If you didn’t know any better, you might have gotten pretty fiery over for-profit education after reading one of the front page stories of Tuesday’s New York Times. The lengthy article titled “For-Profit Colleges Fail Standards, but Get Billions” is all about accusations of greedy institutions bilking taxpayers and taking advantage of students through fraud and other deceptive practices. Why the story ran on page one of the paper is anybody’s guess: the only timely element in the piece appeared toward the end of the article, where the author mentioned the Defense Department’s recent decision to bar the University of Phoenix from its tuition assistance program. By the time you got to that part of the article, you might have cheered the DOD’s decision to cut the educator off, despite the fact that the decision appears premature, based on allegations as opposed to findings (meaning they are meting out punishment before a full investigation or review).
The New York Times piece seems narrowly focused on denigrating an industry that has become the bastard-stepchild of higher education. Ever since U.S. Sen. Tom Harkin decided to take on for-profit education, the industry has been under intense scrutiny from state and federal regulators as well as partisan research and advocacy groups. The article would have readers believe that all the negative attention is the equivalent of substantiated claims that for-profit education is a fraud on federal student loan programs. Thirty-seven state attorneys general, the Securities and Exchange Commission, the Consumer Financial Protection Bureau, the Department of Justice, and the Federal Trade Commission are all investigating for-profit schools. These schools must be horrible, right? But what the article lacks are legal holdings or findings of fact.
That several agencies are investigating industry participants is not tantamount to guilt: it is more reflective of the fact that regulators take their cues from other regulators. Once an industry becomes unpopular, everyone wants to jump in and get their piece of the pie … or the felled lion. For-profit education is now an obvious target. But, again, that does not make the industry per se bad.
Nor does the fact that many for-profit educators have settled with regulators mean they are guilty: people and companies alike perform a cost-benefit analysis when it comes to whether to fight or stand down. It often makes economic sense to settle out with regulators rather than stay the course through potentially lengthy costly litigation.
What is troubling is the undercurrent – and application – of guilt before innocence, both by the New York Times article and by regulators. What is missing is a comparison of how much for-profit education costs per student versus how much other schools cost, or what dropout rates and post-graduation employment rates look like across schools for single parents and the poor (the types of individuals typically enrolled in for-profit colleges). For instance, studies have shown that community colleges are costing taxpayers billions of dollars for uncomfortably high drop out rates. Other studies identify taxpayer subsidies covering significant amounts of college operating costs.
One of the major reasons why for-profit education has high drop-out rates and poor post-grad employment rates is that they are reaching individuals who otherwise may not have access to degree programs, such as single parents or people in economically depressed areas. These individuals have other complications in their lives that can make completing a degree or finding gainful employment more challenging (e.g., scheduling, transportation). These challenges are not the schools’ fault, but a reflection of external factors. Punishing the schools and taking away educational opportunities does not seem like the most thoughtful decision, but it’s the one that partisan groups, partisan journalists, and regulators seem to be angling for.
Instead of celebrating the Defense Department’s decision to cut off the University of Phoenix from its tuition assistance program, we should be troubled that it is doing so before completing an investigation. In a statement, the University noted that: “It is troubling that DoD has used requests for information from other governmental agencies as grounds for placing the university’s DoD MOU in a probationary status.”
For-profit education does have, and has had, its bad actors… as does every industry. But the all-out slam against the sector, the fight for its demise, is unfair and shortsighted. In the end, the greatest losers will be historically underserved populations who will be denied education opportunities.
For-profit education was dealt a major blow in a federal court case challenging the Department of Education’s Gainful Employment Rule. U.S. District Court Judge Lewis Kaplan of New York dismissed a lawsuit that was filed last November by the Association of Proprietary Colleges. The lawsuit is one of two filed in federal court shortly after the Department of Education issued its revised version of the Gainful Employment Rule. The second lawsuit, brought by the Association of Private Sector Colleges and Universities, is still pending before a federal judge in D.C.
In his opinion, Judge Kaplan rejected APC’s arguments that the Gainful Employment Rule (1) violates colleges’ constitutional due process rights, (2) violates the plain language of the statute, exceeding statutory authority, and (3) is arbitrary and capricious. Kaplan held there could be no due process issues as for-profit colleges do not have a “vested right” to participate in federal student aid programs. He discounted as ill-conceived or misleading arguments that the rule exceeds statutory authority. And he dismissed APC’s allegations that the rule as drafted is arbitrary and capricious.
