Education Opportunity Network

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New Regulations Needed To Rein In For-Profit Colleges

The good news coming from the U.S. Department of Education recently is the effort to put tougher restrictions on for-profit scam colleges that rip off students, families, and the taxpayers.

The bad news is that not all Democrats are behind this effort and pushing for the tighter restrictions.

Think Progress last week passed along a report from The Wall Street Journal that Big Ed has drafted a rewrite of regulations to rein in “for-profit schools whose students end up deep in debt or default on their student loans at exceptionally high rates.”

The colleges that would be most heavily affected include the University of Phoenix (owned by Apollo Education Group), Kaplan Higher Education, Devry Inc., The Art Institute (owned by Education Management Corporation), and Corinthian Colleges, among others.

The guidelines provide the teeth for what is referred to in wonk-speak as a “gainful employment” plan. The new regulations could go into effect as early as 2015 and could cause, according to the WSJ report, “as many as 20 percent of programs at for-profit colleges” to lose revenue. Public and non-profit colleges four-year colleges would be exempted.

Writers at Think Progress provided some useful backstory:

“For-profit schools have come under scrutiny for burdening students with debt without giving them degrees or skills that help them get jobs to pay them off. Many for-profit schools and community colleges have higher rates of students defaulting on their loans than who actually graduate. More than three-quarters of the students at for-profit colleges fail to earn a degree within six years.”

Further, low-income students are particularly vulnerable to the predatory nature of these for-profit schools, because these students “attend for-profit colleges at a rate four times higher than other students.”

Veterans returning from Iraq and Afghanistan are also at risk of being scammed by the for-profit higher ed sector.

As Mother Jones reported back in 2011, “at 8 of the 10 for-profits that take in the most GI Bill cash, more than half of students drop out within a year of matriculation. Many students find that prospective employers and graduate schools won’t take their coursework seriously,” and “some for-profits have cleaned out students’ military benefits while also signing them up for thousands of dollars in loans without their knowledge.”

But, back to The Wall Street Journal report, “for-profit schools say they are being unfairly targeted, given that some of the highest student-debt burdens fall on those who attend public and nonprofit graduate schools, such as law and medical school. They say they serve many students – such as single mothers and many low-income students who don’t live near a community college – who otherwise would have few, if any, options for attending postsecondary schools.”

Whichever side you take in this debate, clearly big money is involved. According to report filed by David Halperin, when he wrote for the Republic Report , the for-profit higher education industry generates a $35 billion annual revenue of which the vast majority – “about $32 billion” – comes from federal financial aid.

And whenever big money is involved in an issue, it has immediate and considerable effects on the politics of it.

Republicans Boost Scam Schools

For years, Republicans have been big boosters of for-profit colleges.

In the 2012 presidential election, The New York Times followed up a speech given by Republican candidate Mitt Romney in which he recommended that students seeking higher education “should consider for-profit colleges like the little-known Full Sail University in Florida. A week later in Iowa, Mr. Romney offered another unsolicited endorsement for ‘a place in Florida called Full Sail University.’”

The NYT article, written by Eric Lichtblau, was quick to point out that the cost of tuition at Full Sail can run more than $80,000 for a 21-month program, and that many of the school’s programs have a less than sterling graduation rate – as low as just 14 percent of students graduating on time and only 38 percent at all.

Meanwhile, some Full Sail students “carried a median debt load of nearly $59,000 in federal and private loans,” way more than the national average of $23,000.

Republican cheerleading for for-profit colleges isn’t exclusive to presidential candidates.

As Lee Fang reported for Think Progress back in 2010, when the Obama administration first attempted to implement tougher “gainful employment” regulations, the for-profit higher ed industry unleashed a slew of lobbyists to combat the legislation.

Some restrictions eventually passed but nearly two years ago, the Republican dominated U.S. House of Representatives, passed a bill to reduce the Education Department’s regulatory controls of for-profit colleges.

As Think Progress reported back then, the main thrust of that legislation was to repeal DoE’s “standardized definition of the term ‘credit hour’” and other federal restrictions of for-profit colleges.

