By Ernest Luning
THE COLORADO STATESMAN
U.S. Senate primary candidate Andrew Romanoff’s campaign doubled down this week on charges that incumbent Michael Bennet failed to protect college students from predatory lenders.
In a stinging rebuttal signed by Romanoff communications director Roy Teicher and published in last week’s Colorado Statesman, the Democratic challenger accused The Statesman of falling for “a mosaic of near-facts, smoothly and cynically crafted by the Bennet campaign” to divert attention from an attack Romanoff unleashed last month in Colorado Springs at the second debate between the two candidates.
“Michael, you know, proprietary colleges are gouging students with predatory loans,” Romanoff said to Bennet during the final minutes of the debate April 23. “One of those colleges, Westwood, is even facing, now, two class-action lawsuits for fraud. Your committee, the Senate banking committee, had a chance to protect students from that kind of financial abuse, and you did nothing. You did take $2,400 from Westwood College three days before that bill came to a committee. My question is, is that just the way Washington works?”
Later that night, the Romanoff campaign blasted an e-mail to reporters that fleshed out the attack. “Bennet dodges Westwood bullet,” the release was titled. It went on to charge: “Sen. Bennet continued to dodge questions and duck responsibility tonight. He refused to explain his decision to accept a contribution from Westwood College on March 19 — three days before his committee failed to protect students from Westwood’s predatory lending practices.”
Westwood College, founded in Denver in 1953, boasts 17 campuses in Colorado and five other states and an online college that enrolls 5,000 students. The company employs more than 1,400 Coloradans and had a $50 million in-state payroll in 2008. It’s added 400 new employees in Colorado in the last year, according to a company spokesman.
Romanoff and Bennet face voters in an August 10 primary to determine who takes on the winner of the Republican primary held the same day. Former Lieutenant Gov. Jane Norton, Weld County District Attorney Ken Buck and former state Sen. Tom Wiens are the top GOP contenders. Colorado’s Senate contest has drawn national targeting from both parties and polls show a close race all around.
A story published in the April 30 Statesman, “Romanoff fires ‘Westwood bullet’ at Bennet, but record suggests it’s a dud,” took a look at Romanoff’s charges and reported they mostly missed the mark. The legislative record indicated Bennet voted for legislative provisions Romanoff said he failed to introduce. In addition, Westwood College defended its lending practices and said the contribution to Bennet had nothing to do with his vote in the Senate banking committee, which went counter to Westwood’s position anyway.
“The Statesman stands by its story,” read a note from Statesman editor Jody Hope Strogoff attached to Teicher’s rebuttal. She went on to dispute Teicher’s belief the newspaper was guided in its reporting by the Bennet campaign. Instead, Strogoff wrote, the story was based on multiple sources, publicly available documents and statements from both the Romanoff and Bennet camps, among others.
In point after point, Teicher challenged The Statesman’s story. Parsing varieties of student loans, including some that aren’t even called loans, he concluded The Statesman fell prey to a smooth-talking Bennet push to twist the facts and a “willful attempt to confuse Westwood-style financing with traditional student loans, thus avoiding the issue at hand.” Teicher cited purported inaccuracies concerning whether loans offered by Westwood fall under a new federal regulation and whether legislation backed by Bennet would even cover the loans.
“The Bennet campaign’s artful misleads have indeed been legitimized by The Statesman,” Teicher concluded. “We trust the issue will be revisited.”
A fresh examination of the controversy reveals a different story than the one promoted by Teicher.
Contrary to Teicher’s assertion, the kind of loan offered by Westwood College — and thousands of other private, for-profit colleges across the country — recently came under the authority of Regulation Z of the federal Truth in Lending Act, adding numerous disclosure requirements and other protections for student borrowers.
In addition, the Senate financial regulation bill supported by Bennet would regulate “gap loans” made by Westwood and other for-profit colleges, not leave them alone, as Teicher contended.
Moreover, an amendment sponsored by Bennet and adopted by the Senate banking committee adds particular protection for students borrowing from private schools by establishing a Private Education Loan Ombudsman — a layer of oversight beyond what was proposed in a House amendment the Romanoff campaign cites as its model for what Bennet should have done in the Senate.