Judge Kaplan’s rejection of APC’s lawsuit is hailed as a victory by detractors of the for-profit education industry who are anxious to see the new rule implemented this July. Some project that Kaplan’s opinion will influence the direction of the pending federal case in D.C. But, despite these portents, the legal theories in the two suits are distinct enough that APSCU’s case should not be overshadowed. The APSCU’s suit centers on how and why the Gainful Employment Rule, as drafted, would disparately impact populations, identifying concern that the rule would “impose massive disincentives” on schools from recruiting “low-income, minority, and other traditionally underserved student populations, because, as an historical matter, those demographics are widely recognized as most at risk of failing the Department’s arbitrary test.”
The complaint also identifies concerns regarding the DoE’s rulemaking process, which it alleges was marred by “well-substantiated allegations of bias and misconduct that led several Members of Congress to accuse the Department of bad faith.” Perhaps it will not go without notice, the next opinion around, that the DoE’s proposed rule more than doubled in size at the 11th hour of the rulemaking process, flying in the face of the purpose of the public notice and comment period.
It is surprising to see so many consumer advocate groups cheering a marred process and pushing for standards that will have the effect of discouraging education opportunities for historically underserved low-income and minority students. It can’t be that their intentions are bad. It is more likely that detractors of for-profit education are narrowly focused on examples of bad actors in the field—that have been called out by authorities for predatory lending practices and misrepresenting the quality or results of their programs. Indeed the industry is not shy of regulators scrutinizing and penalizing bad practices. For-profit education has the likes of the SEC, CFPB, FTC, and a bevy of state attorneys general at the ready. You might think that those skeptical of for-profit education could look to the work done by these agencies and be satisfied that problems are being addressed.
While detractors breathlessly anticipate another judicial benediction of the DoE’s rulemaking, hopefully the next round of judicial opining will address not just the extent of the DoE’s statutory authority but also how the DoE can and should carry out its purpose. In the meantime, for-profit educators would do well to continue efforts to disseminate data that shows how they meet important needs that other schools do not and how their costs compare to actual costs of other schools (e.g., including data on taxpayer funding of community colleges). Perhaps many of the well-intentioned skeptics would be less anxious to see the end of the industry.
The last few years have been tough on the for-profit education industry – it’s not easy being the target of a host of federal and state investigations. For-profit educators have been poked and prodded by, among others, the U.S. Congress, a coalition of state attorneys general, the Consumer Financial Protection Bureau, the Federal Trade Commission, and the Securities and Exchange Commission. Federal and state authorities, who see the industry as predatory, seem determined to squeeze it out of the education industry. A draconian set of regulations, known as the Gainful Employment Rule, that were issued by the Department of Education last year may be just what it takes for these detractors to get their way.
Amidst tougher regulations and incessant government probes, already two large institutions have flat-lined. In June, Corinthian Colleges announced its imminent bankruptcy. At the end of August, Anthem Education said that it would be closing its doors. Declining enrollment numbers, costly investigations and rigorous regulations (with hefty compliance costs) have been too much for these colleges to withstand. And their pleas for assistance from the DoE have fallen on deaf ears – the DoE has agreed only to facilitate orderly dissolution (in the case of Corinthian Colleges) or partial-campus acquisition (in the case of Anthem).
The DoE and regulators may be toasting victory as these colleges fall like dominoes. But the result of their party is thousands of students left with unfinished degrees and fewer education opportunities. Corinthian Colleges enrolled students at over 100 campuses; Anthem at over 40. What are students who have not completed their degrees supposed to do? Credits are not always (or easily) transferrable. Some students may not have other local opportunities to complete their education.
One of the major benefits of for-profit colleges is that they have focused on providing education opportunities to underserved populations and non-traditional students. People like single parents or full time workers who may not have access to a campus or who can only take evening or online classes have found course programs that can accommodate their needs. But regulators haven’t seen these educators as opportunity-makers; rather, they see them as opportunists preying upon the underserved. Because these students generally fund their education through federal student loans, regulators think that for-profit education companies are merely using students as conduits to federal money. They use the fact that drop-out rates can be very high, or that post-graduate employment rates can be low to support their theory that for-profit educators are ruthless predators. But high drop-out rates and low employment rates can be tied to other factors. The very populations these colleges serve are ones that are at higher risk of dropping out: single moms and full-time workers may not be able or willing to maintain consistent enrollment. This is a reality that has explained similar problems at public colleges and universities that have also been plagued with high drop out rates for non-traditional students.
Unfortunately neither regulators nor regulations targeted at for-profit educators take these dynamics into account. For-profit campuses located outside military bases or in economically depressed areas used to be beacons of hope and opportunity. Now they are turning their lights out in these communities. No one wants to see poor students burdened with debt; but “protecting” underserved communities and non-traditional students by taking away education opportunities seems skewed. Regulators would do better to establish a reasonable set of metrics and limit the number of agencies swarming for-profit college campuses.
