U.S. Pours Millions Into Failing Black Colleges, Breaks New Student Loan Rules

The federal government violates its own student loan rules and wastes hundreds of millions of dollars to subsidize perpetually failing black colleges, including the alma mater of pop star Michael Jackson’s criminally-convicted doctor, a Judicial Watch investigation has found.

The institutions are known as Historically Black Colleges and Universities (HBCU) and JW’s probe has uncovered documents that show American taxpayers are being forced to fund them even when their accreditation has been stripped, they have dismal graduation rates and rank among the nation’s worst medical schools. For instance, Meharry Medical College (where the late Jackson’s physician, Conrad Murray, got his degree) is renowned for producing an alarming number of inept doctors along with third-world institutions like Manila Central University in the Philippines and the Autonomous University of Guadalajara in Mexico, according to records obtained by JW.

Yet the government continues giving it—and other troubled black colleges—large sums of money in the form of low-interest “loans” that are usually defaulted. This is done through the Historically Black College and University Capital Financing Program and it’s proven to be a massive boondoggle. Obtained from a variety of government sources—including the U.S. Treasury and the Department of Education—the files accessed by JW show that the scandalous investment is not only fleecing taxpayers, it’s also breaking rules created by the Obama administration under a 2010 measure that replaced student loans by private lenders with direct loans by the U.S. government.

Once its own money was in the game, the government decided that student loan lending rules were too loose and default rates were too high. In October 2011, the Department of Education quietly changed underwriting criteria for the transactions, known as PLUS student loans. Those criteria are still pretty low (“prospective borrowers can’t have any current accounts more than 90 days delinquent, or any foreclosures, bankruptcies, tax liens, wage garnishments or defaults within the past five years. But the department doesn’t look at prospective borrowers’ incomes or their current debt load, meaning that poor borrowers with little or no credit history can be approved”), but still resulted in a 10% increase in the denial rate.

Historically black colleges and universities were most adversely impacted by the new credit standards and HBCU officials as well as African American community leaders lobbied the Education Department to change the standards. Education Secretary Arne Duncan apologized about the unintended effect on black colleges but publicly maintained that “our department is required to carry out the law as it was designed to protect parents and taxpayers against unaffordable loans.” Duncan did admit that that the process could have been handled better and that internal and external communications were “poor,” according to a mainstream newspaper.

Behind the scenes his agency quickly circumvented those “laws to protect parents and taxpayers.” In fact, Duncan sent a letter to the Congressional Black Caucus regarding the impact that the new loan rules were having on HBCUs stating that the Department had “used [its] authority to consider ‘extenuating circumstances’ as a method to provide immediate relief for many students, which allowed previous PLUS loan recipients and applicants whose adverse credit determinations were based on a ‘de minimis’ amount of debt to obtain a loan through the reconsideration process.”

The agency has used the accommodation to provide near-blanket approvals for PLUS loan applications from previous recipients, according to the records obtained by JW. This academic year, about a third of the applicants from historically black colleges denied this year were eligible to appeal. Of those, 38 percent, or just over 8,000 applicants, filed for reconsideration. Virtually all of them—98.5 percent—were then approved for a PLUS loan, the records show.

So why does the government continue pouring enormous sums of money into these failing institutions that often can’t even keep their accreditation? The only explanation JW could find among the droves of government records is the Obama administration’s determination of “the importance of HBCUs as a national resource.”