For-Profit Colleges

By Scott Levy

The U.S. Department of Education’s recent effort to regulate the state authorization of online for-profit colleges was unnecessary and misguided -- but not for the reasons the for-profit higher education industry has given.

Over the last half-dozen years or so, the Department of Education has distributed massive amounts of federal financial aid to online for-profit schools that were unlicensed in the states in which students were being enrolled. By doing so, the Education Department flagrantly violated the Higher Education Act, which requires schools to have a state license to participate in the federal aid programs. As a result, the Department wrongly allowed these unlicensed schools to feast on billions of dollars of Pell Grants and federally-backed student loans they received on behalf of their students.

Rather than admitting to this extraordinary mismanagement, the Education Department put into effect a “state authorization” regulation that basically reiterates what’s already in the law: that online schools must obtain a license from states in which students are being enrolled to benefit from federal financial aid. Issuing a regulation that simply repeats the existing Higher Education Act requirement is counterproductive -- as it suggests that the statute, by itself, does not already include this mandate.

The Texas Workforce Commission (TWC) on Tuesday granted the for-profit trade school chain ATI Enterprises a stay of execution. While the commission withdrew its approval for 22 programs ATI offers in Texas that substantially misrepresented their job placement numbers, it is allowing the company’s schools to continue operating in the state on a conditional basis.

The commission’s decision comes only a little more than a week after it announced its intention to revoke ATI’s license to operate in the state because it found that the company has engaged in  a systematic effort to mislead students and regulators about its record in placing graduates into jobs.

As we reported last week, the TWC threatened this action after an independent accounting firm found that 90 percent of the company’s programs in the state had “significantly overreported” their rates for the 2010 fiscal year, and that the majority of these programs had actual rates below the 60 percent threshold that TWC requires schools to meet. The firm also discovered that some of the schools’ programs had contacted fewer than 11 percent of their former students to confirm whether or not these individuals were working in a job related to their training.

Can the job placement rates that for-profit college companies report to prospective students and regulators be trusted? While this question has long dogged the sector, it has taken on a special urgency recently as reports of abuses have mounted.

Late last week, the publicly-traded for-profit higher education company Career Education Corporation alerted investors and financial analysts that it has discovered “improper practices” at “certain” of its health professional schools related to how they determine their job placement rates. Company officials did not disclose the nature of the problems, which they said they found while preparing a response to a subpoena from the New York attorney general. But the violations were serious enough to prompt the company to hire an outside law firm “to review the determination of student placements” at its more than 80 U.S campuses.

“I can assure that the independent investigation will be thorough,” Gary McCullough, the company’s president and chief executive officer told the analysts during a conference call Thursday on the corporation’s latest quarterly earnings.

The news from Career Education Corp. came just days after the Texas Workforce Commission (TWC) announced its intention to revoke the license of another for-profit school chain, ATI Enterprises, to operate in the state because it found that the company has engaged in a systematic effort to mislead students and regulators about its record in placing graduates into jobs.  [Update: On Tuesday, ATI announced that it had reached an agreement with the commission that would allow its schools to continue operating in the state with “conditional approval,” while at the same time shutting down about two dozen programs they offer.]

As we wrote yesterday, the Texas Workforce Commission (TWC) has announced that it is revoking the license of the for-profit trade school chain ATI Enterprises to operate in the state because it found that the company has engaged in a systematic effort to mislead students and regulators about its record in placing graduates into jobs.

At Higher Ed Watch, we think that the agency’s ruling should prompt the U.S. Department of Education, state regulators, and accreditors to take additional steps to safeguard students and taxpayers, and to ensure that any students who were admitted to the schools under false pretenses are not left in the lurch.

The Texas Workforce Commission (TWC) announced last week that it was revoking the license of a major for-profit school chain to operate in the state. The commission took this action against ATI Enterprises after concluding that the company had engaged in a systematic effort to mislead students and regulators about its record in placing graduates into jobs.

“Schools that misrepresent employment information about their programs potentially exploit vulnerable individuals with false hopes for job-placement after completing the program,” Tom Pauken, the commission’s chairman, said in a news release announcing the decision. “TWC’s role is to ensure that students who make a decision to attend a career school receive reliable information so they can make an educated choice.”

At Higher Ed Watch, we applaud the commission for holding the school chain accountable for allegedly cooking the books on its job placement rates. But the real credit goes to the reporters at WFAA-TV in Dallas, who uncovered the apparent scheme while conducting an investigation into the company’s practices. In fact, it’s unclear whether state regulators would have acted had it not been for the journalists' dogged reporting.

What just may have been the for-profit colleges’ last chance to save the 12 “safe harbors” that the Bush administration created in 2002 to help schools skirt a federal law banning schools from providing incentive payments to their admissions employees was dealt a fatal blow on Tuesday. The U.S. District Court for the District of Columbia upheld the Department of Education’s new regulation that puts an end to these loopholes.