The bill, which ultimately went nowhere in the Senate, was sponsored by North Carolina Rep. Virginia Foxx, who also opposed the Obama administration’s successful effort to end $60 billion in government-backed subsidies to predatory student loan companies, as Color Lines reported back then.

Later in 2012, the Education Department’s gainful-employment rules were deemed unenforceable by a court ruling, as reported by Caralee Johnson Adams who covers the college beat for Education Week. The ruling however, left open the door for “the department’s right to craft new regulations.”

So this year, also reported by Education Week‘s Adams, Republicans in the House conducted a preemptive strike against the Obama administration’s re-drafting of the new gainful employment regulations by introducing a bill that would repeal those regulations in addition to ones the House targeted in 2012. Rep. Foxx, again, was one of the bill’s sponsors.

There is a reason why Foxx and other Republicans are so persistent.

As the chair of the House Higher Education Subcommittee, Foxx received $3,000 in donations to her 2008 re-election campaign from the political-action committee of The Association of Private Sector Colleges and Universities, which represents for-profit colleges, as reported by The Chronicle of Higher Education . Employees of Keiser University, a for-profit institution headquartered in Florida – far from Foxx’s district in North Carolina – gave $2,300 to her campaign. And according to the article, “Harris N. Miller, the president of the private-sector association, welcomed Ms. Foxx’s appointment [to chair the House Committee], saying she has ‘shown a lot of interest in our sector.’”

But with Democratic majorities in the Senate and the support of a Democratic presidential administration, it would appear that Republican efforts to reduce regulatory scrutiny of bad actors in the higher education arena would make little headway.

If only that were true.

Not All Democrats On Board

Constituencies who generally lean Democratic, including consumer advocates and civil rights groups, have pushed for stricter regulations on the for-profit college business.

Unfortunately, the money behind for-profit higher ed has eager takers in the Democratic party as well.

As the intrepid Lee Fang again reported, this time in The Nation, “a small group of House Democrats, led by Representatives Rob Andrews of New Jersey and Alcee Hastings of Florida, are organizing an effort within the caucus to protect the for-profit career college industry from any meaningful regulation.

“The two congressmen are among the largest recipients of campaign cash from the industry. Campaign finance data compiled by TheNation.com show Hastings has received $54,500, and Andrews $78,547, from for-profit college executives and political committees.”

Andrews and Hastings circulated a “Dear Colleague” letter asking, according to Fang, “other House Democrats to sign a document asking the administration to back down.”

Added Fang, “Notably, the Association for Private Sector Colleges and Universities, a trade association for the industry, has given only to two House Democrats in the last three months: Hastings and Andrews.”

This Deserves Democratic Unity

Rather than seeking agreement or compromise with Republicans, Democratic lawmakers should unify behind what the Obama administration is trying to do.

The new restrictions being considered are reasonable. For instance for-profit colleges would lose access to federal money if their students’ average debt payments after graduation exceeded 12 percent of the students’ annual income or 30 percent of discretionary income several years after they leave school. Also, schools would face restrictions if the share of students defaulting on federal loans within three years of leaving a program couldn’t reach 30%.

Claims that these new restrictions will discriminate against for-profit institutions ring hollow.

Although it’s true that college completion rates and loan defaults are at unsatisfactory levels across the entire higher ed sector, completion rates, according to the latest report, at two-year public institutions (40 percent), four-year public institutions (63 percent), and for four-year private nonprofit institutions (73 percent) are above what many of these for-profit colleges produce. More than three-quarters of for-profit students fail to earn a degree after six years, as Think Progress reported in the previous year (cited above).

Completion rates at public colleges are actually making progress.

Further, the fraudulence committed by many of these for-profit institutions is just too wide spread. The latest case, investigated by Chris Kirkham at The Huffington Post, found that an institution run by Corinthian Colleges, one of the colleges The Wall Street Journal article claimed would be reigned in by these new regulations, systematically padded job placements in order to market itself more effectively to students and sidestep existing requirements from accreditors.

As Kirkham explained, “It wasn’t the only Corinthian school to try this approach, according to a lawsuit filed in San Francisco in October by the California attorney general. That complaint accuses Corinthian of employing a broad range of fraudulent marketing techniques, including overstating its job placement rates. It specifically accuses two Corinthian campuses in California of paying a temp agency to hire graduates.”