When the Senate banking committee met to consider the financial regulation bill in late March, the committee adopted an amendment sponsored by Bennet — and U.S. Sen. Sherrod Brown, an Ohio Democrat — to establish a Private Education Loan Ombudsman’s office, a new position charged with resolving complaints made by any students who have taken out private loans or private financing for post-secondary education.
A Public Education Loan Ombudsman already exists inside the Department of Education, handling issues over federally guaranteed student loans, but before the Bennet-Brown amendment passed, there was nothing comparable covering loans like those offered by Westwood College.
The ombudsman amendment was based on stand-alone legislation sponsored by Brown and co-sponsored by Bennet, and Democrats Al Franken of Minnesota and Barbara Mikulski of Maryland. The bill was introduced in November.
“Students and families deserve an advocate who can answer their questions and address their concerns about student loans,” Bennet said last fall. “This bill will provide a much-needed resource to make sure students can focus on their books, not their loans.”
Bennet’s amendment won kudos from a student lending watchdog group this week.
“Currently, private student loan borrowers are literally at the mercy of their lenders with nowhere to turn for relief,” said Pauline Abernathy, vice president of the Institute for College Access & Success, one of the country’s top advocacy organizations working on behalf of student borrowers. “The private student loan ombudsman amendment Sen. Bennet supported in the Senate banking committee at least gives borrowers a place to turn.”
Abernathy made clear her organization has substantial reservations about both the House and Senate financial regulation bills in their current form, concerned any protections afforded student borrowers stand a chance of disappearing inside the massive legislation.
“We do think it’s important that there be clearly a place and an office dedicated just to private student loan issues,” she said, pointing to Bennet’s ombudsman amendment. “This new (consumer protection) entity will be in charge of mortgages, credit cards, private student loans — we don’t want them to get lost, we want there to be a clear place for people to go.”
Teicher was not impressed. In an e-mail this week, he said the ombudsman wasn’t worth much, and wouldn’t apply to the kind of loans Westwood makes, anyway.
“The Private Education Loan Ombudsman,” Teicher wrote, “in addition to having no enforcement power, would not apply to the type of financing provided by Westwood, which is not a ‘loan’ as per their Web site and as defined by the Truth in Lending Act and, by extension, the bill at hand. It is clear that Westwood operates within the exclusion set forth in Clause (B), as ‘an extension of credit under an open end consumer credit plan.’”
Teicher went on to cite a section of the federal law that exempts certain educational loans, including those secured by real estate, as well as the “open end consumer credit plan,” which is usually a term used to describe credit cards and similar forms of borrowing.
Asked how the ombudsman amendment squared with the Romanoff campaign’s charge that Bennet “did nothing” to “protect students” when the bill was before the banking committee, Teicher also pointed out in an e-mail, “The language is exactly the same as the new language except it is established under the Treasury Department rather than the proposed (Consumer Financial Protection Bureau).”
Teicher picks apart Statesman story
In his rebuttal in last week’s Statesman, Teicher picked apart a paragraph from the earlier Statesman story, pointing to what he said was a loophole that lets Westwood skate free from a recently enacted Truth in Lending regulation.
“In February,” The Statesman reported, “private student loans became subject to the federal Truth in Lending Act, which establishes strict reporting and disclosure requirements on the loans.”
Teicher’s response, attributing The Statesman’s reporting to Romanoff’s opponent, reads: “Again, the Bennet camp deliberately trots out another seemingly related term, ‘private student loan,’ to suggest that students would be adequately protected. On Westwood’s own Web site, they clearly state that its ‘institutional financing program is not a loan.’ … The federal legislation cited is inapplicable,” Teicher declares.
But that’s not what the federal regulations say, and it’s not what those involved in the student loan industry told The Statesman.
According to the revised Regulation Z of the federal Truth in Lending Act, strict new disclosure and timing requirements now cover gap loans and any other private student loans “extended to a consumer expressly, in whole or part, for postsecondary educational expenses, regardless of whether the loan is provided by the educational institution that the student attends.” The requirement went into effect last fall after more than a year of hearings and review. Schools had until February to comply with the new rules.
