in The Innovative University (Christensen and Eyring 2011).
In the past 20 years, Professor Christensen has become a cottage industry with two consulting companies guided by a son and a daughter, none (mostly co-authored) books, and a reputed lecture fee north of $40,000 (Goldstein). At the same time, his disruption theory has come under attack, most notably by an in-depth examination of the 77 case studies in his seminal work. This paper reportedly finds that only 10 percent of the companies studied meet all ← 5 | 6 → the criteria laid down by Christensen (Christensen and Eyring 2011). Meanwhile, the Harvard guru of disruption continues to expand his theory into such diverse arenas as religion and politics. And he holds fast to his prediction that, as online learning becomes more sophisticated and effective, it will be the disruptive technology that will put large swaths of colleges and universities to the torch (Christensen and Eyring 2011).
Only time will tell if Clay Christensen is correct. But we need not wait 15 years for the answer. Indeed, if he’s right, that will be too late.
A Perfect Storm?
We need not wait because online learning is not the only disruptor of higher education crashing against the shores of our college campuses. Other forces also are at work, combining to create a potential perfect storm to disrupt the lethargic, the complacent and the slothful among us. Those forces include:
(1) The decline of the middle class and in particular the erosion of home equity;
(2) Increasing competition among colleges and universities; and
(3) The liberalization of credentialing, by which I mean the nearly universal ability of students to cobble together a college degree from a mix of life experiences, community college credits, AP examinations, as well as Christensen’s vaunted online programs.
As in the book The Perfect Storm, these three “weather systems” are converging, such that Dr. Christensen’s prediction may come true even though his theory of the cause is at best only a partial explanation.
The Middle Class and the Implosion of Home Equity
On December 14, 2014, The Washington Post explained “Why America’s Middle Class Is Lost.” Explained the article’s author,
It used to be that when the U.S. economy grew, workers up and down the economic ladder saw their incomes increase, too. But over the past 25 years, the economy has grown 83 percent, after adjusting for inflation—and the typical family’s income hasn’t budged. ← 6 | 7 →
Continues the piece,
In that time, corporate profits doubled as a share of the economy. Workers today produce nearly twice as many goods and service per hour on the job as they did in 1989, but as a group, they get less of the nation’s economic pie. (Tankersley 2014)
The New York Times agreed. “The middle class, if defined as households making between $35,000 and $100,000 a year, shrank in the final decades of the 20th century.” But that, said the writers, was a good thing: many Americans moved into the upper-middle class, sometimes called “the affluent.” But, since 2000, “the middle class has been shrinking for a decidedly more alarming reason: Incomes have fallen” (Parlapiano et al. 2015).
And in April of 2015, Time Magazine joined the chorus of media voices singing the sorrows of the middle class.
Under the traditional economic model, which ranks all American families by their incomes and then analyzes those in the middle, the median income of the middle class increased only slightly, by between 2% and 8%, between 1989 and 2013.
But, the article continues,
if you use a different economic model that takes into account demographic and sociological attributes, such as age, educational attainment, race or ethnicity, the median income of the middle class has actually decreased by 16% during that same period. … (Edwards 2015)
Time based this assertion on a report released by the Federal Reserve Bank of St. Louis. Entitled The Middle Class May be Under More Pressure Than You Think (Emmons and Noeth 2015).
Last but not least, let’s look at what Fortune Magazine had to say last June. Its June 20, 2015 article offered up the following disturbing data:
• America’s child-poverty level is the worst among developed countries, even worse than Greece and Eastern European nations.
• Median adult wealth, standing at $39,000, ranks 27th, behind such countries as Cyprus and Ireland.
• Per capita median U.S. income is $18,700, described as both “relatively low” and “unchanged since 2000.”
• The U.S. suffers from the fourth highest income inequality in the world, behind only Chile, Mexico and Turkey. (Coplan 2015)
As troubling as these data may be, equally or more cautionary for higher education is the decline in Americans’ home equity … typically the major repository of savings for most of us. In 2011 the Federal Reserve Bank of New York revealed that home equity across the country had declined by 60 percent since the onset of the Great Recession in 2008 (Yedinak 2011). As recently as September 2015, 4.4 million properties remained “underwater,” that is, in a negative-equity situation (Gerrity 2015).
Why do these dismal data matter to higher education? The answer should be obvious: American families’ ability—and willingness—to borrow for college costs have been profoundly impacted.
The dimensions of student debt are astonishing. Some 40 million Americans owe an estimated $1.2 trillion in student-loan debt (Rayfield 2015). The class of 2014 graduated with average “mortgages” on their diplomas of $28,950, up 2 percent from the previous year’s graduating class (Institute for College Access & Success 2015). Ironically, these numbers may be a giving us a glance in our rear-view mirrors, rather than a vision of the future. While tuition and fees at four-year public universities have risen 40 percent in 10 years, 29 percent at two-year institutions, and 26 percent at non-profit privates, student borrowing declined six percent in academic year 2014–15 and was 14 percent lower than in AY 2010–11 (Camera 2015).
This inverse relationship between college costs and consumers’ willingness and/or ability to borrow must be closed somehow. And one way—the major way—is tuition discounting. In 2003 non-profit private colleges and universities reported average tuition discount rates of around 37.9 percent. In 2014 that average had risen to 48 percent. The average freshman in 2014–15 received an institutional grant worth 54.3 percent of tuition. Eighty-nine percent of all incoming freshmen received some sort of a discount (Woodhouse 2015).
According to the National Association of College and University Business Officers,
While the economy has improved, many families are still struggling. In a lot of communities you’re seeing, if not job losses, jobs that don’t pay nearly as much as they did. There’s an increased inability [of needy students to go to college] and an unwillingness to pay even if you did have the money. (Woodhouse 2015) ← 8 | 9 →
This phenomenon means that tuition increases, by and large, are negated by deepening discounts. Net revenue is growing at an anemic 0.4 percent annually in the non-profit private sector of higher education. It doesn’t take a Clayton Christensen to understand that this is a formula for failure, if the trend continues. Indeed, most administrators get it and many “are trying to leverage other strategies to recruit students, like freezing tuition, expanding marketing efforts or increasing selectivity” (Woodhouse 2015).
What expectations can we hold out for these strategies?
“When Everybody’s Somebody. …”
“When everyone is somebody, then no-one’s anybody,” cautioned Gilbert and Sullivan in “The Gondoliers.” In his seminal work on prioritization in higher education, Robert Dickeson captured that thought this way:
• “First, institutions’ own marketing efforts to induce students to enroll have driven the accretion of academic offerings for several years. … This pattern of outbidding the competition academically is both costly … as well as usually futile.” (Dickeson 2010, p. 16)
• “Most institutions are unrealistically striving to be all things to all people in their quest for students, reputation, and support rather than focusing their resources on the mission and programs that they can accomplish with distinction.” (Dickeson 2010, p. 15)
• And “it is clear that colleges and universities have been adding programs, services, equipment, buildings, and public relations efforts to achieve greater reputational prominence.” (Dickeson 2010, p. 6)
Increasing selectivity requires increasing amenities in a sort of “arms race” with the competition. From 2001 to 2011, the percentage of University budgets devoted to “student services” increased from 17 to 20 percent. Observed one expert,
Schools are all going after a fairly small pool of students who are high achieving and high income and able to pay much of their own way to college. They’re trying to build more amenities—so you hear about the rock climbing walls and the lazy rivers. (Schoen 2015)
The crucial question, of course, is whether the consistent growth of higher education from the tiny liberal arts colleges of colonial days to the megaversities ← 9 | 10 → of today, which I chronicled in Chapter 1, will continue, or has our industry peaked prefatory to a protracted decline.
So if the big picture is of persistent growth over the long haul, of increasing numbers of campuses, instructors, researchers, administrators, support staff, undergraduates, and graduate students, how can we speak today of an apparently sudden reversal into decline? (Alexander 2014)
• The number of students enrolled in colleges has declined despite growth of the American population. A 2013 survey of admissions directors found that 60 percent had fallen short of their enrollment goals (Jaschik 2013). More ominously, that year’s two-percent decline hit four-year colleges hardest (Perez-Pena 2013).
• As pointed out above, those students attending college are spending less on tuition due to a declination in home equity with a concomitant reluctance to tap into what assets remain, a trend countered by ever-increasing tuition-discount rates.
And so, here is the challenge: In order to compete for a decreased pool of “customers,” universities are investing in (often extravagant) physical amenities and a dizzying menu of majors, minors and certifications … to be all things to all students. At the same time, declining tuition revenue demands trimming unprofitable programs. A combination of investment and cost cutting must result in a net revenue balance, or preferably a net gain, if a tuition-driven institution is to survive.
But, even if school administrators execute this strategy ably, will this prove sufficient? Here, we return to this chapter’s start.
In discussing this issue I am circling back to Christensen’s disruption theory, but with an expanded conception of its application to higher education. Where Christensen focuses on his so-called “core technology” of online learning, I propose to include here a wide range of options now presented to students seeking to gain a college credential as efficiently and inexpensively as possible. ← 10 | 11 →
• Dr. Christensen, as we have seen, grounds his prediction of a 50 percent fallout from private higher education upon the disruption being caused by online learning. The Babson Survey Group’s 12th annual survey of online learning reported slower growth in 2014 than in prior years. The slowdown was driven by an 8.7 percent decline in online enrollments in the for-profit section (Grade Level: Tracking Online Education in the United States2015). However,
The fact that online learning still grew illustrates that its fundamental appeal—primarily in public four-year institutions and private non-profit four-year institutions, according to the report—remains quite strong. Today’s big news that Arizona State University will offer its freshman year online for credit at a price that, at last, positions an online program from a public university as disruptive will only fuel that growth is my guess. Furthermore, according to the report, the proportion of academic leaders who say that online learning is critical to their institution’s long-term strategy is at an all-time high of 70.8 percent, and those institutions reporting that it is not a critical part of their long-term strategy has dropped to a new low of 8.6 percent (Horn 2015).
• Community colleges are particularly favored by the Obama Administration (White House 2015), as well as many state governments. One result of this favoritism is growing pressure upon four-year institutions to articulate their curricula so as to accept every credit earned at the lower level. An outstanding example is NJ Transfer (NJ Transfer, accessed at https://www.njtransfer.org/), about which Inside Higher Ed observed,
A New Jersey law signed by the governor Thursday offers an unusual approach to easing transfer of community college credits by requiring that, upon acceptance, an associate degree awarded by a county college must be fully transferable and count as two years toward a baccalaureate degree at any of the state’s public institutions. (Redden 2007)
This approach is no longer “unusual.” Whether mandated by law or not, four-year institutions would rather have half a loaf than have no student at all.
• A growing number of universities also are awarding credit for life experiences. One proponent has identified five ways in which various institutions facilitate this shortcut to a degree: ← 11 | 12 →
(1) Challenge Examinations, which include the College Level Examination Program (CLEP); the DSST Standardized Subject Tests; Excelsior College Credit by Exam;
(2) Academic Portfolios;
(3) Corporate Training Programs;
(4) Professional Licenses and certifications, such as FAA pilot, engineer and mechanic licenses, and the respiratory therapist certification; and
(5) Military training (“5 Ways to Earn College Credit for Career and Life Experience”).
The upshot is that, while Professor Christensen’s disruption theory may be wanting in itself, it is receiving plenty of help from other educational trends and economic forces, such that the Harvard superstar’s reputation may be rescued and his personal empire continue to prosper, as his prognostications pertaining to the dismal future of American, and especially private, high education are proven to be accurate.
