Student stuck with loans when college abruptly closes

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February 2, 10:19 AM
by Asa Aarons, NY Consumer Affairs Examiner

Michael Connelly thought he could get a real degree from a virtual university. But when the unaccredited private school he attended suddenly closed, he discovered the only thing he gained from more than a year of study was debt.

Connelly is stuck with $8,000 in student loans for education he never received.

The New Jersey man enrolled at Warren National University, an arguably dubious Cheyenne, WY institution specializing in distance learning. He took out a Wells Fargo student loan to pay the tuition for the program, which the school required in full in advance.

The school received the full $8,000 last August. But Connolly had a chance to complete only a handful of classes before the school announced it was closing.

"I'm owed $6,125 in unused tuition," he said. "I've tried to contact the school on multiple occasions but they have only an automated message now and have not returned my calls." Wells Fargo told him he's still responsible for the loan, despite the fact the school closed and failed to provide the contracted services.

How nice.

Many students turn to private lenders to finance programs post-secondary education. But private loans offer far fewer protections and remedies to the borrower than federally insured student loans. Federal loans, for example, may be dischargeable if the school you were attending closed. That's not the case with private loans.

To minimize risk and make the loans more attractive for investors, consumer advocates complain that private lenders have aggressively limited a borrower’s ability to challenge loans for breach of contract or violations of the law.

In addition, many private lenders have close relationships with colleges and trade schools to market their products. Some schools, including ones that are improperly licensed or uncertified, use those relationships to attract students who want affordable education and access to financing.

Warren National University is a good example. It linked prospective students to Wells Fargo through its website.

Wells Fargo apparently had no problem with the school's reputation as a diploma mill or its lack of accreditation.

The institution was established in California in 1984 under the name Kennedy-Western University and adopted its new name in 2007. While it had reportedly been economically successful targeting mid-career professionals, it had a questionable reputation as a diploma mill. The school unsuccessfully flirted with accreditation several times. It announced it would close after its most recent attempt to achieve accreditation failed.

There's no doubt Connolly could have found a better option. But the issue isn’t his choice of school: the issue is why he should be forced to pay for services never received.