Harris Miller, president of the Career College Association, a trade group that represents 17,000 colleges nationwide, including Westwood, said there was no question private, for-profit colleges have come under the Truth in Lending Act. There’s nothing mysterious about it, either, he said.
“In our sector, this change in regulations took effect in February,” he said. Under the new Truth in Lending regulations, “we fall under the authority of the Federal Trade Commission, which is perceived as being consumer friendly.”
Westwood College isn’t confused about whether it’s complying with the new federal Truth in Lending regulations either.
“As a prerequisite to enrolling in the (institutional financing) program” — or the gap loan program — “prospective and current students must review all guidelines, requirements and fees,” said Westwood College spokeswoman Kristina Yarrington. “It is a process designed to spell out all relevant details in advance, before the individual applies for the institutional financing — as required by the Truth in Lending Act. This information is communicated in writing and via direct communication with Westwood staff. Students know exactly what they are getting if they choose to apply for this type of financing.”
Teicher denied Westwood’s gap loans are covered by the Truth in Lending Act in an e-mail to The Statesman this week, citing the exclusion of educational loans that are “an extension of credit under an open end consumer credit plan.”
A spokesman for Westwood said that’s news to him, as the school has been complying at some expense with the Truth in Lending Act’s Regulation Z since earlier this year.
The Bennet side had little to say about the Romanoff campaign’s most recent iteration of the attack first launched last month.
“While Michael is focused on sound solutions for Coloradans and addressing the tough challenges we face, Speaker Romanoff continues to play politics, only concerned with the next zinger or untruthful attack, which we see time and time again from his campaign,” said Bennet campaign spokesman Trevor Kincaid. “This business of launching misleading attacks is irresponsible and does nothing to find solutions for our most difficult problems.”
Yarrington had this to say about Teicher’s rebuttal, which again took aim at the Denver-based school: “There is a lot of focus lately on the career college sector, and we welcome constructive ideas on how we can do our jobs better and better help our students. We also have a tough skin and understand how some may attempt to taint our college’s reputation and the hard work of our more than 40,000 graduates with broad brush strokes in an effort to make political hay. Again, we emphasize that Westwood College is an open book, and has absolutely nothing to hide. To the contrary, we are proud of our staff and students work.”
Yarrington also asked whether the Romanoff campaign had any ties to an out-of-state law firm drumming up a class-action lawsuit against the school. In its initial attack on Bennet, the Romanoff campaign cited lawsuits filed against Westwood “claiming, among other things, deceptive lending practices involving ‘student loans.’”
“It should be noted that a plaintiff’s law firm is making reference to Romanoff’s campaign statements about Westwood in their pleadings in an unfounded case against the college,” Yarrington said. “It raises questions about the relationship between the parties.”
A pleading filed May 4 before the American Arbitration Association in Denver in a lawsuit by four former students against Westwood quotes the April 30 Statesman article and references “verbal attacks made against Westwood College by Colorado Senate candidate Andrew Romanoff.”
Asked whether the Romanoff campaign has been in contact with any law firm suing Westwood, Teicher replied in an e-mail that the campaign was unable to locate the Claimant’s Opposition document filed last week.
“Importantly,” Teicher wrote, “according to our research of all available documents filed with the American Arbitration (Association), none mentions Andrew or the campaign. The last document relating to the class-action suit against Westwood was filed months before Andrew brought this issue to light. We would urge you to contact plaintiff’s counsel at James, Hoyer, Newcomer, Smiljaich & Yanchunis out of Tampa, FL.”
Student loan issue is complicated
The student loan picture can be confusing, even to experts, and especially to students trying to get the best deal without drowning in debt. As nearly all the parties contacted by The Statesman said, there a number of moving parts to the whole operation.
Basically, there are three types of loans students can take out to finance an education.
Most well known are federally guaranteed student loans — Stafford and other Title IV loans. For generations, these types of loans have been backed by the federal government but will soon be funded by the Treasury under a measure signed into law as part of health care reform legislation passed in March. The effects aren’t immediate, but in a few years students will face looser repayment requirements and could see loans forgiven sooner than under current rules.