Things look a bit bleak for the for-profit education industry: it seems like every other day a new federal or state agency is launching an investigation or proposing new regulations. The latest news is that a coalition of 32 state attorneys general, along with the Consumer Financial Protection Bureau, is expanding a probe into lending practices at for-profit colleges. This news follows pronouncements by the Securities and Exchange Commission, the Justice Department, the Federal Trade Commission and the Federal Communications Commission of stepped-up initiatives to combat alleged predatory practices by for-profit colleges. In the midst of this full frontal assault, the industry is facing a major new regulatory scheme under the Department of Education’s impending Gainful Employment rule. What the new regulatory scheme will cover and require remains to be determined, but the released drafts of the rule portend extensive record keeping and reporting requirements. With mounting investigations and regulatory scrutiny, no wonder shares in for-profit education have been on the decline: how can these companies turn a profit in the midst of all this costly government intervention?
But the CFPB and the 32-state coalition could (unwittingly) be the industry’s knights in shining armor. The enforcement agencies’ expanded probe – along with action by the SEC, DOJ, FTC and the FCC – could provide a good argument for why the Education Department’s impending Gainful Employment rule may be redundant. Since there is so much disagreement over the Gainful Employment rule, not only over the prospective text,but also over the rule’s utility in the first place,it may be time to follow the cues of some in Congress who advocate abandoning the rule when the Higher Education Act is next up for re-authorization (this year).And if Congress could be persuaded to nix the rule, educators could allocate more resources to growth that would otherwise need to be focused on compliance with complex new regulations.
This argument initially may sound like a stretch, but consider some of the following points: (1) congressional infighting about the possible effects of the rule, (2) rule making failures as interested parties cannot come together on regulatory language, and (3) current law and enforcement actions that already address the goals of the prospective rule. There are only so many ways to skin a cat, and you can only have so many cat-skinners (poor analogical cat!).
(1) Congressional Democrats are split on whether the Gainful Employment rule would protect students or negatively impact students. Thirty Democratic members of Congress recently wrote a letter to Education Secretary Arne Duncan voicing concerns over the adverse effects a Gainful Employment rule could have on students. At the same time, 31 Democratic members wrote a letter in support of the prospective rule. During the back and forth on the Democratic side, many Republicans are advocating abandoning the rule, concerned that it would ultimately hurt students.With so much uncertainty, why press forward with a rule that has been lingering in limbo for years?
(2) While Congress members deliberate the rule’s ultimate utility, the Education Department and its panel of negotiators have slogged through several sessions of a statutorily mandated negotiated rule making. They have been unable to reach any consensus on what types of metrics to incorporate into the rule, let alone what metric ranges to use. After several months, three rounds of negotiations, and three very different drafts of the prospective rule, the Education Department is no closer to final language. The third and final round of negotiations, which occurred mid-December, highlighted the extent to which opposing sides remained polarized.
(3) The Education Department has stated that its goals for the Gainful Employment rule are to:
- Define what it means for a program to prepare a student for gainful employment in a recognized occupation and construct an accountability system that distinguishes between programs that prepare students and those that do not;
- Develop measures to evaluate whether programs meet the requirement and provide the opportunity to improve program performance;
- Protect students and taxpayers by identifying GE programs with poor student outcomes and end taxpayer support of programs that do not prepare students as required; and
- Support students in deciding where to pursue education and training by increasing transparency about the costs and outcomes of GE programs.
These goals are already being addressed in current regulations and current enforcement actions. For instance, in November the FTC released marketing guidelines directed toward for-profit colleges, advising colleges against misrepresenting, for instance, their job placement and graduation rates, graduate salaries, credit transferring, etc. The announcement was accompanied by guidelines for prospective students on choosing a school. The FTC’s guidelines send a message to the for-profit education industry: ensure integrity in your marketing and advertising or face the consequences of regulatory action. A new FCC rule, which took effect last October, restricts how for-profit educators can make recruiting calls to past, current, and prospective students.The SEC and CFPB are investigating student recruitment and private lending at various for-profit colleges for possible violations of, for instance, the Dodd-Frank Act (which prohibits violations of federal consumer financial laws and unfair, deceptive or abusive acts or practices), TILA and Regulation Z. And numerous states attorneys general have been actively investigating the industry under state laws.
The expanded probe that the CFPB and state attorneys general coalition is but a continuation of the panoply of government actions and initiatives directed at the for-profit education sector. But the probe provides an excellent basis for reconsidering the necessity of the Gainful Employment rule. The for-profit industry is not shy of regulatory oversight. All the new regulation would achieve is more cost to industry and taxpayers in compliance and compliance reviews.