At any rate, prudence demands that his prophesies be taken seriously, lest through our lethargy they become self-fulfilling.
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Let’s begin at the beginning. Our principal enterprise, our main mission, is delivering education to our students. The relationship of a college or university to its students is complex and may be fraught at times with high emotion. These emotional attachments, if positive, often carry over into later life. Indeed, the health of the institution may depend on this and, so, we encourage it.
No matter. In the eyes of the law, at its core the relationship is contractual. The contract is formed when the institution offers the applicant admission into its hallowed halls and the applicant accepts.
So let’s begin at the beginning, examining the steps in the typical admissions cycle and the legal issues that underlie our efforts at attracting prospective students.
Advertising and Marketing the Institution
Baby-boomers, such as your author, can recall an era in which colleges responded to student inquiries with a catalogue, a cover letter and an application form. Many guidance counselors performed their role “out of their back ← 15 | 16 → pockets,” so to speak. Their “real” job was assistant principal, school disciplinarian, or classroom teacher. Students applied to a school or two, three or four at the outside, and sometimes seriously considered the armed forces, beauty or secretarial school, or a parents’ (often unionized) trade as a viable alternative.
Times have changed. As outlined in the Introduction, today’s higher education landscape is populated (some would say overpopulated) with a dizzying variety of public and private, large and small, non-profit and for-profit institutions. All are competing furiously for students, especially the best and the brightest. Many, perhaps most, are straining to expand … in size, in geographic locations, in comprehensive academic programming, and in state-of-the-art delivery systems. All desire diverse, talented student bodies. All want to rise in the U.S. News & World Report and Princeton Review annual rankings. Meanwhile, MOOCs (Massive Online Open-Enrollment Courses, discussed in the Introduction) are blowing the walls off our traditional classrooms.
To attract star students and to rise in the rankings we must market ourselves in increasingly sophisticated ways. As we do, over-enthusiasm may open the (courtroom) doors to accusations of fraudulent misrepresentation. This exposure is all the more acute because today’s students are all the more litigious than their predecessors of just a generation or two ago.
[G]raduate and professional schools will soon enter a new era. The basic reason is that Gen Xers often hold different attitudes toward college and postgraduate education than their boomer counterparts, largely because of the economic environment in which they came of age. College was generally less of a financial burden for boomer students than Gen Xers. … Thus, more than boomers, Gen Xers viewed college as a calculated market choice. … (Strauss and Howe 2007)
Thus, it’s no surprise that university lawyers attending an annual meeting of their national association not long ago described their institutions as “legal minefields.”
The lawyers were also asked how much their colleges would be willing to spend to settle a lawsuit they considered a nuisance. For the plurality of respondents, 43 percent, the amount was $5,000 to $10,000. About 28 percent said they would spend less than $5,000, and about 9 percent said more than $21,000. (Selingo and Blumenstyk 2006) ← 16 | 17 →
We academics dislike calling students “customers,” referring to the academic enterprise as a “business,” and labeling academic programs “product lines.” Like it or not, as we compete with one another ever more intensely, and at a level of sophistication rivaling the most savvy corporate advertisers (indeed, oftentimes in collaboration or contractual partnership with players from the for-profit realm, such as Coke and Pepsi, Nike and Adidas), we can learn a lot from the local used-car salesman.
The law draws a crucial distinction between “puffing” and lying. A good used-car salesman feels the difference in his guts. “Puffing” may sound slangy at first blush, but it enjoys a fairly precise legal meaning:
An expression of opinion by a seller not made as a representation of fact. Exaggeration by a salesperson concerning quality of goods (not considered a legally binding promise); usually concerns opinions rather than facts. (Black’s Law Dictionary 1991, p. 860)
In other words, advertising which merely states in broad generalities that the advertiser’s product is somehow “superior” to the competition is only “puffing” and cannot lead to a successful lawsuit for fraud.
By contrast, the law defines a “lie” as: “A falsehood uttered for the purpose of deception; an intentional statement of a non-truth designed to mislead another; … the uttering or acting of that which is false for the purpose of deceiving” (Black’s, supra, p. 635).
Perish the thought that we scholars would proclaim such falsehoods from our ivory towers. And yet, as our institutions anoint young professionals, who might as easily have become stock brokers or real estate salespeople, with august titles such as vice president for enrollment management and appoint them to our presidents’ senior cabinets; as in our mega-universities, coaches court seven-figure incomes (not counting product endorsements and speaking engagements); as our for-profit, publicly traded competitors come on strong.
Well, we might just find our institutions puffing a bit. If they do, and if we academics are marshaled to the cause, then we need to recognize the legal limits. For if we stray beyond those legal boundaries we may find ourselves in the realm of “fraudulent misrepresentation.” The elements, or components, of a case of fraudulent misrepresentation include: ← 17 | 18 →
Checklist: Elements of Fraudulent Misrepresentation
(1) A false statement
(2) Of a material fact
(3) With intent that the listener rely on the lie
(4) Actual reliance of the listener
(5) Inducing her/him to take action
(6) To her/his detriment
Fraudulent misrepresentation frequently follows a breach of contract case into the courtroom. However, this form of personal injury is capable of standing on its own hind legs, as the following case confirms.
Harnish v. Widener University School of Law, 931 F. Supp. 2d 641, 2013 WL 1149166 (D. N.J. 2013). Widener Law School is an American Bar Association (“ABA”) accredited law school based in Wilmington, Delaware, with a satellite campus in Harrisburg, Pennsylvania. Widener’s student admittance policies were described by the federal judge in this case as among the least discriminating in the country and its acceptance rates as being among the highest. Its class sizes were depicted as large—each year Widener reportedly enrolls approximately 1,600 students. But not all enrolled students graduate. According to the published opinion, in 2008 for example, 23 percent of the first year students failed to matriculate in their second year. The plaintiffs themselves described Widener as a “lower tier” law school.
In the 2010–2011 academic year, Widener’s tuition was $34,890 and room and board was approximately $20,000. The annual cost of attending Widener was approximately $55,000 per year, for a total of $165,000 over three years. The average Widener law student graduates with $111,909 in debt, according to the record in this case.
The plaintiffs were eight Widener Law School alumni who graduated between 2008 and 2011. To some degree or other, they claimed completion of their Widener law degree did not result in satisfactory legal employment. As an example, Plaintiff Justin Schluth was, at the time suit was filed, unemployed. Plaintiff Robert Klein worked in a non-legal position with the federal government but “could not find a permanent position in the legal industry.” Plaintiff Megan E. Shafranski found employment as a Chancery Judge Clerk, then “had difficulty finding full-time legal employment,” but eventually found work as an attorney. She alleged that her “salary … is not adequate to cover ← 18 | 19 → her debt obligations.” The plaintiffs asserted that “[a]ccording to FinAid.org, a graduate needs to make at least $138,000 annually to repay $100,000 without enduring financial hardship, or $92,000 annually to repay the debt with financial difficulty.”
Under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2), the plaintiffs filed an Amended Class Complaint, on behalf of themselves and those similarly situated, that generally alleges “common law fraud and related claims” against Widener. The class consisted of
[a]ll persons who are either presently enrolled or graduated from the Widener University School of Law within the statutory period for the six-year period prior to the date the Complaint in this action was filed through the date that this Class is certified.
The crux of the plaintiffs’ claims arises from Widener’s marketing materials and reporting practices between 2005 and 2011. At an unspecified time, Widener’s website stated
[a]s a graduate of Widener Law, you’ll join a network of more than 12,000 alumni in 50 states, the District of Columbia, and 15 countries and territories who are using their Widener Law degrees to pursue successful, rewarding careers.
And over the years, on its website page entitled “Employment Statistics and Trends,” Widener updated its employment information as follows:
a. Graduates of the Class of 2004 had a 90% employment rate within nine months of graduation.
b. Graduates of the Class of 2005 had a 90% employment rate within nine months of graduation.
c. Graduates of the Class of 2007 had a 96% employment advanced degree rate within nine months of graduation.
d. Employment within nine months of graduation of over 91% for Class of 2008.
e. Employment within nine months of graduation of over 92% for Class of 2009.
f. Graduates of the Class of 2010 had a 93% employment/advanced degree rate within nine months of graduation.
To accumulate this employment data, Widener conducted surveys of its alumni. For example, according to the court, in 2011, the survey inquired whether an ← 19 | 20 → alumnus was seeking work, his employment status, and if employed, whether the position was full-time or part-time, temporary or permanent, whether the job required a bar admission, or was J.D. preferred, and other questions regarding the specific type of law practiced.
The plaintiffs claimed that the employment statistics reported on Widener’s website were misleading because Widener “did not disclose that its placement rate included full and part time legal, law-related and non-legal positions” and that “a graduate could be working in any capacity in any kind of job, no matter how unrelated to law—and would be deemed employed and working in a career ‘using’ the WLS law degree” (emphasis in original). Specifically, they alleged that the statistics were misleading because Widener “did not disclose that when a graduate responded, ‘not seeking work,’ WLS simply did not count the graduate”; that Widener “would count as ‘employed’ a graduate who was only employed for a short period of time before the survey, but was likely unemployed”; that Widener would “count as ‘employed’ graduates who, out of desperation, had started their own solo law practice without first confirming whether the graduate had obtained licensure in the jurisdiction”; and that Widener “did not disclose that a sizeable percentage of WLS graduates did not respond to the survey.” In sum, they said, Widener published and reported an aggregate employment rate but did not disclose the disaggregated data that it used to compile its rate.
False statement of material fact? Senior District Judge Walls wrote,
Widener charges top prices for a Widener education. The cost of a Widener education is over $150,000 and the average Widener student graduates with over $110,000 in non-dischargeable debt. To encourage prospective students to attend Widener, Widener’s website has a page, updated yearly, entitled ‘Employment Statistics and Trends.’
Contained upon that page are four headings: Judicial Clerkships, Class of [Year] Profile, Full Time Legal Employers, Employer Locations, and Related Links. Id. Ex. B. Sandwiched between “Judicial Clerkships” and “Full Time Legal Employers”—forms of legal employment—is the class “profile” which contains the disputed statements. For example, the “Class of 2004 Profile” stated “Graduates of the Class of 2004 had a 90% employment rate within nine months of graduation.” Plaintiffs allege that over the years the statements, as posted on Widener’s website and disseminated to third party evaluators, of an “employment rate” between 90–95 percent misled prospective law students into believing that rate refers to legal employment. ← 20 | 21 →
Concluded His Honor,
Perception is often affected by location of the object. Here, we have data displayed above the category of “Full Time Legal Employers.” Why should a reasonable student looking to go to law school consider that data to include non law-related and part-time employment? Should that student think that going to Widener Law School would open employment as a public school teacher, full or part-time, or an administrative assistant, or a sales clerk, or a medical assistant?