Second are private loans available from lenders other than educational institutions — Sallie Mae, banks, credit unions — essentially consumer loans for the purpose of higher education, which are covered under federal and state laws like other consumer loans. In recent years, following the collapse of the credit market, fewer students have been able to secure these kind of loans. Between 10-15 percent of students at private, for-profit colleges use this method of funding currently, Miller said, down from more than 50 percent a few years ago when credit was plentiful.
And third are the kind of loans the Romanoff campaign says Bennet hasn’t done enough to safeguard from abuse: so-called “gap loans” extended by schools themselves to students who can’t pay for tuition and other expenses with other funds. In the industry, they’re referred to as “institutional loans,” though, as Teicher points out, strictly speaking they’re a form of financing, not a loan. (Because only banks and certain other kinds of institutions can make what the law considers loans.)
“When a school says, you’ve gotten your maximum federal grants and guaranteed loans, and you still have a gap, you’re asking us to make up the difference,” Miller explained. As access to private loans from other sources has dwindled, gap loans have become more prevalent. “Very few schools even engaged in institutional loans until the 2008 time frame,” Miller said.
Since then, private, for-profit schools — including Westwood — have come under fire for how gap loans have been handled. Westwood College settled a 2005 federal False Claims Act lawsuit a year ago, agreeing to pay the federal government $7 million. Westwood’s CEO told faculty the school acted within the law but settled to avoid protracted legal costs. The lawsuit alleged the company’s Texas colleges fraudulently obtained a state license — and access to federal student loans for those students — by misstating job placement statistics.
The class action lawsuit filed before the Denver Arbitration Association alleges the schools deceive students about the cost of a degree and what it’s worth after graduation. Last fall, following an investigation by CBS4 reporter Rick Sallinger, the school cut the interest rate it charges on gap loans nearly in half. Students pay 10 percent interest on Westwood loans, according to school officials, but interest doesn’t accrue while students are attending the college.
In his rebuttal, Teicher repeated the argument the Romanoff campaign made at the debate in Colorado Springs: Bennet should have persuaded members of the banking committee to adopt something called the Waters amendment. That piece of legislation, sponsored by U.S. Rep. Maxine Waters, a California Democrat, would have brought loans made by private, for-profit schools under the House bill’s consumer protection agency’s authority. The amendment failed on a 33-35 vote in the House Financial Services Committee.
But the Senate bill was an entirely different piece of legislation, introduced months after the House bill by Senate Committee on Banking, Housing and Urban Affairs Chairman Chris Dodd, a Connecticut Democrat. Specific carve-outs in the House bill meant gap loans would go uncovered without the Waters amendment. The Senate bill, on the other hand, was written without those exemptions, so an amendment wasn’t required to cover gap loans.
That wasn’t enough, Teicher told The Statesman after the debate last month, because any protection for students would be at the mercy of legislative and regulatory whim unless the practice was singled out. “The point is, there is no specific language that assures those protections will be in. An interest group can seek an exemption as was granted in the House bill,” he said.
The Westwood attack is similar to others Romanoff has made against Bennet, charging the incumbent with favoring special interests while raking in contributions from the same groups.
Last Friday, the Romanoff campaign blasted Bennet for voting on the Senate floor against an amendment to the financial regulation bill that would have forced the nation’s six largest banks to slim down — after taking contributions from employees and PACs associated with all six.
“U.S. Senator Michael Bennet has voted against the Brown-Kaufman amendment which would cap the size and power of ‘too big to fail’ megabanks largely responsible for the financial meltdown,” the campaign release said. “If a bank is too big to fail, it’s too big to exist,” the release quoted Romanoff in a line familiar from his stump speech.
In his four statehouse campaigns, Romanoff raised about the same portion — roughly one fourth — of his donations from PACs as Bennet has raised from PACs since winning appointment to the Senate early last year, according to state and federal election records. About four months into his Senate run, Romanoff declared he would refuse PAC contributions.
“I am not accepting contributions from any political action committees,” Romanoff said at a January press conference called to announce he was still running against Bennet. Since then, he has made this stance a central issue in his campaign, decrying “the corrupting influence of corporate cash” and pointing out he’s the only candidate in the race to turn it down.
