Dive Brief:
- Sollers College, a for-profit institution in New Jersey, will cancel $3.4 million in student debt to settle accusations it set up illegal loans and used deceitful advertising to bolster enrollment.
- The Federal Trade Commission and New Jersey state officials had accused Sollers of publicly misrepresenting graduates’ employment rates and falsely intimating that it could secure students jobs with prominent companies. They also alleged Sollers had struck improper income-share agreements, or ISAs, which allow students to pay their tuition by promising a portion of their monthly salary for a set period after they graduate, at little to no initial cost.
- FTC and New Jersey representatives announced the settlement agreements totaling $4.6 million on Wednesday. The state deal fines Sollers and its president, Siba Padhi, $1.2 million. Padhi did not respond to a request for comment Wednesday.
Dive Insight:
The Sollers saga ties together two hotly debated topics in higher education — oversight of for-profit institutions, which broadly have faced allegations of predatory behavior, and the role of ISAs, which are a burgeoning but controversial tool to finance a college degree.
Large for-profits have been accused of saddling students with a poor-quality credential and burdensome debt. The allegations against Sollers mirror those against a for-profit chain, the University of Phoenix, which agreed to a $191 million settlement with the FTC in 2019.
The Biden administration also recently issued a rule requiring that, to access federal money, for-profit colleges must prove their graduates earn enough to pay back their debts.
State and federal regulators are still wading into the ISA issue. While some institution leaders and access advocates have lauded them as a new pathway for students to afford college, critics argue the deals can be difficult for students and families to parse and are under little government scrutiny.
Colleges and policymakers have also debated whether an ISA constitutes a loan. In 2021, the Consumer Financial Protection Bureau, or CFPB, deemed ISAs private loans, a legal interpretation the U.S. Department of Education backed.
Sollers entered into 392 illegal ISAs between August 2018 and April 2021, the FTC said. The agreements lacked certain legal disclosures, specifically one called the Holder Rule notice, which informs consumers of their rights even if their loans are sold to a third party.
The college in fact sold a portion of the ISAs to these third parties, the FTC said.
“Not only did Sollers College use deceptive advertisements to attract students, it trapped them in multi-year income share agreements that broke the law by leaving out important borrower rights,” Samuel Levine, director of the FTC Bureau of Consumer Protection, said in a statement Wednesday.
As a part of the settlement, Sollers must stop collecting money on any ISA, must repurchase agreements it sold off, and must tell credit bureaus like Experian and Equifax to delete the debt from borrowers’ records.
Sollers had taken legal action against students who defaulted on their ISAs, according to the FTC’s formal complaint. About 90% of students “who entered into ISAs with Sollers are either actively in repayment or defaulted on their agreements” and now owe the college a fixed amount, the complaint states.
Government regulators have other ISA providers in their crosshairs. CFPB and state attorneys general earlier this year sued Prehired, an online bootcamp. The officials said Prehired misrepresented ISA agreements that it made with students enrolled in a 12-week program.
“In reality, Prehired deceptively buried terms that required consumers to pay even if they never got a job and, in many cases, unilaterally increased consumers’ required minimum monthly payments without any evidence that they had secured employment or experienced an increase in income,” the CFPB said in a July statement.