Listener’s reliance. Judge Walls held,
Here, an employment rate upwards of 90 percent plausibly gave false assurance to prospective students regarding their legal employment opportunities upon investment in and attainment of a Widener degree. While the thread of plausibility may be slight, it is still a thread. At this motion to dismiss stage, under New Jersey’s broad remedial statute, Plaintiffs have sufficiently pled an unlawful affirmative act. …
Plaintiffs allege Widener made material omissions “concerning [Widener]’s reputation with potential employers … concerning the value of a [Widener] degree … concerning the rate at which recent graduates can obtain gainful employment in their chosen field and [c]ausing students to pay inflated tuition based on … omissions, including, specifically that approximately 90–95 percent of [Widener] graduates secure gainful employment.” These omissions are plausibly material. What makes the posted and disseminated employment rate misleading is the failure to include notice that the employment rate refers to all types of employment, that it is not specifically referring to law-related employment, and that the rate may have been inflated by selectively disregarding employment data (as example, failure to count the graduate if she responded “not seeking work”). Without these additional facts, Plaintiffs may have been misled to believe the employment rate referred to their post-graduate employment prospects in the legal sector, and not to employment generally. Plaintiffs have sufficiently pled a knowing omission under the NJ [Consumer Fraud Act].
The university immediately moved for reconsideration of the judge’s decision or, in the alternative, leave to take an interlocutory appeal to the U.S. Court of Appeals for the Third Circuit. His Honor denied both motions. Harnish v. Widener University School of Law, 2013 WL 1892076 (D.N.J., May 3, 2013).
Another two years slipped by before the judge denied plaintiffs’ motion for class-action certification in what was by then considered by Harnish et al. to have potential value in the neighborhood of $75 million. Judge Walls ruled that, while an ascertainable class had been defined, each potential plaintiff’s unique circumstances outweighed the commonality needed to meet the second prong of the class-certification test. Harnish v. Widener University Law ← 21 | 22 → School, 2015 WL 4064647 (D.N.J., July 1, 2015). And yet again, he declined to reconsider his ruling. 2015 WL 4647930 (Aug. 5, 2015)
In December, the plaintiffs appealed to the Third Circuit. In mid-2016 the appeal remained pending.
Meanwhile, despite numerous dismissals of similar suits in recent years, a handful of similar suits likewise clung to life around the country. In one of the very few to find its way to a jury, in March 2016 plaintiff Anna Alaburda told her story. According to the New York Times, the 2008 top-of-her-class graduate of Thomas Jefferson School of Law, spent $150,000 for a degree which had yet to gain her full-time employment as a lawyer. Unfortunately for her, on March 24, 2016, nine of 12 jurors voted against her (Olson 2016).
Apparently the majority of jurors believed the law school administrators who “maintained that they did not understand the importance of the employment data, and that the school was a nonprofit institution offering opportunities to students who might not have other options to attend law school,” according to the Times. No doubt, Ms. Alaburda is also pursuing an appeal.
The American Bar Association, which accredits the nation’s law schools, took the litigation bull by its proverbial horns, as this May 2016 announcement attests:
The ABA Section of Legal Education and Admissions to the Bar has released aggregate national data on law graduate employment outcomes for the class of 2015 and posted individual schools’ post-graduate employment figures online at http://employmentsummary.abaquestionnaire.org/. An online table also provides select national side-by-side comparisons between the classes of 2015 and 2014.
The 205 ABA-approved law schools in the aggregate data reported that roughly 10 months after graduation, 28,029 graduates of the class of 2015, or 70 percent, were employed in long-term, full-time positions where bar passage is required or a J.D. is preferred. The class of 2015 had 39,984 graduates, down 14 percent from 2013’s largest-ever class of 46,776 graduates.
The ABA’s accrediting body, under Standard 509 of the ABA Standards for Approval of Law Schools, requires schools to report to the ABA and publicly disclose varied information, including employment outcomes. Employment and other statistics are posted to the Section of Legal Education statistics website. (http://www.americanbar.org/content/dam/aba/administrative/legal_education_and_admissions_to_the_bar/reports/2015_law_chool_graduation_employment_announcement.authcheckdam.pdf)
(1) Tell the truth!!!
(2) Assume that you are dealing with increasingly sophisticated consumers who have no “brand loyalty” to your program or institution, and who will hold you to the promises you made from the relationship’s inception.
(3) Don’t agree to the solicitation and processing of applicants for the program until you are satisfied that points one and two have been met.
The Formation and Dimensions of the Contractual Relationship
Fundamental contract law figures directly into the formation of the relationship between the applicant and the university. For the formation of a contract, the law demands an exchange of promises supported by some sort of consideration. Usually, this means that one party makes an offer, the other accepts the offer, and both sustain some change of position in support of the arrangement.
In the context of an applicant’s overture to the university’s office of admissions, this is usually deemed to be the solicitation of an offer of admission. In other words, even if the application arrives in response to an institution’s promotional materials, no contract is as yet formed. In fact, even when your admissions office responds with a positive response to the application, no contract is formed … not quite yet.
Only when the successful applicant accepts the admission office’s offer of admission is the contract consummated. After that, the university is obligated to make good on its promises to the new student. These promises are found partly in the correspondence exchanged between the parties. Consequently, if the college admissions office promises a financial aid package, the institution will have to make good on that scholarship/grant money. But there’s more to the contract than that. The most significant document in the contractual mix is your current college catalogue.
McConnell v. LeMoyne College, 808 N.Y.S.2d 860 (N.Y. Appellate Division 2006), presents a classic example of holding an institution of higher learning to what is contained in its college catalog. In this case, while still ← 23 | 24 → an undergraduate student, McConnell applied for admission to the Master of Science for Teachers program at LeMoyne College. By letter dated March 25, 2004, the Interim Chair of the College’s Education Department for the College wrote the student to inform him of his “conditional acceptance as a student in the [Program].” The letter stated that, “[u]pon earning a grade of ‘B’ or higher in your first four courses, and upon completion of all admission requirements and/or course deficiencies, your status will change to full matriculation.” On January 13, 2005, McConnell received a letter from Dr. Cathy Leogrande, the chair of the Education Department and Director of the Graduate Education Program. Leogrande wrote that she had reviewed the grades earned by petitioner thus far in the Program and had discussed his work with his professors. Based on her “grave concerns regarding the mismatch between [petitioner’s] personal beliefs regarding teaching and learning and the [Program’s] goals,” Leogrande did not believe that he should continue in the Program. Therefore, he was not allowed to register for additional courses, and his registration for the spring 2005 semester was withdrawn. McConnell sued.
On these facts, the court of appeals held as follows:
“We conclude that petitioner met all of the admission requirements set forth in the Catalog and the conditional acceptance letter. According to that letter, “upon completion of all admission requirements and/or course deficiencies,” petitioner’s status would change to full matriculation. Nothing in the letter indicated that petitioner would be subject to subsequent review, and nothing in the Catalog or the College Handbook indicated that a subsequent, subjective review of petitioner’s personal goals would take place before a final decision was made.
The Catalog lists five criteria for admission:
(1) Completion of a baccalaureate degree from an accredited institution with a B average in the major field of study and a minimum grade-point average (GPA) of 3.0. If conditionally accepted, candidates with less than a 3.0 GPA must achieve at least a B in each of their courses prior to formal matriculation;
(3) Letters of recommendation stating that the student is capable of graduate study;
(4) Candidate’s statement of purpose; and
(5) Evaluation of transfer credit, if applicable.
“The fifth criterion was not applicable to petitioner and, although petitioner had less than a 3.0 GPA, there is no dispute that, as a conditionally accepted student, he received grades of B+ or higher in his first five classes. Petitioner therefore met the first criterion for full matriculation as stated in the Catalog and his conditional acceptance letter. The College does not contend that petitioner failed to submit a GRE score, letters of recommendation or a statement of purpose. Thus, it appears from the record before us that petitioner met all the criteria for admission as set forth in the Catalog and the conditional acceptance letter.
“Although the Catalog states that the College’s programs are available to those “whose personal goals match the selected program,” neither the Catalog nor the conditional acceptance letter states that personal goals are a criterion for admission. Thus, petitioner fulfilled the conditions outlined in the conditional acceptance letter and, according to the terms of that letter, petitioner’s status changed automatically once those conditions were met. We thus conclude that petitioner was a fully matriculated student at the College on January 13, 2005, when Leogrande dismissed him from the Program, and he was entitled to the due process procedures set forth in the College’s rules and regulations before he could properly be dismissed.”
In other words, since nothing in the college catalogue required the applicant to demonstrate acceptable “personal beliefs” that comported with program goals, the department couldn’t impose that additional matriculation requirement following the formation of the student-college contract.
The court concluded, “We therefore modify the judgment accordingly, and we direct the College to reinstate petitioner to the Program forthwith.”
The obvious advice is to know what is in your catalogue, and either abide by it or change it. Here, based upon the authors’ own experiences, we want ← 25 | 26 → to go a step farther. What we want to suggest is that you, as dean or department chair, think long and hard about the imposition of attitudinal admission requirements. It is not uncommon in professional programs, such as teaching and counseling, for departments and programs to impose such qualitative, normative requirements for admission and matriculation.
The problem inherent in such requirements is one of demonstrating their validity. The disappointed applicant will often assert that her/his gender, age, race, or other protected attribute was the “real” reason why admission or matriculation was denied. Absent compelling documentation—for example, a criminal record check—you and your faculty must fall back on your own professional competency to support the “denial” decision. While your level of competency may be high and your conclusion correct, in a court of law these considerations may or may not prove to be compelling to a judge and jury.
The American common law recognizes two types of mistakes in the formation of contracts: mutual mistakes and unilateral mistakes.
The law makes a distinction between incorrect beliefs at the time of contracting—“mistake” and incorrect beliefs about events occurring after the agreement but before performance. Excuses for incorrect beliefs about later events are classified as performance excuses rather than formation excuses, and while they raise similar issues, we will not treat them here. “Mistake” itself covers a broad set of situations, and courts often distinguish between unilateral mistake and mutual mistake, a distinction that will be the focus of this article. A unilateral mistake is an incorrect belief of one party that is not shared by the other party. A mutual mistake is an incorrect belief shared by both parties. The conventional wisdom is that the contract is more likely to be voidable if the mistake is mutual, a distinction emphasized by courts for over a century.
Although judicial excuse for either unilateral or mutual mistake is relatively rare, courts continue to cite mutual mistake as grounds for avoidance. Law digests continue to list mutual mistake as a separate doctrine with regular new holdings, and the term appears frequently in contract cases. Informal excuse is also common. Many stores allow customers to return merchandise even when no promise to do so had earlier been made, and in transactions between businesses, purchasers are often allowed to cancel orders even though this may formally be a breach of contract. (Ayres & Rasmusen1993) (Reprinted with permission of the University of Chicago Press) ← 26 | 27 →
A modern example of mutual mistake was a high incidence of scoring errors by the Educational Testing Service in 2006:
4,000 SAT scores out of 500,000 tests taken in October of 2006 were affected by scanning errors, resulting in scores that were either too low or too high. Although the number of tests affected by the error was not too significant, the impact of the miscalculations was marked for both the College Board and its contractor, Pearson Educational Measurement. Because of the errors in scoring, the credibility of the College Board was called into question, as increasingly inconsistent information about the scope and degree of the SAT problem surfaced.
Soon after discovering the errors in the initial set of tests, the College Board admitted that it would have to re-examine further 1,600 exams that may also have been scored incorrectly. The organization was so focused on correcting the errors encountered in the first set of tests that they overlooked the other 1,600 exams that had been put on administrative hold earlier for further review. Placing exams on administrative hold is a routine occurrence when there are concerns regarding the security of a test or test-taking session, but the executive director of SAT information services at the College Board, Brian O’Reilly, admitted that the mistake should have been caught sooner.
Students and colleges were notified of any changes in test scores, and college admissions officers were forced to re-evaluate applicants—even the smallest differences in scores can be vital when dealing with competitive college programs.