Bennet — a fundraising powerhouse who reported more than $6 million in contributions through the end of March, compared with just over $1 million raised by Romanoff — said at the Colorado Springs debate the share of PAC funds in his coffers is lower than most Senate candidates.
Federal election records show the Westwood College Inc. Fund for Educational Excellence, a Denver-based political action committee, made a $2,400 donation dated March 19 to the Bennet campaign, but records also show the Bennet campaign didn’t deposit the check until March 29, on a Monday after the check arrived at campaign headquarters the previous Friday.
Doesn’t matter, Teicher argued in his rebuttal.
“It is of no importance when the Bennet campaign decided to deposit the check,” Teicher said. “It only matters when the check was written.”
A Westwood spokeswoman dismissed Romanoff’s suggestion the donation was an attempt to influence Bennet’s vote. What’s more, Bennet voted contrary to the position Westwood would have supported.
“Westwood College’s employee PAC did indeed give a donation to Bennet’s campaign,” Yarrington said, “and did so as is its right to freely participate in the American political process, and without any expectation that it would curry favor for our schools. Neither Westwood nor its PAC has spoken to Bennet about the bill mentioned in the Romanoff release,” she added, “and if we had, we would have supported the bill being killed.”
The Westwood PAC made one other contribution this year, $1,500 to House Education Committee Chairman George Miller, a California Democrat, in early March. Miller probably didn’t win points from Westwood either, because he resurrected the defeated Waters amendment, successfully sponsoring an expanded version of it as a floor amendment to the House financial regulation bill.
“He basically said, you may have defeated her amendment, but we’re going to make it broader,” recalled CCA President Harris Miller. The congressional Miller’s amendment says all higher education gap loans will be covered by the new agency, whether they’re offered by for-profit or non profit institutions.
The financial regulation legislation — debated in the Senate over the past couple weeks — takes on the country’s entire financial system, including Wall Street, the risky derivatives market, “too big to fail” banks, and a host of “abusive financial services practices.” It’s safe to say few have been paying attention to whether private student lending falls under the financial regulation bill.
In the rebuttal published by The Statesman, Teicher charged the Senate bill failed to cover gap loans at all.
“Without the addition of language in the Senate bill comparable to the Waters amendment (an opportunity not seized by Sen. Bennet), businesses such as Westwood can continue their current practices,” escaping the authority of even the toughest consumer protection body, Teicher wrote (parentheses in original).
To make his point, Teicher picked a portion of one sentence from the bill’s roughly 1,600 pages, insisting the passage proves the kind of loans offered by Westwood wouldn’t be covered by the Senate’s consumer protection bureau:
“The Bureau may not exercise any rule-making, supervisory, enforcement, or other authority under this title with respect to a merchant, retailer or seller of nonfinancial goods or services who extends credit directly to a consumer…” the bill reads. But the bill is complicated, and behind those ellipses and elsewhere in the massive legislation lie explicit language that applies to lenders like Westwood, whether they call their loans “loans” or something else.
If Westwood College says — on its own Web site — that it’s not offering loans, but merely financing, how can anyone claim the Consumer Financial Protection Bureau will apply? Because the Senate bill doesn’t limit the bureau’s authority to regulating just loans, which have a specific legal definition, but also regulates any “consumer financial product or service” that fits certain conditions that apply to gap loans like those offered by Westwood.
“(Consumer Financial Protection Bureau) rules will absolutely cover financial products when they’re offered by private, for-profit educational institutions,” said Senate banking committee spokeswoman Kirsten Brost, pointing to numerous passages in the Senate bill that close any loopholes Teicher thought he had discovered.
The bill exempts companies if financing isn’t a “significant” part of their business, but Brost disputed the notion this would let companies like Westwood escape oversight.
“If you’re a florist or orthodontist, you might let customers pay over time — that’s kind of incidental to your business,” she said, describing the kind of financing that wouldn’t be covered under the Senate bill. “But if you’re someone who offers loans, if you have a finance charge, you’re covered.”
