For-Profit Colleges

A federal district court judge dealt a huge blow yesterday to the U.S. Department of Education’s efforts to regulate the for-profit college sector. More broadly, the court’s decision in the case, which deals with the Department’s Gainful Employment regulations, could make it much more difficult to bring greater transparency and accountability to higher education as a whole.

The roots of this case go back to June when the federal district court vacated some of the Department of Education’s Gainful Employment (GE) regulations. While the judge affirmed the department’s authority to regulate on GE and held up requirements that GE programs disclose information like median debt to students, he found that one of the three measures used to determine whether a program prepared students for gainful employment -- the student loan repayment rate -- “lacked a reasoned basis.” And since the judge concluded that all the metrics were intertwined, he threw them all out. With no metrics to report, the disclosure requirements included in the regulations were also effectively eliminated.

The Department went back to the court and asked the judge to reinstate the reporting requirements so that it could implement the disclosure provisions of GE (without program-level information, disclosure would be impossible to achieve). In yesterday’s decision, the judge denied this request on the grounds that the reporting requirements would violate one of the worst laws in the history of higher education: the federal ban on a student unit record system.

As I wrote on Tuesday at Higher Ed Watch, the recently introduced “Students First Act” would require the U.S. Department of Education to automatically conduct program reviews of colleges that are most at risk of violating federal law. But this is only one way in which the bill, which was sponsored by Democratic Senators Frank Lautenberg of New Jersey and Tom Harkin of Iowa, would strengthen the tools that the Education Department employs to protect the integrity of the federal student aid programs and safeguard students from unscrupulous schools. Here are some key features that would greatly enhance the Department’s oversight and enforcement authority and provide relief to students who have been harmed.

The bill would:

• Hold School Executives Accountable for Compliance

Under the measure, college presidents, chief executive officers, and chief financial officers would personally sign the student aid program participation agreements that the Education Department enters with their schools. They then would be held liable if their schools “knowingly and willfully” violated the agreements, or engaged in “gross negligence.” In such cases, these officials would be fined an amount equal to their yearly compensation, and they would be barred from working at another college that participates in the federal financial aid programs for at least five years.

Does the U.S. Department of Education have the guts to enforce its own federal student aid program integrity rules? Judging by the Department’s record and legislation recently introduced by Senate Democrats, entitled the “Students First Act,” the answer to that question appears to be “No.”

During President Obama’s first term, administration officials went to great lengths – and spent a substantial amount of political capital – to strengthen the agency’s authority to crack down on schools that deliberately mislead students into enrolling. Yet, the Department has shied away from using these expanded powers, even when evidence of abuse has been delivered to the agency on a silver platter.

Career Education Corporation is a case in point. In the fall of 2011, the publicly-traded for-profit higher education company revealed that a significant number of its schools had been cooking the books on the job placement rates they were disclosing to prospective students. But despite this remarkable admission, the company didn’t receive even a slap on the wrist from the Department.

Welcome to the Syllabus, a weekly guide that provides insight into what’s happening in higher education.

Read:

American Council on Education Recommends 5 MOOCs for Credit, Steve Kolowich
The Chronicle of Higher Education

While there has been a lot of buzz about Massive Open Online Courses (MOOCs) over the past few months, there has been little headway in figuring out a sustainable business model or how to award credit. The credit question just got easier to answer this past Thursday when the American Council on Education (ACE) endorsed five MOOCs. But it will still be up to individual institutions to grant the credit. So far one institution—Excelsior College—has said it will not accept them. The college’s president, John Ebersole, commented, “We would hope that ACE would support a more rigorous process as is the case with other forms of noncredit instruction.”

Now that President Obama has been reelected, and he has more time to sit back and read Higher Ed Watch, we are presenting our wish list for his second term. [And Mr. President, while you're at it, we're sure you'll enjoy our posts from last week highlighting your first term's biggest higher education hits and misses!]