The credibility of the College Board was questioned, as well as the importance placed on standardized testing as a measurement tool in education in general. One of the biggest complaints from admissions officials and critics of the SAT was that little explanation was given for the scoring errors in the first place. Pearson Educational Measurement released a statement citing “abnormally high moisture content” due to heavy rain as one reason for the errors. The moisture caused answer sheets to expand and create inaccurate versions of the answer sheets. Another reason for the errors may have been answer sheets that were filled in too lightly or incompletely to be read by the scanner. However, other problems may have contributed and would have to be investigated further by Pearson.
Another point of contention was why the College Board waited so long to report the scoring errors. The association claimed to have been unaware of the problem until two students challenged their scores in December, but college officials and students were not informed of the problem until March. ← 27 | 28 → Mr. O’Reilly explained that the College Board wanted to wait until they could provide the most comprehensive information possible regarding the errors.
The College Board will grade tests an additional time, by hand, for an extra $50, but doing so often does not result in a different score. When it does result in a changed score, it is usually due to a student erasing an answer and filling in a different one on the answer sheet.
No pattern was discerned, however, to fully explain the errors in the 4,000 October tests. At least five law firms sought clients interested in suing the College Board—with a strong case, according to Catherine Richards at Balestriere PLLC, a New York Law Firm. According to her, it’s difficult for admissions officials to look at applicants objectively after a mistake like this one has been made, and there is no way to change or avoid that.
Certainly Attorney Richards makes a telling point with regard to ETS. However, with respect to the colleges and universities that relied on the incorrect SAT scores in rendering admissions decisions, this debacle would seem to be a clear case of mutual mistake. In other words, both the student-applicants and the higher education institutions assumed—mistakenly—the accuracy of the test scores. Consequently, while offers of admission already accepted by such students amounted to otherwise-binding contracts, where the SAT scores were incorrectly reported to be higher than they were, the college and university admissions offices would seem to have been within their rights in rescinding those offers of admission.
By contrast, had one of the affected universities accidentally mis-transcribed an applicant’s SAT scores and admitted her on that basis, the student-applicant would have had a strong case for resisting any subsequent effort by the admitting school to withdraw its offer, providing the applicant had already made a timely acceptance of it.
Reservations of Rights
Where the college catalogue or other materials provided to applicants contains a statement, reserving to the institution the right to cancel a program or close a school subsequent to admitting such applicants, some courts have ← 28 | 29 → condoned such a programmatic or curricular alteration, even though its effect is to rescind or nullify the contract of admission.
An example is Gourdine v. Felician College, 2006 WL 2346278 (N.J. Super. A.D. 2006). In this case, the plaintiffs asserted that in 1999 they were working as psychologists in private practice. At that time, they received unsolicited materials from Felician College about a program known as the Accelerated Masters in Nursing Earned Doctorate (AMNNED) program. This course of study, also referred to as the Earned Doctorate Accelerated Cohort (EDAC) program, offered its students the opportunity to receive both an undergraduate degree in nursing and a master’s degree in nursing within three years.
For the plaintiffs, one attractive feature of the AMNNED program was the “one-day-on-campus format,” in which the classes for the program would be held only on Fridays. In addition, although the literature distributed by the college regarding the AMNNED program was silent on the subject, the plaintiffs asserted that they were also interested in the AMNNED program because representatives of Felician College informed them that graduates would be eligible to sit for the Mental Health Advanced Practice Nurse Certification Test (the “MHAPNC” test). Successful completion of that test would have enabled them to write prescriptions for psychotropic medications which their existing licenses did not permit. The plaintiffs asserted that they relied on these written and oral representations in deciding to apply to the college for this course of study. In the spring of 2000, Felician College accepted them into the AMNNED program, pending their completion of certain prerequisite courses.
When the plaintiffs began the AMNNED program, it was in its second year of existence. Although the second-year class had an initial enrollment of seven people, by the time classes began, the plaintiffs were the only two students remaining. Shortly after they began their studies, Felician College changed the class requirement from the original Friday-only format. In addition, after the plaintiffs had enrolled in the AMNNED program, they learned that upon graduation they would not be eligible to sit for the MHAPNC test. Rather, they would only be able to sit for the Family and Adult Advanced Practice Exam. Success on that test would not permit them to write prescriptions.
On October 11, 2000, Sister Morris, who was the Vice President for Academic Affairs at the college, sent a letter to the plaintiffs advising them that the Friday-only format would be cancelled. Her letter stated: ← 29 | 30 →
Because of low enrollment, the College cannot continue to dedicate its resources to the NP program as originally designed for your cohort. As an alternative, you may enroll in the Associate Degree program and pursue your Nursing degree through this route. If you need any assistance with registration, we will be able to facilitate the process.
More specifically, according to Sister Morris, the college had decided to cancel the AMNNED program “based on the financial conditions in the institution, and the necessity of looking at all programs that were not fiscally viable or pedagogically sound.” Sister Morris considered herself authorized to do so, because the Felician College catalog included a policy in which it “reserve[d] the right to withdraw or modify the courses of instruction … at any time.” The catalog also provided that “[i]nsufficient enrollment for any course or any other substantial reason deemed necessary by the Vice President for Academic Affairs may bring about the cancellation of courses from the semester schedule.”
On October 25, 2000, Sister Morris sent the plaintiffs a letter that “serve[d] to abrogate the letter of October 11, 2000.” On October 26, 2000, Sister Theresa Mary Martin, the president of the college, sent them a further letter advising them that the program would continue for the next year, that it would remain a Friday-only format, and that it would continue through February 9, 2001. The letter also, however, advised them that continuing the program in this fashion represented “a significant financial burden for the College,” which the college was undertaking to “make every reasonable effort to help [plaintiffs] succeed.” Sister Martin’s letter continued by stating that “[o]ver the coming months, we will explore how your instruction might be continued past this next year.”
On December 1, 2000, Felician College informed both the Commission on Collegiate Nursing Education and the New Jersey Board of Nursing that it would no longer admit students to the generic Master of Science in Nursing program and that it had admitted that program’s last student in the fall of 2000. Nevertheless, according to plaintiff Coram, after that time, in January 2001, Dr. Muriel Shore, dean and professor of the Division of Health Services, told him that both she and the college supported the programs it offered. Plaintiff Coram believed that this expression of support was a specific representation that the program would continue.
On June 21, 2001, Sister Morris issued a memorandum to students in the AMNNED program informing them that “[a]s a result of diminishing enrollment and concomitant financial considerations, [Felician College] will ← 30 | 31 → discontinue the AMNNED program effective August 1, 2001.” The memorandum further detailed that Felician College was “most willing to aid you in finding alternatives to complete your studies.” Defendants assert that the AMNNED program was not financially viable with only two students. They produced a cost analysis, in which they compared revenue of $18,336 with costs of $16,800, in support of this assertion. Plaintiff Coram, however, certified that Janet Reynolds, liaison and monitor of the AMNNED program at Felician College, told him “that Felician was earning a profit with its AMNNED program, even with only [two] students currently enrolled.”
On July 9, 2001, Dr. Shore contacted Bloomfield College in an attempt to place the plaintiffs in a comparable program. Eventually, however, Felician College was not successful in its efforts to find another program that would allow plaintiffs to complete the BSN part of their studies on the same schedule as had been promised by the original AMNNED program. Therefore, Felician College advised them that it was “willing to reinstate the program until May 2002[,]” thereby “allow[ing] [plaintiffs] to complete the BSN segment.”
The plaintiffs accepted that offer, and received their bachelor’s degrees in May 2002. Eventually, Coram earned a master’s degree from Rutgers University that allowed him to prescribe psychotropic medications. As of August 5, 2004, Gourdine was pursuing her master’s degree at the State University of New York at Stony Brook, which would ultimately enable her to prescribe psychotropic medications as well.
In May 2003, the plaintiffs filed their three-count complaint seeking compensatory damages from defendants based on theories of breach of contract, negligent misrepresentation, and a violation of the Consumer Fraud Act, N.J.S.A. 56:8–1 to –20. Following the completion of discovery, defendants moved for summary judgment on all three counts of the complaint. On April 29, 2005, the motion judge issued his oral opinion granting summary judgment in favor of defendants on all counts and dismissing plaintiffs’ complaint.
On these facts the New Jersey appeals court held,
To the extent that plaintiffs seek to enforce a contractual right against defendants, that contract includes the college catalog’s reservation of rights to alter or to eliminate the program in which they were enrolled. The question of their rights to recover damages, then, … rests on defendants’ reasons for the decision to alter or close the program and the manner in which it was accomplished. Regardless of whether we ← 31 | 32 → consider these issues as matters to be tested against a quasi-contract, good faith standard, or in terms of the contractual covenant of good faith and fair dealing, the result here is the same. In essence, plaintiffs assert that the judge erred in finding that there was no genuine issue of material fact to be tried concerning defendants’ good faith. They point to evidence in the record to the effect that the proffered financial reasons for the closing of the program were false and argue that the judge, in essence, made inappropriate findings of fact. We do not agree with this analysis.
The appellate panel explained, “plaintiffs offered only evidence of a rather optimistic comment made to them by Dr. Shore about the college’s support for its programs and a statement attributed to Janet Reynolds to the effect that the college could make money on the AMNNED program even with two students enrolled. The motion judge concluded, and we agree, that these were insufficient to create a genuine issue of material fact within the meaning of Brill. In particular, the statement attributed to Dr. Shore was, at most, merely a general expression of support for all of the college’s programs. It was not, as plaintiffs suggest, a guarantee or a contractual agreement that the college was obliged to continue to offer any of them. Nor is the comment attributed to Reynolds sufficient to create a genuine issue of material fact. The record demonstrates no basis on which to conclude that Reynolds was privy to the financial information needed to legitimately make such a claim. Indeed, as the motion judge noted, it is unreasonable to suggest that a program with two full time faculty members for two students could be financially stable. Moreover, the comment, even if true, does not address the alternate pedagogical reason for discontinuing the program, which remains unchallenged. Taken together, this proffered evidence is insufficient to create a genuine issue of fact when compared to the record defendants relied upon in support of summary judgment.
Nor, for that matter, do we find merit in plaintiffs’ argument that Felician College was obligated to offer them tuition rebates or that its efforts to assist them in completing their degrees were so inadequate as to create a cause of action. Although as a matter of fact, in Beukas, the students were, under some circumstances, offered tuition assistance, we do not interpret Beukas to require financial support in exchange for ending a program. Rather, we consider that as an aspect of the manner in which the institution sought to ease the closing of the program that must be considered in the context of whether the institution acted in good faith.
Here, defendants’ efforts to find other programs for these plaintiffs, which are documented, were unsuccessful. As a result, however, plaintiffs were ← 32 | 33 → permitted to continue with their studies until the completion of their BSN degrees, which enabled them to secure places in other programs as part of achieving their eventual career goals. We perceive no basis in this record to conclude that more was required of defendants in order to discharge their good faith obligation.”
While a reservation of rights may be helpful, it is no “silver bullet.” The courts will inquire into the behavior of the institution invoking the reservation. Should such a reservation of right be relied upon to shield the university from liability for abusive treatment of its students or applicants, the courts may be expected to knock it aide and impose liability as the reservation did not exist.
Ayres, I. and E. Rasmusen. “Mutual Mistake in Contract Law.” Journal of Legal Studies 22 (1993): 309. (accessed April 1, 2017).
Black’s Law Dictionary. Sixth Edition, 1991, p. 860.
