INSIDE HIGHER ED: Protecting Students or Leaving Them Vulnerable?

Career College Central Summary:

The closure of a college often leaves students in limbo. Without being able to finish a degree, students must scramble to transfer and to figure out how to deal with the debt they have racked up.
The shutting down of Mid-Continent University last year created an additional headache for its former students. The Baptist institution, located in western Kentucky, is trying to force them to repay money that the university originally promised to provide as federal loans.
The university is trying to reorganize in bankruptcy and is looking for cash to pay off its debts. Mid-Continent says it advanced students more than $10 million in loans, which it expected the U.S. Department of Education to reimburse through the federal student loan program.
But the money never arrived. That’s because the department placed the university on its most stringent level of oversight. And in the face of that scrutiny, the university was unable to document — to the department's satisfaction — that the students for whom it originated federal loans were actually eligible for those loans.
Mid-Continent says the restrictions on its access to student aid money, which were imposed at the beginning of the 2013-14 school year, were largely to blame for the financial woes that led to its closure the following June.
The situation highlights the department’s use of those financial sanctions, which are known as heightened cash monitoring. For colleges that depend on financial aid for revenue, the restrictions can be financially crippling. And at least in the case of Mid-Continent, it appears to have left students in the lurch.
The tool, which is aimed at tightening the grip on federal funds when department officials have concerns about a college's handling of federal aid money, was also used last year in the case of Corinthian Colleges. It sparked a liquidity crisis at that for-profit college chain, forcing the institution into an agreement with the department to close or sell its campuses. And before that, in the early 2000s, heightened cash monitoring sent Computer Learning Centers into bankruptcy.
But those were two large, for-profit education companies that had to immediately disclose the problem to investors. At Mid-Continent, neither the university nor the Department of Education told students that the federal loans the university continued to offer students might not come through.
Those students are now on the hook for that money, according to the university. Mid-Continent last year told students that they could take out private loans from the institution to cover the money that would have been provided to them in federal loans.

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INSIDE HIGHER ED