To put the importance of these new tougher regulations into context, you need only venture into the subways of New York City. Car after car are emblazoned with colorful banner ads touting colleges, universities, and certificate programs that offer young adults opportunities to “advance” themselves and achieve “success.” The ads invariably feature images of smiling young adults of color and headlines exhorting them to “aim high” and “advance yourself.” And a prominent bullet point in nearly every ad is “we’ll arrange the financing for you.”

The advertising onslaught stems both from the demand our nation’s younger generation feels as a result of being increasingly unemployed, with fewer and fewer job prospects, and a relentless campaign from institutions of for-profit marketers to capitalize on that anxiety with promises to provide a pathway to future employment through education.

Rather than letting the power of big money and its marketing power to continue to have its way, Democratic lawmakers need to get behind the effort from the Obama administration to ensure taxpayer money for higher ed is being well spent, and students and families are being better served.

  • Ronald Smith says:

    Unfortunately, the same “charade’ is being perpetrated by the Charter Schools. Despite having the “pick of the litter” when the student body is formed and unlike the public schools, having the freedom to expel troublesome students, the only thing consistently moving on an upward plane is the avarice of management!

    December 17, 2013 at 7:09 pm
  • drrhw says:

    The “influence” on Congresspeople in this sad government. I worked in a for-profit for 18 years, and feel we did some good for students who knew exactly what they wanted and went into the precise programs that fit them. But always profit was driving the business (which, realistically, is somewhat true of most colleges today), and the corporate administration didn’t seem to know the first thing about education. But there were useless courses and much paperwork to get some low level accreditations that the students were surprised didn’t transfer.. And it was painful to hear students talk about “being in college” when we were frequently just cleaning up the mess left by their inadequate high school educations; quite a few of them never should have graduated, though others were really sharp. And the costs! My gosh, proper funding of community ed would have neatly filled the gap at a far lower price. I finally left when they gutted my school’s core competencies, replaced 10 week sessions with sped-up 5 week terms, thereby increasing workloads by 1/3 without raising the miserable salaries, and the corporate president (the one who gave the annual lecture on ethics) was caught fudging all the placement numbers. Enough; but the enrollment at my school dropped 90% anyway. So, bottom line: There is a use for these schools, but they grew too fast and too unregulated, and they often promised what could not be delivered.

    December 17, 2013 at 8:55 pm
  • jimmy silin says:

    I went to pretty elite private schools for my primary and secondary years, and of course got a great eduction, pretty much in spite of myself. Why can’t every kid get that?!:-) The reason is all about resources.
    And now we have these racketeers and charlatans from the standard testing, charter school, and for-profit college industry, skimming the pathetic remnant of what educational funding oughta be in this country.

    December 17, 2013 at 10:08 pm
  • Mary H Murchison says:

    I am well aware of the scams perpetrated by “for-profits” like Rutledge College, which was located in Charlotte NC. A friend worked there very briefly and saw how students were enticed to enroll, without any realistic assessment of skills or interests, then had them come in and apply for government loans. They enrolled, found out that they didn’t have the background or aptitude for most classes, became discouraged and dropped out. But by then, they had loans to repay, with no new skills or chances for a job to provide income. Of course, the college had already been paid the tuition, which it kept, so it wasn’t concerned about dropouts. Each Monday, a “sales” type meeting was held to go over the numbers of new students, which equaled new money. There was no guidance or advising, just running the numbers. It was a disgrace.

    Some of these new charters, I fear, will entice unwitting parents and students with promises of a better education, but NC doesn’t require much at all in the credentials of teachers and gives very little oversight, so it’s a gamble. However, the owners of these schools will do very well, I think.

    It’s a shame that as a country we haven’t recommitted ourselves to the important idea that ALL students deserve and need a good education, that education shouldn’t be a tool for owners and administrators to get rich, or reserved only for the wealthy. Our Congress and state assemblies need to wake up and support good public education for all students.

    December 19, 2013 at 3:04 am