Olson, Elizabeth. “Law Graduate Who Sued Her School Loses at Trial.” New York Times, March 24, 2016. Accessed http://www.nytimes.com/2016/03/25/business/dealbook/law-graduate-who-sued-her-school-loses-at-trial.html (accessed April 1, 2017).
Selingo, Jeffrey and Blumenstyk, Goldie. “At Meeting of College Lawyers, They Talk of Costlier Settlements and Whistle-blowers,” The Chronicle of Higher Education, July 7, 2006.
Strauss, William and Neil Howe. “Millennials as Graduate Students.” The Chronicle of Higher Education March 30, 2007.
The Issue of “Sticker Price” v. Tuition Differentials
In 2013 the U.S. Department of Education initiated the College Scorecard (https://collegescorecard.ed.gov/). In the DOE’s own words,
Following President Obama’s State of the Union address, today the U.S. Department of Education released an interactive College Scorecard, which provides students and families the critical information they need to make smart decisions about where to enroll for higher education. (http://www.ed.gov/category/keyword/college-scorecard)
The College Scorecard ostensibly provides students and families with clear information through an interactive tool that lets them choose among any number of options based on their individual needs—including location, size, campus setting, and degree and major programs. Each Scorecard includes five key pieces of data about a college: costs, graduation rate, loan default rate, average amount borrowed, and employment. These data will be updated periodically, and the Department plans to publish information on earnings potential in the coming year.
The beauty of the College Scorecard, so far as cost is concerned, is that it endeavors to present actual cost of attendance in lieu of sticker price. Take ← 35 | 36 → for instance my own home institution, Rider University. In 2016, tuition was flirting with $40,000, while room and board could add in excess of $10,000 more. But, according to the Scorecard, the actual annual tab, after all forms of aid, including the school’s own average tuition discount of some 45 percent, was in the neighborhood of $28,000.
As this third edition was being prepared in mid-2016, institutions’ tuition discounting practices had come to resemble car sales and airline ticketing.
According to Inside Higher Education, “Private colleges and universities continue to raise their tuition discount rates, even as many institutions struggle with decreasing enrollment and declining revenue despite the practice” (Woodhouse 2015).
On average, private colleges’ discount rate—institutional grant dollars as a percentage of gross tuition and fee revenue—reached 48 percent for freshmen in 2014, up from 46.4 percent the year before, according to the 2014 Tuition Discounting Study, which surveyed 411 private colleges and universities (public institutions were not included in the survey because their funding formulas and pricing structure are different than those at private institutions). (Woodhouse 2015)
From the inception of the Great Recession to the present day, the way colleges (especially private non-profit colleges) and families do business changed dramatically.
Pre-2008, housing prices in the U.S. rose steadily. Homeowners over-extended on mortgages, confident that when balloon payments came due, ever-increasing equity would cover the costs. When that bubble burst, billions in home equity vanished seemingly overnight. And with the loss of that illusory wealth went the major source of family funding for kids’ college educations.
The big losers in this financial debacle, after the families of college-age kids themselves, were the private universities, both for-profit and non. Earlier in this chapter, I presented the case study of Corinthian Colleges collapse. But the for-profits are not alone in feeling the residual pinch of the home-equity meltdown.
The morphing of students and parents into consumers of college education didn’t happen overnight, though sometimes it seems that way. Families were already becoming savvier about “purchasing” college diplomas even before 2008. The online Common Application (https://www.commonapp.org/) had something to do with that. In 1965, when I was a high school senior, I applied ← 36 | 37 → to two colleges. A half-dozen applications was probably more the norm during the final decades of the twentieth century. Six may even have seemed like a lot to many students and their folks.
Thanks to the Common App, triple that number is now not uncommon, according to the New York Times. Indeed, reported the Times less than two years ago, 30 applications is no longer unheard of (http://www.nytimes.com/2014/11/16/nyregion/applications-by-the-dozen-as-anxious-students-hedge-college-bets.html?_r=0). Consequently, a rise in applications no longer foretold a healthy yield rate for any but the more prestigious private institutions.
In fact, not even large numbers of deposits is any longer a harbinger of a healthy harvest of first-time freshmen in the fall. I’m informed by admissions and financial aid professionals that making multiple deposits to hold seats at several schools, where their children have gained admission is now a common negotiating gambit.
Furthermore, one financial aid executive confided with a rueful shake of his head, “Every financial aid package is a negotiation now.”
What Happens When the Business Model Relies on Student Loans
Let us postulate a business model that works something like this: Potential students are enticed to apply and enroll. They then are directed to apply for student loans. The loans are obtained. The students are poorly prepared and poorly qualified for the programs. They drop out or flunk out. They default on their loans. But, meanwhile, the loans are posted as income by the school. The admissions counselors receive bonuses, and the shareholders—because this is a for-profit or “proprietary” university—realize a rise in stock value and handsome dividends to boot.
In the context of this business model, consider the case of U.S. ex rel. Hendow v. University of Phoenix, 461 F.3d 1166 (U.S. Court of Appeals, 9th Circuit, 2006). When an educational institution wishes to receive federal subsidies under Title IV of the Higher Education Act, it must enter into a Program Participation Agreement with the Department of Education (DOE), in which it agrees to abide by a panoply of statutory, regulatory, and contractual requirements. One of these requirements is a ban on incentive compensation: a ban on the institution’s paying recruiters on a per-student basis. The ban prohibits schools from ← 37 | 38 →
provid[ing] any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance.
This requirement is meant to curb the risk that recruiters will “sign up poorly qualified students who will derive little benefit from the subsidy and may be unable or unwilling to repay federally guaranteed loans.” United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916 (7th Cir.2005), cert. denied, — U.S. —, 126 S.Ct. 1786, 164 L.Ed.2d 519 (2006). The ban was enacted based on evidence of serious program abuses.
This case involves allegations under the False Claims Act that the University of Phoenix knowingly made false promises to comply with the incentive compensation ban in order to become eligible to receive Title IV funds. Mary Hendow and Julie Albertson, two former enrollment counselors at the university, alleged that the university falsely certified each year that it was in compliance with the incentive compensation ban while intentionally and knowingly violating that requirement. They alleged that these false representations, coupled with later claims for payment of Title IV funds, constitute false claims under 31 U.S.C. § 3729(a)(1) & (a)(2).
First, they alleged that the university, with full knowledge, flagrantly violated the incentive compensation ban. They claimed that the university “compensates enrollment counselors … based directly upon enrollment activities,” ranking counselors according to their number of enrollments and giving the highest-ranking counselors not only higher salaries but also benefits, incentives, and gifts. They alleged that the university also “urges enrollment counselors to enroll students without reviewing their transcripts to determine their academic qualifications to attend the university,” thus encouraging counselors to enroll students based on numbers alone. Albertson, in particular, alleged that she was given a specific target number of students to recruit, and that upon reaching that benchmark her salary increased by more than $50,000. Hendow specifically alleged that she won trips and home electronics as a result of enrolling large numbers of students.
Second, the two former employees alleged considerable fraud on the part of the university to mask its violation of the incentive compensation ban. They claimed that the university’s head of enrollment openly bragged that “[i]t’s all about the numbers. It will always be about the numbers. But we need to show the Department of Education what they want to see.” To deceive the DOE, the plaintiffs alleged, the university created two separate employment ← 38 | 39 → files for its enrollment counselors—one “real” file containing performance reviews based on improper quantitative factors, and one “fake” file containing performance reviews based on legitimate qualitative factors. The fake file is what the DOE allegedly saw. They further alleged a series of university policy changes deliberately designed to obscure the fact that enrollment counselors were compensated on a per-student basis, such as altering pay scales to make it less obvious that they were adjusted based on the number of students enrolled.
Third and finally, the plaintiffs alleged that the university submitted false claims to the government. Claims for payment of Title IV funds can be made in a number of ways, once a school signs its Program Participation Agreement and thus becomes eligible. For instance, in the Pell Grant context, students submit funding requests directly (or with school assistance) to the DOE. In contrast, under the Federal Family Education Loan Program, which includes Stafford Loans, students and schools jointly submit an application to a private lender on behalf of the student, and a guaranty agency makes the eventual claim for payment to the United States only in the event of default. The plaintiffs alleged that the university submitted false claims in both of these ways. They claimed that the university, with full knowledge that it is ineligible for Pell Grant funds because of its violation of the incentive compensation ban, submitted requests for those funds directly to the DOE, resulting in a direct transfer of the funds into a university account. They further claimed that the university, again with knowledge that it has intentionally violated the incentive compensation ban, submitted requests to private lenders for government-insured loans.
The case was initially dismissed by a federal district. However, in 2006, the lower court was reversed and the case reinstated by the U.S. Court of Appeals for the Ninth Circuit. According to one observer,
The U.S. Court of Appeals for the Ninth Circuit has reinstated a massive False Claims Act lawsuit against the University of Phoenix which, with 180 campuses and over 310,000 students nationwide, is now America’s largest accredited university. The overwhelming majority of students at the U. of Phoenix have federally funded tuition loans and grants, and last year U.S. taxpayers paid, and the University of Phoenix obtained, $1.7 billion in federal education funds. Yet many students who enroll at the U. of Phoenix never complete their education, and many are unable to even finish the classes they signed up for. (http://www.taf.org/)
However, the University of Phoenix is far from alone as a target of governmental scrutiny of its financial aid practices. In 2007, New York State Attorney ← 39 | 40 → General Andrew Cuomo launched a major investigation of universities and lending organizations, charging that they are in bed together, the former providing referrals in return for inappropriate compensation from the latter. Cuomo’s initiative precipitated a national scandal and wrecked the careers of a number of prominent financial aid officers.
The Demise of Corinthian Colleges
A year later Barack Obama was elected President of the United States. And, where the predecessor Bush Administration favored for-profit higher education, the Obama regime has placed it faith primarily in public higher education, and primarily in the states’ community college systems. Thus, where the University of Phoenix might have been able to consider Hendow a cost of doing business, Corinthian Colleges’ management discovered that the Department of Education under Obama was prepared to impose existential outcomes upon miscreant proprietary education entities.
Less than three years ago, Corinthian Colleges, Inc. was one of the biggest and most powerful players in the for-profit sector of higher education. But by mid-2014 its neck was in the Department of Education’s noose. The U.S. Department of Education’s Federal Student Aid (FSA) office has placed Corinthian Colleges Inc. on an increased level of financial oversight after the company failed to address concerns about its practices, including falsifying job placement data used in marketing claims to prospective students and allegations of altered grades and attendance.
“The Department’s foremost interest is to protect students and make sure they are educated by institutions that operate in accordance with our standards,” said U.S. Education Under Secretary Ted Mitchell. “We made the decision to increase oversight of Corinthian Colleges after careful consideration and as part of our obligations to protect hardworking taxpayers and students’ futures.”
Corinthian was the parent company of the Everest Institute, Everest College, WyoTech and Heald brands, which enroll 72,000 students nationwide who receive $1.4 billion in federal financial aid money annually. All of Corinthian’s campuses were required to wait 21 days after submitting student enrollment data to draw down money for federal student aid. The Department remains in close contact with Corinthian executives to protect the interests of the students enrolled at its various campuses. ← 40 | 41 →
FSA places higher education institutions on heightened financial oversight for a variety of reasons. The Department has requested data from Corinthian multiple times in the last five months to address inconsistencies in the company’s job placement claims for graduates, but Corinthian officials have not turned over the documents. Since January 2014, the Department had sent Corinthian five letters requesting data and other documentation required by law. The Department notified Corinthian of heightened monitoring on June 12, which the company acknowledged today in a filing with the Securities and Exchange Commission (DOE, June 19, 2014).