Abernathy agreed the Senate bill covers private loans, whether made by banks or schools, but said her organization isn’t convinced the bill has sufficient enforcement powers.
“Under the Senate bill, the new (Consumer Financial Protection Bureau) rules would apply to all school loans,” she said, including the gap loans Teicher says aren’t covered. “The issue we bring up is about enforcement. As we’ve all learned from the last two years, if we hadn’t learned it before, rules are only good if they’re actually enforced.”
That’s one reason the Institute for College Access & Success is pushing an amendment to the Senate bill to require all private educational loans — including gap loans — be certified by the school. Current regulations require students to certify themselves that they’ve sought out as much federal funding as possible. But Abernathy said schools should “be obliged to tell student if they have any remaining federal loan authority left” before they qualify for any private loans. Research by her organization shows 64 percent of students with private loans haven’t maxed out on available federal funds.
A senior aide at Bennet’s Senate office said Bennet was aware of the amendment Abernathy is pushing. “It’s something we’re supportive of, and we’re going to continue to review the amendments and work with consumer groups,” the aide said. Senators have been lining up with hundreds of amendments to the legislation as debate continues.
Industry won’t evade oversight
“There’s no ambiguity here,” Miller said, dismissing Teicher’s suspicion the industry he represents might evade oversight by invoking some weakness in the law. “The Senate has said, like it or not, you and all of higher education are going to be covered under this new consumer agency.”
Miller went on to say that private, for-profit colleges are gearing up to live under the proposed oversight. “It’s a concern of ours, but it’s not that high a priority,” he said, pointing instead to a movement afoot in another corner of the Senate — the education committee, where Bennet also sits — that could make it harder for some career colleges to qualify for federally guaranteed student loans.
“Whenever I’ve talked to Sen. Bennet, it’s been about federal student aid eligibility, nothing to do with the Senate banking committee,” Miller said, dismissing another charge made by Teicher.
In addition to the $2,400 Westwood PAC donation to Bennet, Teicher pointed out, Bennet also received a $1,000 contribution from Miller’s Career College Association PAC among a handful of “other PAC donations from the for-profit college industry during the run-up to legislation from which they are directly impacted.”
Miller rejected Teicher’s insinuation, saying the donation was “absolutely not” tied to any particular vote or committee hearing.
“I’m not disrespecting Mr. Romanoff’s campaign to make these charges,” he said. “I’ve been in Washington 30-some years and been a lobbyist since 1981, but life just doesn’t work that way. It’s not related to specific votes or specific legislative considerations. It’s more about the schedule of the organization and what events come up,” he said adding that the CCA PAC made the contribution at a Washington fundraising party for Bennet hosted by Sen. Mark Warner, a Virginia Democrat.
A review of federal election records shows the CCA PAC has made donations to members of the House and Senate education committees, and only contributed to banking or finance committee members who, like Bennet, happen to sit on both panels.
“You contribute to someone you believe is generally supportive of your students and your sector,” Miller said. “As I see (Bennet’s) votes, he’s actually on the other side of this issue than we’d like him to be, but we can’t agree with him on everything,” Miller said.
“I know what it’s like to be in the middle of a Democratic Senate primary,” Miller said with a chuckle. He fought one himself four years ago, losing the nomination in Virginia to the Democrat who eventually won the seat, U.S. Sen. Jim Webb. “Things can get heated.”
What about Romanoff’s relations with Westwood College, its national headquarters just a stone’s throw from his old house district? Romanoff delivered the commencement address to Westwood graduates twice in 2008, his last year in the Legislature. And a top Romanoff supporter, State Treasurer Cary Kennedy, did the same earlier this year.
Relations are decidedly less rosy since Romanoff accused the school of “predatory lending” and suggested its political action committee did something unseemly by giving Bennet a campaign contribution just days before the senator voted against the school’s position on the Senate banking committee. Hoping to patch things up, the school earlier this month invited Romanoff to again visit the campus, even to deliver another commencement address.
But so far, a Westwood spokeswoman said this week, the Romanoff campaign has yet to respond. “We have not heard from them,” Yarrington said. “It has been a resounding silence from them.”