Among other things, we (the authors of this post) would like to see the Obama administration do the following:

• Hold college accountable for reigning in college costs and improving student outcomes. The administration must be willing to take on the entrenched and powerful institutional interests of traditional colleges.

• Develop long-term solutions for revamping the federal financial aid programs, rather than continuing to scramble to come up with stop-gap measures to shore up funding for these programs in the heat of high-stakes budget battles.

• Finalize the financial aid shopping sheet and scorecard—and make them mandatory. Students and families need clear, consistent, useable information at key points in their decision-making process. Given that many institutions currently benefit from the lack of this information, voluntary adoption of these efforts will accomplish very little.

With the presidential election fast approaching, we are taking a closer look at President Obama’s higher education record. Yesterday, we highlighted the administration’s most significant accomplishments in this area. Today, we are examining the administration’s most significant blunders and missed opportunities.

So without further ado, here are the Obama administration’s biggest higher ed misses:

1. Fighting to Keep the 3.4% Interest Rate: Eager to woo the youth vote and tap into America’s anxiety about student debt, the Obama administration launched an all-out “don’t double my rate” PR campaign earlier this year aimed at stopping Congress from allowing the temporary 3.4 percent fixed interest rate on federally-subsidized Stafford loans to revert to 6.8 percent. Not wanting to be on the wrong side of this popular issue during an election year, Republicans and Democrats lawmakers made national headlines for their bipartisan efforts to maintain the lower rate. Largely left out of this debate, however, was any acknowledgement of how small the benefits of this fix would be: after all, it only extended the 3.4 rate for another year, only applied to a subset of new borrowers (those who qualify for subsidized Stafford loans), and only would save eligible borrowers about $9 a month. And it cost the government $6 billion. With the Pell Grant program facing a multi-billion dollar funding cliff, it’s a shame that the administration spent so much political and financial capital on a one-year gimmick that provided neither meaningful relief to financially-distressed borrowers in the short term nor to the Pell Grant program over the long haul.

With the presidential election only days away, we thought it would be a good time to take a closer look at President Obama’s higher education record. In this post, we highlight the administration’s five greatest hits. Tomorrow, we will examine the administration’s five biggest misses.

So without further ado, here are the Obama administration's most significant higher ed accomplishments:

1. Reforming Student Loans: President Obama achieved his single most significant higher education victory in March 2010 when he signed into law legislation ending the wasteful practice of subsidizing private lenders to make federal student loans. Overcoming the fierce opposition of the student loan industry, the Obama administration and Democratic Congressional leaders eliminated the Federal Family Education Loan program, which had long been racked by corruption, and shifted to 100 percent direct lending, which delivered the same federal loans to students at a much lower cost for taxpayers and without all the scandals. And despite dire warnings from the industry and its allies in Congress about the risks of moving thousands of colleges out of FFEL and into direct lending, the U.S. Department of Education pulled off the transition without disturbing even a single student’s access to federal student loans.

In examining the student loan default rate data that the U.S. Department of Education recently released, it’s hard not to marvel at the success that Corinthian Colleges has had in driving down its schools’ two-year cohort default rates.

The for-profit higher education corporation’s two-year rates have plunged across the board, with most of them dropping by double digits. For example, the company’s Everest College campus in Thornton, Colorado saw its rates plummet, from 27.3 percent in 2009 to 3.7 percent in 2010. Similarly, at Everest Institute in Pittsburgh, the rate dropped from 25.2 percent to a remarkably low 1.1 percent. [The company has been much less successful in lowering its schools’ 3-year default rates. Those were 34.9 percent at the Thornton campus and 28.6 percent in Pittsburgh. But the government won’t start holding schools accountable for these rates until 2014.]

How did Corinthian’s leaders achieve this remarkable feat? Did they do it by:

A. Radically improving the quality of the programs their schools offer to ensure that their graduates have the skills they need to obtain gainful employment in their fields of study?