On June 23, 2014, the Department announced that it was working with Corinthian on a plan to avoid an immediate closure of the career training program chain and prevent suddenly disrupting the education of 72,000 students and the jobs of 12,000 employees.
The Department and Corinthian signed a memorandum of understanding Sunday that requires the company to develop a plan to sell and teach-out programs across the country over the next six months, including hiring an independent monitor approved by the Department to oversee its finances and the sales process. In exchange, the Department has agreed to immediately release $16 million in federal student aid for students currently enrolled at Corinthian campuses. Corinthian is required to provide enrollment documentation to back up the funding request.
“Students and their interests have been at the heart of every decision the Department has made regarding Corinthian,” said U.S. Under Secretary of Education Ted Mitchell.
We will continue to closely monitor the teach-out or sale of Corinthian’s campuses to ensure that students are able to finish their education without interruption and that employees experience minimal disruption to their lives. The Department is committed to ensuring all students receive a quality education that leads to a well-paying job and a strong future.
Under the agreement, Corinthian is required to put teach-out plans in place for all schools, including those for sale. An independent monitor approved by the Department will review matters related to ongoing operations and will have fulltime access to Corinthian’s financial and operating records. In addition, Corinthian is permitted to continue enrolling new students but must reimburse any students who enroll in a campus found to be ineligible for federal student aid through the Department’s reviews and investigations. ← 41 | 42 →
The Department put Corinthian on heightened financial monitoring with a 21-day waiting period for federal funds on June 12, after Corinthian failed to comply with repeated requests to address ongoing concerns over the company’s practices, including falsifying job placement data used in marketing claims to prospective students and allegations of altered grades and attendance.
As part of the agreement, heightened financial monitoring remains in effect and Corinthian has agreed to turn over data that the Department has been requesting for the last five months to address inconsistencies in the company’s job placement claims for graduates, as well as grade and attendance records. Inquiries by the Department and other federal agencies into Corinthian’s practices will continue (DOE, June 23, 2014).
With the swiftness of the changing tides, by early July 2014 the DOE and Corinthian agreed to an operating plan that provided the company’s 72,000 students at the company’s career colleges a chance to complete their education and protects taxpayers’ investment while Corinthian works to either sell or close its campuses across the country in the next six months. The plan calls for an independent monitor that will oversee this process for all programs owned by Corinthian, including Everest, Heald and Wyotech campuses. “We have accepted an operating plan for Corinthian Colleges Inc. that will protect students’ futures and fulfill the Department’s responsibilities to taxpayers moving forward,” U.S. Education Under Secretary Ted Mitchell said. “Ensuring that Corinthian students are served well remains our first and most important priority, and we will continue to work with Corinthian officials and the independent monitor on behalf of the best interests of students and taxpayers.” In order to ensure that Corinthian can still provide classes for its current students, the Department has agreed to release $35 million in student aid to be used solely for education activities—all of which must be approved by the Department. Under the operating agreement, which is effective July 8 Corinthian also agreed to the following:
• Corinthian’s campuses will inform students of their options, and every campus will institute a plan so students can complete their programs without disruption, if they choose to do so. The operating plan will also immediately halt enrollment at schools that are operating under this teach-out provision and require additional notification and disclosures for campuses that are being sold. ← 42 | 43 →
• Corinthian will only use federal student aid funds for normal daily operations, including student refunds, payroll expenses (including retention arrangements), accounts payable, interest and related fees, and related professional fees. Corinthian will not use federal funding to pay dividends, legal settlements of lawsuits or investigations, or debt repayments. Additionally, bonuses, severance payments, raises and retention agreements must be reported to the monitor and the Department at least two weeks prior to the creation of contractual obligations and are subject to the approval of the Department.
• Corinthian will hire an independent monitor—approved by the Department—that will have full and complete access to Corinthian personnel and budgets to ensure prudent financial management and see that taxpayer-funded federal student aid dollars are spent well. The monitor will also review teach-out plans and sales of schools, and ensure students have multiple ways to submit feedback and any complaints about the process.
• Corinthian will also make refunds available to students in a number of circumstances. Corinthian and the Department will work together with the assistance of the monitor to establish a reserve fund of at least $30 million for Corinthian to pay those refunds.
• Corinthian will turn over all enrollment and job placement data required by federal law—and overdue to the Department since January—by July 15. (DOE, July 3, 2014)
By the middle of that fateful month, the DOE took additional steps to ensure Corinthian Colleges’ students and the American taxpayer are protected by announcing that Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates, under the leadership of former U.S. Attorney Patrick Fitzgerald, has been selected to take on the role of monitoring various aspects of the career college company.
As part of the operating agreement reached earlier this month with Corinthian, the Department required that an independent monitor oversee Corinthian’s actions moving forward as the company begins to sell and wind down its campuses over the coming months.
“Mr. Fitzgerald and his team will play a critical role in making sure that the Department is provided with an accurate accounting of Corinthian’s operations to ensure students are protected as well as protecting the integrity of taxpayers’ investment,” said U.S. Under Secretary Ted Mitchell. ← 43 | 44 →
The monitor will strengthen our efforts to ensure prudent financial management while overseeing an orderly process for students to complete their education—rather than students being left in the lurch as a result of an abrupt closure. With every action we’ve taken, our priority has been, and will continue to be, to put the interest of students first. We are confident that today’s announcement underscores that priority.
Fitzgerald was appointed U.S. Attorney for the Northern District of Illinois in 2001 by President George W. Bush. As U.S. Attorney, Mr. Fitzgerald led several high profile investigations and prosecutions, including the convictions of two former Illinois Governors, George Ryan and Rod Blagojevich. Mr. Fitzgerald was also selected as Special Counsel to investigate the leaks in the Valerie Plame matter and tried the case of United States v. Lewis “Scooter” Libby. Skadden was selected by The American Lawyer as a finalist in its 2014 Litigation Department of the Year issue and was named “Investigations Firm of the Year” at the 2014 Who’s Who Legal Awards.
As articulated in the operating agreement the Department signed with Corinthian Colleges, the monitor was given full and complete access to Corinthian personnel and budgets for the company, review all sales processes, and ensure that teach-out plans, which allow students to complete their program, are followed. The monitor will also confirm that Corinthian is in compliance with the production of documents and will review Corinthian’s rosters prior to their submission for the drawdown of Title IV Student Aid Funds and will also review campus eligibility. In addition, the monitor—which is fully funded by Corinthian—will see that students and Corinthian employees have multiple ways to submit feedback and complaints. The monitor reports solely to the Department and will do so on a regular basis.
As part of the operating agreement, Corinthian agreed to make full refunds available to students in a number of circumstances. Corinthian and the Department also agreed to work together with the assistance of the monitor to establish a reserve fund of at least $30 million for Corinthian to pay those refunds. Corinthian is limited in using federal student aid funds to pay only for normal daily operations, and it cannot use federal funding to pay dividends, legal settlements of lawsuits or investigations, debt repayments, or payments related to private student loans.
In addition, the Department continued its investigation of various Corinthian campuses and continued to do so throughout this process. Under the Higher Education Act, the Department is responsible for ensuring the effective administration and oversight of the approximately $150 billion in federal ← 44 | 45 → student aid that is disbursed each year to all Title IV institutions. Corinthian receives approximately $1.4 billion a year in federal student aid. For several months, the Department has been looking into serious concerns about Corinthian’s compliance with federal law. This includes assessing issues that have been identified through investigations conducted by other federal, state and local agencies.
The Department announced that it would “work closely with Mr. Fitzgerald and his team in the coming weeks and months, to ensure that students are protected and have the information they need to make informed decisions about their education” (DOE, July 18, 2014).
The following year, Arnie Duncan’s other shoe dropped. In April 2015 the DOE confirmed cases of misrepresentation of job placement rates to current and prospective students in Corinthian’s Heald College system. The Department found 947 misstated placement rates and informed the company it is being fined about $30 million.
Specifically, the Department determined that Heald College’s inaccurate or incomplete disclosures were misleading to students; that they overstated the employment prospects of graduates of Heald’s programs; and that current and prospective students of Heald could have relied upon that information as they were choosing whether to attend the school. Heald College provided the Department and its accreditors this inaccurate information as well.
The Department also notified Corinthian it intended to deny Corinthian’s pending applications to continue to participate in the Title IV federal student aid programs at its Heald Salinas and Stockton locations. Corinthian has 14 days to respond to the Department’s notice, after which the Department will issue its final decision. Moreover, the Department has determined that Heald College is no longer allowed to enroll students and must prepare to help its current students either complete their education or continue it elsewhere.
Commented the DOE’s Press Office, “The Obama Administration has led unprecedented efforts to protect consumers from predatory career colleges. It has established new gainful employment regulations to hold career-training programs accountable and ensure that students are not saddled with debt they cannot repay. These regulations ensure that programs improve their outcomes for students—or risk losing access to federal student aid. Last year, the Department announced a new federal interagency task force to help ensure proper oversight of for-profit institutions, which will be led by Under Secretary Ted Mitchell.” ← 45 | 46 →
“This should be a wake-up call for consumers across the country about the abuses that can exist within the for-profit college sector,” U.S. Secretary of Education Arne Duncan said of the Department’s enforcement action against Corinthian. “We will continue to hold the career college industry accountable and demand reform for the good of students and taxpayers. And we will need Congress to join us in that effort.
“Instead of providing clear and accurate information to help students choose which college to attend, Corinthian violated students’ and taxpayers’ trust,” said Under Secretary Mitchell. “Their substantial misrepresentations evidence a blatant disregard not just for professional standards, but for students’ futures. This is unacceptable, and we are holding them accountable.
“As part of these ongoing efforts to ensure that career colleges prepare students for the workforce, institutions are required to provide accurate information about their graduates’ job placement success and the types of employment their graduates obtained. The Department expects all institutions to adhere to the highest standard of care and diligence in following the requirements of participating in federal student aid programs to ensure colleges are always doing right by students and taxpayers.”
The majority of Corinthian’s campuses were sold to the nonprofit Zenith Education Group, which agreed to provide a number of new consumer protections, such as providing refund and withdrawal opportunities to students in poorly-performing programs, and has taken steps to strengthen programs and improve affordability, including by reducing tuition. The sale allowed most students to continue pursuing their career goals without disruption, and the Department and the Consumer Financial Protection Bureau have since worked to provide more than $480 million in loan forgiveness for borrowers who took out Corinthian’s high-cost private student loans. In its investigation of Corinthian Colleges, the Department found numerous causes for concern with practices throughout the Heald College system. Some examples include:
• Heald paid temporary agencies to hire its graduates to work at temporary jobs on its own campuses—and counted these graduates as placed. For example, Heald paid companies to hire graduates for temporary positions as short as two days, asked them to perform tasks like moving computers and organizing cables, and then counted those graduates as “placed in field.” ← 46 | 47 →
• Heald College counted placements that were clearly out of the student’s field of study as in-field placements. For example, one campus classified a 2011 graduate of an Accounting program as employed in the field based upon a food service job she started at Taco Bell in June 2006. Another campus counted a 2011 Business Administration graduate as placed in the field based upon a seasonal clerk position she obtained in Macy’s Shipping and Receiving Department during November 2010, which the student stated ended prior to her graduation.
