Globe University Will Probably File Bankruptcy While Students Can’t Get the Same Protection

Globe University/ Minnesota School of Business is collapsing like a house of cards. Last September, a Minnesota judge ruled that Globe/MSB violated Minnesota consumer protection laws, and the Minnesota Office of Higher Education began the process of barring it from doing business in the state of Minnesota.

In October, the U.S. Department of Education ordered Globe to stop enrolling students, and this month, DOE cut off all federal student-aid funding to Globe.  Globe cannot survive without federal student aid money; and its seems likely it will file for bankruptcy in the near future.

Bankruptcy is a good thing for failing colleges.  In fact, several higher education institution filed for bankruptcy during the last two years, including: Corinthian Colleges, ITT Tech Services, Anthem College, and Dowling College.  Bankruptcy will allow Globe to shut down operations in an orderly manner and ensue that its creditors are treated fairly and equitably.

If Globe/MSB files for bankruptcy, it will be required to list its assets. Those assets will likely include loans it made to its own students. Kyle McCarthy, writing for the Huffington Post in 2014, reported that 42 percent of Globe’s students had private loans; and some of these loans were originated by Globe University, Minnesota School of Business, or Terry Myhre, the owner of Globe University.

Ironically,  Globe University has easy access to the bankruptcy courts, where it will be able to shed some if not all of its debt; but Globe’s students who file for bankruptcy will find it almost impossible to get relief from their debts to Globe. And this is true in spite of the fact that a judge found that Globe had committed fraud.

Why is this? Because private student loans issued by for-profit colleges, like federal student loans, cannot be discharged in bankruptcy unless the debtor can show that repaying the loans will cause “undue hardship,” a very difficult standard to meet.

Obviously, this is a grave injustice. In my view, students who took out loans from for-profit colleges that committed fraud should have all their student loans automatically forgiven: federal loans, private loans, and loans issued by the college themselves.

This article is by Richard Fossey who is a professor at the University of Louisiana in Lafayette, Louisiana. He received his law degree from the University of Texas and his doctorate from Harvard Graduate School of Education. He is editor of Catholic Southwest, A Journal of History and Culture.