B. Slashing prices so that students don’t have to take on so much debt?

C. Overhauling their schools’ recruiting practices to ensure that they enroll only students who they know can succeed in their programs?

The correct answer is “none of the above.” Instead, as the Senate Committee on Health, Education, Labor and Pensions has documented, Corinthian officials have engaged in a no-holds-barred campaign to drive down their schools’ rates by pushing former students to obtain temporary forbearances and deferments on their loans. The company’s sole purpose has been to prevent these borrowers from going into default during the current two-year window when the Education Department holds schools responsible for their rates.

Sen. Tom Harkin (D-IA) and two other Senate Democrats introduced legislation last week to stop one of the most egregious practices of the for-profit higher education industry: enrolling students in programs that lack the specialized accreditation needed for students to get jobs in their fields of study.

The important bill would strip federal financial aid, as well as veteran and military benefits, from any college programs that leave students in the lurch because they don’t have the necessary programmatic accreditation. “Taxpayers have no place funding programs that hurt students more than they help,” said Sen. Jeff Merkley of Oregon, who joined Maryland Senator Barbara Mikulski and Harkin in sponsoring the measure.

The legislation, the “Protecting Students from Worthless Degrees Act,” comes on the heels of the release of a Senate Health, Education, Labor and Pensions (HELP) Committee report detailing the findings from a two-year investigation that Senator Harkin, the panel’s chairman, led of the for-profit higher education industry. During the course of the inquiry, committee staff learned of a number of students who felt they had been deceived about the value of their degrees.

The U.S. Senate Committee on Health, Education, Labor and Pensions released a final report on Monday detailing its findings from a two-year investigation that its chairman, Sen. Tom Harkin (D-IA), has led of the for-profit higher education industry. The report is voluminous, and we are still digging through it. But for the moment, it’s important to acknowledge the report’s true significance: it puts thousands of pages of internal company documents into the permanent record, providing crucial evidence that fraud and abuse have run rampant throughout the sector, and especially at some of the country's largest for-profit college companies.

This is a major development, as it will make it extremely difficult for the industry and its Congressional champions to continue to deny that abuses have occurred at their schools that have caused – as Senator Harkin said at a press conference yesterday -- “lasting harm to the students they enroll.”

Over the last decade, both publicly-traded and private-equity owned for-profit higher education companies have come under scrutiny from federal and state regulators, and have faced numerous lawsuits by former employees, students, and shareholders over allegations that they engaged in misleading recruitment and admissions tactics to inflate their enrollment numbers. Many of these companies have been accused of routinely recruiting and enrolling unqualified student and sticking them with huge amounts of debt for training from which these individuals were unlikely to benefit.

Yet, time and again, these actions have ended in settlements, in which the companies agree to pay a fine but do not admit to any wrongdoing. What’s more, as part of the terms of these agreements, evidence of abuses that has been unearthed is put under seal, hidden permanently from public view. (For examples, see here, here, here, and here.)

As a result, the companies involved get off scot-free, no matter how airtight the cases are against them. Sure, they have to pay a fine, but this is a small price for these extremely lucrative corporations to pay to maintain their innocence.

The settlements have not only given cover to the individual companies but to the for-profit higher education sector as a whole. The fact that nobody has been found guilty of anything has allowed the industry, as well as its backers on Capitol Hill and Wall Street, to remain in denial about the extent of the abuses that have occurred and the damage that has been done. Instead, these settlements have, in recent years, made it many times easier for for-profit college leaders and lobbyists to portray themselves as innocent victims of a partisan witch hunt, as they have fought efforts by the Obama administration and Senate Democrats to rein in the industry’s very worst players and practices.

And that’s why the new Senate report is so important -- it puts into the official record mountains of evidence, drawn from internal company records, backing up its findings. Lawmakers can still willfully choose to ignore the evidence. But they can no longer say, with a straight face, that it doesn't exist.