• Heald College failed to disclose that it counted as “placed” those graduates whose employment began prior to graduation, and in some cases even prior to the graduate’s attendance at Heald. The Department’s analysis revealed that, according to Corinthian’s own data for 2012 graduates, over one-third of the graduates reported to have been “placed in field” started their jobs prior to January 1, 2012, and over one-quarter started their jobs prior to January 1, 2011. And in follow-up interviews with some of those students, they told the Department that their jobs were not related to their field of study, nor had they received promotions or increased responsibilities or otherwise progressed in those jobs because of their Heald education.
• In some of its disclosures, Heald failed to state that it had excluded students from its placement rate calculations who the college said had deferred employment for one reason or another. In one case, a criminal justice program claimed a placement rate of 100 percent, but it had classified almost 60 percent of the graduates as unavailable for employment. In another case, a medical assisting program claimed a placement rate of 100 percent based upon 51 graduates having been placed, but it had classified almost 43 percent, or 38 of the 89 total graduates of the program, as unavailable for employment.
Throughout this process, the Department sought a wind down of Corinthian Colleges that protects students, safeguards the investment taxpayers have made in their success, and creates opportunities for students to finish what they started. In the coming days, the Department will provide more information to Corinthian’s students to help answer questions about their federal student aid and their options. The Department is also working on a process to help federal student loan borrowers submit a defense to repayment of their federal student loans. ← 47 | 48 →
“We have kept students at the heart of every decision we have made about Corinthian, and we will continue to do so as we move forward,” Under Secretary Mitchell claimed. “When our borrowers bring claims to us that their school committed fraud or other violations of state law against them, we will give them the relief that they are entitled to under federal law and regulations” (DOE, April 14, 2015).
Two weeks later, Corinthian posted this announcement on its website:
Corinthian Announces Cessation of Effectively All Operations
All campuses closed effective Monday, April 27
SANTA ANA, Calif., April 26, 2015—Corinthian Colleges, Inc. (Nasdaq: COCO) today announced that the Company has ceased substantially all operations and discontinued instruction at its remaining 28 ground campuses. The company is working with other schools to provide continuing educational opportunities for its approximately 16,000 students. Corinthian said those efforts depend to a great degree on cooperation with partnering institutions and regulatory authorities.
Campuses closed include Corinthian’s 13 remaining Everest and WyoTech campuses in California, Everest College Phoenix and Everest Online Tempe in Arizona, the Everest Institute in New York, and 150-year-old Heald College–including its 10 locations in California, one in Hawaii and one in Oregon.
Since signing an operating agreement with the U.S. Department of Education in July 2014, the Company has been focused on completing the orderly sale or wind-down of all of its schools. In November 2014, the Company announced that it had entered into an agreement to sell 56 Everest and WyoTech campuses to Zenith Education Group, Inc., a subsidiary of ECMC Group. As part of that sale, Zenith also agreed to conclude the teach-out process at 12 additional schools that were being closed. That transaction was completed in February of this year for all but three locations, the Everest College Phoenix campuses in Phoenix and Mesa, AZ, and Everest Institute in Rochester, NY. As a result of the sale, nearly forty thousand students were able to continue their studies and thousands of employees kept their jobs. Zenith has recently advised Corinthian that it will not consummate the purchase of Everest College Phoenix, and the closing conditions have not been satisfied for Everest Institute Rochester.
In parallel, the Company had been in advanced negotiations with several parties to both sell the 150-year-old Heald College and to arrange for teach-out partners to allow its Everest College and WyoTech students in California to continue their education. The Company said these efforts were ← 48 | 49 → unsuccessful largely as a result of federal and state regulators seeking to impose financial penalties and conditions on buyers and teach-out partners.
“We believe that we have attempted to do everything within our power to provide a quality education and an opportunity for a better future for our students,” said Jack Massimino, Chief Executive Officer of Corinthian.
Unfortunately the current regulatory environment would not allow us to complete a transaction with several interested parties that would have allowed for a seamless transition for our students. I would like to thank our employees for their selfless dedication and commitment to fulfilling the educational and career goals of all of our students.
The Company said that its historic graduation rate and job placement rates compared favorably with community colleges. Corinthian also said that approximately 40 percent of its students previously attended a traditional higher education institution where their needs had not been met before attending a Corinthian school.
“Colleges like ours fill an important role in the broader education system and address a critical need that remains largely unmet by community colleges and other public sector schools,” Massimino said. “Overall, our schools did a good job for the students they served. We made every effort to address regulators’ concerns in good faith. Neither our Board of Directors, our management, our faculty, nor our students believe these schools deserved to be forced to close.”
The 2016 Department of Education “Loan Relief” Regulations
If we can trace a progression from the Hendow case during the first decade of the new century to Corinthian Colleges’ demise in the first-half of decade two, then the proposed regulations announced by the Department of Education in April 2016 were the logical next step. The DOE’s aggressive stance on campus sexual assaults, dealt with in depth in Chapter Three, has made all higher ed institutions into police, prosecutors, and courts. Perhaps no less radically, the activist agency proposed the new rules, poised for imposition in 2017, which very well may open the floodgates for allegations by disappointed students, alumni and parents that they were mislead and defrauded by their ← 49 | 50 → colleges and universities. Here’s the DOE’s announcement of its “last hurrah” prior to the November national elections:
Education Department Proposes New Regulations to Protect Students and Taxpayers from Predatory Institutions
June 13, 2016
Contact: Press Office, (202) 401–1576, email@example.com
The Department of Education today proposed regulations to further protect student borrowers and taxpayers against predatory practices by postsecondary institutions. The regulations clarify, simplify, and strengthen existing regulations that grant students loan forgiveness if they were defrauded or deceived by an institution. The proposed regulations would also hold financially risky institutions accountable for their behavior and ban schools’ use of legal clauses to sidestep accountability.
This new regulatory effort builds on the Obama Administration’s commitment to protect taxpayers’ and students’ investments and ensure that all Direct Loan borrowers can engage in a process that is efficient, transparent and fair when applying for a loan discharge based on the misconduct of the institution.
“We won’t sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag,” said U.S. Secretary of Education John B. King Jr. “All students who are defrauded deserve an efficient, transparent, and fair path to the relief they are owed, and the schools should be held responsible for their actions.”
The proposed regulations would streamline relief for student borrowers who have been wronged and create a process for group-wide loan discharges when whole groups of students have been subject to the misconduct. They also establish triggers that would require institutions to put up funds if they engage in misconduct or exhibit signs of financial risk.
Additionally, the proposed regulations require financially risky schools and proprietary schools in which students have poor loan outcomes to provide clear, plain-language warnings to prospective and current students, and the public. The rules also make it simpler for eligible students to receive closed-school discharge.
Finally, in a major step to protect student borrowers and prevent schools from shirking responsibility for the injury they cause, the proposed regulations would prohibit the use of so-called mandatory pre-dispute arbitration clauses and class action waivers that deny students their day in court if they are wronged. Under these regulations, schools would no longer be able to use ← 50 | 51 → their enrollment agreements, or other pre-dispute arbitration agreements or clauses in other documents, in order to force students to go it alone by signing away their right to pursue relief as a group, or to impose gag rules that silence students from speaking out.
“These regulations would prevent institutions from using these clauses as a shield to skirt accountability to their students, to the Department and to taxpayers,” said U.S. Under Secretary of Education Ted Mitchell. “By allowing students to bring lawsuits against a school for alleged wrongdoing, the regulations remove the veil of secrecy, create increased transparency, and give borrowers full access to legal redress.”
Last September, the Department began a negotiated rulemaking process to clarify how Direct Loan borrowers who believe they have been wronged by their institutions can seek relief and to strengthen provisions to hold colleges accountable for their actions. Current provisions in federal law and regulations allow borrowers to seek discharge of their Direct Loans if their college’s acts give rise to a state law cause of action.
The third and final session of negotiated rulemaking was held in March, but the committee did not come to a consensus on a draft of the rule. The Department took the committee’s feedback into account when drafting this proposed regulation.
The proposed rule publishes in the Federal Register on June 16, and the public comment period ends August 1. The Department will publish a final regulation by November 1.
The proposed regulations build on years of work by the Obama Administration to protect students and taxpayers from fraudulent or failing institutions of higher education. Those efforts include the landmark Gainful Employment regulations ending Federal student aid eligibility for career colleges that are not paying off for their students, establishing tougher regulations targeting misleading claims by colleges and incentives that drove sales people to enroll students through dubious promises, requiring States to step up their oversight through the state authorization regulation, creating a new Enforcement Unit to protect students and taxpayers from unscrupulous colleges, and calling for improved accreditation practices that focus on student outcomes.
According to Inside Higher Ed (July 14, 2016),
The draft regulations include new requirements that apply mostly to the for-profit sector, including that institutions must issue warnings to prospective students about ← 51 | 52 → poor loan-repayment rates, and financially troubled institutions must set aside money to pay for loan-forgiveness claims.
However, the online chronicler of our industry added,
Yet for-profits aren’t the only ones fretting about the rule, which is slated to go into effect next year if enacted. Many nonprofit colleges also face financial and reputational challenges due to the scope of the so-called borrower-defense-to-repayment proposal, said lawyers and several traditional higher education groups.
In Chapter 1, I reported on the Harnish case, one of a flurry of suits brought against the bottom-feeders of law-school education, alleging fraudulent promotional activities that led the plaintiffs and their proposed class of law alumni to expect better employment prospects than had materialized following graduation. The DOE proposed regs, if they become final in 2017, will add both a cause of new cause of action and a strong incentive for suing one’s alma mater, essentially making every college and university a guarantor of gainful employment.
The Current Case Law on Students’ Duty to Repay Their Loans
Lockhart v. U.S., 546 U.S. 142 (2005). Petitioner James Lockhart failed to repay federally reinsured student loans that he had incurred between 1984 and 1989 under the Guaranteed Student Loan Program. These loans were eventually reassigned to the Department of Education, which certified the debt to the Department of the Treasury through the Treasury Offset Program. In 2002, the government began withholding a portion of petitioner’s Social Security payments to offset his debt, some of which was more than 10 years delinquent.
Following three years on the unemployment line, James Lockhart decided to go back to school. Lockhart relied on student loans to take courses at a total of four colleges, but he never succeeded in finding steady employment. The schooling spanned six years (1984–1990). In 1999 he endured double-bypass heart surgery that left him reliant upon half a dozen drugs. Lockhart applied ← 52 | 53 → for and received Social Security disability benefits until 2003, when he turned 65. The disability benefits were then replaced by a monthly retirement payment of $874.
At that point Lockhart owed Uncle Sam some $80,000 in student loan debts. Some of these obligations dated back almost two decades. In 2002 he was notified that the government would begin withholding 15 percent of his Social Security benefits toward repayment of the loans.
Representing himself, Lockhart filed suit in the U.S. District Court for the state of Washington. The district judge dismissed his complaint, holding that he lacked jurisdiction. The plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit, which appointed counsel to represent him.
The appeals panel noted that “a puzzle has been created by the codifiers” of the Higher Education Act and the Debt Collection Act. The court resolved the puzzle in the government’s favor, holding that the government was entitled to offset Social Security payments to recover on its loans. The Supreme Court granted certiorari and a divided Court affirmed.
The Supreme Court held,
It is clear that the Higher Education Technical Amendments remove the 10-year limit that would otherwise bar offsetting petitioner’s Social Security benefits to pay off his student loan debt. Petitioner argues that Congress could not have intended in 1991 to repeal the Debt Collection Act’s statute of limitations as to offsets against Social Security benefits since debt collection by Social Security offset was not authorized until five years later. Therefore, petitioner continues, the Higher Education Technical Amendments’ abrogation of time limits in 1991 only applies to then-valid means of debt collection. We disagree.
In so holding the majority noted, “The fact that Congress may not have foreseen all of the consequences of a statutory enactment is not a sufficient reason for refusing to give effect to its plain meaning.”
The opinion explained,
The Debt Collection Act of 1982, as amended, provides that, after pursuing the debt collection channels set out in 31 U.S.C. § 3711(a), an agency head can collect an outstanding debt “by administrative offset.” § 3716(a). The availability of offsets against Social Security benefits is limited, as the Social Security Act, 49 Stat. 620, as amended, makes Social Security benefits, in general, not “subject to execution, levy, ← 53 | 54 → attachment, garnishment, or other legal process.” 42 U.S.C. § 407(a). The Social Security Act purports to protect this anti-attachment rule with an express-reference provision: “No other provision of law, enacted before, on, or after April 20, 1983, may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section.” § 407(b).
However, the Court continued,
The Higher Education Technical Amendments, by their terms, did not make Social Security benefits subject to offset; these were still protected by the Social Security Act’s anti-attachment rule. Only in 1996 did the Debt Collection Improvement Act-in amending and recodifying the Debt Collection Act-provide that, “[n]otwithstanding any other provision of law (including [§ 407]),” with a limited exception not relevant here, “all payment due an individual under the Social Security Act shall be subject to offset under this section.” 31 U.S.C. § 3716(c)(3)(A)(i).
In other words, reasoned the court, the Higher Education Act trumped the protections otherwise provided Social Security Benefits by the Debt Collection Act.
The high court concluded, “It is clear that the Higher Education Technical Amendments remove the 10-year limit that would otherwise bar offsetting petitioner’s Social Security benefits to pay off his student loan debt.” Of Justice Sandra Day O’Connor’s opinion for the majority, Lockhart’s lawyer, Director Brian Wolfman of the Public Citizen Litigation Group, complained, “It means that you can take the Social Security Benefits of someone who is 90 years old and living on a small amount of money. The losers are clearly older Social Security beneficiaries.”
If Lockhart tells university administrators and their students anything, it is that Uncle Sam is deadly serious about collecting loan debts incurred in the course of obtaining higher education. Students may be well advised to “mortgage” their diplomas only with extreme caution … a practice that does not seem to pertain in today’s high-tuition environment. ← 54 | 55 →
The Institution’s Current Role in the Loan-Repayment Obligation
It is long established that a university’s alleged misconduct toward a student does not relieve that student of a later obligation to repay student loans. In U.S. v. Cawley, 821 F. Supp. 1219 (E.D. Mi. 1993), affirmed, 16 F.3d 1221 (6th Cir. 1994), Plaintiff Cawley had been a Ph.D. student at the University of Michigan. The plaintiff a decade earlier had filed a lawsuit against the U.S. Attorney General and the Director of the National Science Foundation, as well as several other parties, including the Michigan Attorney General, the University of Michigan Board of Regents, and various individuals associated with the university. The complaint was hundreds of pages long and alleged claims based on faculty absence from classes, professional malpractice purportedly violating academic freedom, fraud and negligence by the university in its administration of a scientific research grant, torts arising out of allegedly unconstitutional university residency requirements, tortious interference with an employment contract, tortious interference with academic freedom, and “psychic eavesdropping.” The district court struck the original complaint, and Cawley filed an amended complaint. The court later dismissed the amended complaint without prejudice, and the Sixth Circuit affirmed the district court’s decision.
On these facts, the court commented, “Cawley’s defenses of misconduct prohibiting performance, frustration of purpose, and impossibility or impracticability of performance are all based on the same allegations. Cawley contends that the University and the National Science Foundation failed to hear his grievances regarding faculty absence from classes and negligent or fraudulent administration of federal grant monies. He claims that the failure to hear his grievances caused the following consequences:
[The failure to hear his grievances] breached the NDSL loan agreement, prematurely causing the NDSL loan debt to come due, while leaving Cawley with no means of egress to complete his Ph.D. work at the U-M and enter the job market in order to pay back the loans, while saddling Cawley with (1) over a decade’s lost time in administrative grievances and lawsuits, (2) a bad credit rating foreclosing other borrowing, (3) around $30,000 or more in upfront grievance litigation costs, (4) some $100,000 plus loses (sic) in “lost wages,” and (5) a hostile U-M Ph.D. training program environment.”
The court held, “Cawley may intend to argue that somehow he is not liable on his student loans due to alleged University misconduct or due to the ← 55 | 56 → University’s failure to award him his Ph.D. However, courts have rejected this argument.”
Granting that the facts suggest a mentally disturbed student-litigant, nonetheless, the case’s holding, like those of the cases cited, suggests that, whether or not a disgruntled student or alumnus can pursue a cause of action for educational malpractice and/or breach of contract (see Chapter 1), such claims do nothing to relieve the litigant of his/her loan obligations.
More problematic for the institution is its obligation to aid in the collection of loan debts. The Deficit Reduction Act, signed into law by President Bush in 2006, modified some of the parameters of the student loan programs, affecting loans that are granted on or after July 1, 2006. These loans are also affected by provisions in legislation passed in 2002 that were already scheduled to take effect. Under current federal law, institutions can be dropped from participation in the federal student loan program if their default rate is either more than 40 percent for one year or more than 25 percent for three consecutive years. Consequently, colleges and universities have a high incentive to help assure that their graduates do not default on their loans. As noted above, it seems certain that some new federal legislation will emerge in the latter half of 2013 or early 2014, that is likely to impact both students and universities (Howell 2013).
Howell, Tom Jr. “Bipartisan Senate group calls for action on student loans before rates double on Monday.” The Washington Times, June 27, 2013. Accessed http://www.washingtontimes.com/news/2013/jun/27/bipartisan-senate-group-calls-action-student-loans/ (accessed April 1, 2017).
Woodhouse, Kellie. “Discounting Grows Again.” Inside Higher Ed, August 25, 2015. Accessed https://www.insidehighered.com/news/2015/08/25/tuition-discounting-grows-private-colleges-and-universities (accessed April 1, 2017).
Athletic Programs: The Revolt of the Student-Athlete
Colleges and universities in the current competitive environment are expected to present to their students a panoply of athletic opportunities. These broadly include: (1) competitive inter-institutional programs, typically under the auspices of the National Collegiate Athletic Association (NCAA), (2) inter-mural activities, and (3) fitness opportunities. The institution that lacks any one of these is likely to find itself at a severe competitive disadvantage vis–à-vis its peer competitors. Each of these levels of athletic activity poses its own particular challenges to university administrators. However, the focus of this chapter will be inter-institutional athletic programs.
More particularly, I intend to cover the recent efforts by student-athletes, their advocates, and athlete-alumni to establish previously unheard of—some would say radical—economic rights. These efforts have been pursued under (1) the Fair Labor Standards Act, (2) the National Labor Relations Act, and (3) the Sherman Antitrust Act. At this writing the first two initiatives have failed, while the third has met with significant success. ← 57 | 58 →
The Student Athlete and the Fair Labor Standards Act
The FLSA is a hoary old statute dating back to the New Deal. Supplemented by comparable wage and hours laws in the 50 states, it mandates the minimum hourly wage, species who is entitled to overtime (premium) pay and under what circumstances, and regulates child labor in the United States. When I was a practicing employment lawyer with a major Philadelphia firm, we looked at the FLSA as a marginal part of our day-to-day practice. While clients did occasionally get audited by the Labor Department’s Wage & Hour Division, such audits and occasional related litigation were an insignificant component of case loads characterized by numerous discrimination cases, wrongful discharge actions, whistleblower suits, and other more “modern” legal challenges to our corporate clients.
During the eight years of the Obama Administration, a dramatic change has occurred. The DOL’s W&H Division has awakened. Like many another components of the federal bureaucracy, Wage & Hour has gone activist, resuscitating the moribund FLSA. This in turn has inspired private practitioners to wield the FLSA club, often on behalf of a previously unanticipated clientele. When the blow was struck, here’s what the complaint looked like:
October 20, 2014.
Complaint and Jury Demand
Paul L. McDonald, P L McDonald Law LLC, 1800 JFK Boulevard, Suite 300, Philadelphia, PA 19103, Tel: (267) 238–3835, Fax: (267) 2383801, Email: firstname.lastname@example.org, Counsel for Plaintiff and the Proposed Collective.
1. The Defendants in this action—the National Collegiate Athletic Association (“NCAA”) and NCAA Division I Member Schools—have jointly agreed, and conspired, to violate the wage-and-hour provisions of the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq. (“FLSA”), as described herein.
2. The crux of this Complaint is the different, and better, treatment that NCAA Division I Member Schools afford student participants in ← 58 | 59 → work study part-time employment programs, as compared to treatment of student athletes pursuant to NCAA bylaws.
3. Student participants in work study part-time employment programs perform non-academic functions for no academic credit at the behest, and for the benefit, of NCAA Division I Member Schools. For these reasons, work study participants meet the criteria for recognition as temporary employees of NCAA Division I Member Schools under the FLSA, and NCAA Division I Member Schools must, and do, pay them at least the federal minimum-wage of $7.25 an hour.
4. For instance, “students who work at food service counters or sell programs or usher at athletic events, or who wait on tables or wash dishes in dormitories,” are recognized, and paid, as temporary employees of NCAA Division I Member Schools under the FLSA.
5. Student athletes engage in non-academic performance for no academic credit in athletic competition representing NCAA Division I Member Schools. By comparison to student participants in work study part-time employment programs, student athletes perform longer, more rigorous hours—nearer full-time as reported in the NCAA Growth, Opportunities, Aspirations and learning of Students (GOALS) Study (2010); are subject to stricter, more exacting supervision by full-time staff of NCAA Division I Member Schools, e.g., coaches and NCAA compliance officers; and confer as many, if not more, tangible and intangible benefits on NCAA Division I Member Schools.
6. Student athletes meet the criteria for recognition as temporary employees of NCAA Division I Member Schools under the FLSA as much as, if not more than, work study participants, and, thus, NCAA Division I Member Schools are required by law to pay student athletes at least the federal minimum-wage of $7.25 an hour.
7. The Defendants have jointly agreed, and conspired, to deprive student athletes of lawfully-earned, modest wages and of equal treatment under law.
8. Defendants’ refusal to recognize, and pay, student athletes as temporary employees of NCAA Division I Member Schools under the FLSA, codified in NCAA bylaws, produces the following perverse result: work study participants who sell programs or usher at athletic events are paid, on average, $9.03 an hour, but student athletes whose ← 59 | 60 → performance creates such work study jobs in the athletic department are paid nothing.
9. Scholarships granted by NCAA Division I Member Schools to some student athletes, pursuant to NCAA bylaws, are not compensation for non-academic performance by student athletes because, among other things:
(i) scholarships are grants-in-aid and generally not treated as taxable income—to a student athlete, or to any student granted any scholarship;
- X, 298
- ISBN (PDF)
- ISBN (ePUB)
- ISBN (MOBI)
- ISBN (Book)
- Publication date
- 2017 (October)
- New York, Bern, Berlin, Bruxelles, Frankfurt am Main, Oxford, Wien, 2017. X, 298 pp.