The ruling by Judge Rosemary Collyer came in a lawsuit that the Association of Private Sector Colleges and Universities (APSCU)  filed in January seeking to block the Education Department from putting into effect several regulations it finalized in November that aim to prevent unscrupulous schools from taking advantage of financially needy students. In addition to the rule enforcing the federal incentive compensation ban, APSCU (which was formerly and more appropriately known as the Career College Association) also challenged rules that were designed to strengthen the role that states play in preventing fraud, waste, and abuse in the federal student aid programs and to prohibit colleges from providing misleading information to prospective students and others about their programs.

Judge Collyer awarded the career college group a partial victory. While the judge upheld the regulations dealing with incentive compensation and misrepresentation, she stuck down a key part of the new state authorization rules on technical grounds (which you can read more about here and here).

Republicans in the House of Representatives held a joint hearing on Friday to try and make their case that Congress should eliminate the Obama administration’s “job-destroying Gainful Employment regulation,” which they say unfairly targets for-profit colleges. Leading the charge was Rep. Virginia Foxx (R-NC), the chairwoman of the House education committee’s subpanel on higher education, who said that the rule “could severely limit education and job training opportunities for millions of students and inhibit local economic development in communities around the country.”

The hearing, which was jointly held by Foxx’s panel and a House Oversight and Government Reform subcommittee, received little attention from the news media (besides this Inside Higher Ed article). For-profit college officials and their allies in Congress will undoubtedly cite this as yet another of example of how the press is biased against the industry. But the reality is that journalists are simply getting tired of the fight over Gainful Employment, and do not find the Republicans' arguments against the rule to be compelling -- especially now that the administration has taken most of the teeth out of it.

By Margaret Reiter

Last October, the U.S. Department of Education issued a new rule to implement the long-standing law requiring schools to have “state authorization” to offer postsecondary education if they want to participate in federal student financial aid programs. The rule has triggered hysterical calls from non-profit colleges for Congress to rescind the regulation. At the same time, the leading for-profit college lobbying group has sued the Education Department to overturn the rule. The new regulation provides some protection to taxpayers and students, but is so weak that the schools’ vociferous reaction to it seems akin to Chicken Little’s remarks. How could such a namby-pamby rule cause such a stir?

Although the state authorization requirement has long been in the law, the Education Department never explained what constituted state authorization to offer postsecondary education. Over time, the extremely profitable for-profit schools’ massive lobbying funds persuaded states to weaken or even abandon oversight entirely or to turn over oversight to private accrediting agencies. These private accrediting agencies, directly or through their affiliates, earn their revenues from the schools they accredit, much as rating agencies that rated toxic mortgage bonds triple A earned their revenues from the banks offering the bonds. The Department’s rule would, for the first time, establish a minimal standard for what constitutes state authorization: the school must either be established by name, state charter, constitution or other state action, or if not, it must be approved or licensed by the state, and the state must have a process to handle student complaints. 

The arguments against this rule simply don’t add up. 

If you’ve followed the Senate Health, Education, Labor and Pensions (HELP) Committee investigation into the for-profit higher education industry closely, you have probably heard of Yasmine Issa, the single mother of twins who completed a training program in ultrasound technology at Career Education Corporation’s Sanford Brown University in 2008 only to find out later that the program was not accredited. Recruiters, who had stressed the school’s accreditation to Issa, apparently neglected to mention that the ultrasound program lacked the necessary specialized accreditation. As a result, Issa, who paid $32,000 for the program (including $15,000 in federal loans), wasn’t eligible to sit for the licensing exam or to find work as a sonographer.

Issa is not alone. The Senate investigation, the news media, and lawsuits against for-profit college companies suggest that her situation is more common than you would think. Recognizing the seriousness of the problem, the Department of Education took an important step last fall when it finalized regulations that aim to crack down on such abuses. Under the rules, which go into effect on Friday, schools that mislead students into signing up for programs that lack the specialized accreditation needed to get jobs could face severe penalties, including being barred from participating in the federal student aid programs.

This is a major change that, if well enforced, should go a long way in safeguarding students in the future. But this regulation is of little solace to those who have already fallen victim to such deception. These students have been left worse off than before they enrolled -- graduating with significant debt but without the credentials they need to become gainfully employed in the field for which they sought training.

Is there anything that the U.S. Department of Education can do to help these students? The answer is yes, but unfortunately the Education Department continues to act as if it was powerless to provide relief to those who have been harmed.

[Editor’s Note: In this guest post, student aid expert Sandy Baum explains why greater regulation of the for-profit college sector is warranted. The post is mostly adapted from a piece she wrote for The Chronicle of Higher Education's Innovations blog, with other parts coming from testimony she delivered earlier this month at a Senate Health, Education, Labor and Pensions Committee hearing on student indebtedness at for-profit colleges.]

By Sandy Baum

The debate about for-profit institutions and student debt is too often framed in ideological terms. Free-market conservatives tend to be on the side of the for-profits. They complain that critics are trying to prevent market forces from working and are apologists for the inefficient nonprofit sector of higher education. Politically liberal voices tend to weigh in on the other side, sometimes arguing that the intrusion of the profit motive into the education arena is incompatible with the interests of students.

The problem of student debt among students at for-profit postsecondary institutions is not a matter of free markets versus government intervention. The market for higher education does and should rely heavily on market forces. However, it is not and never will be a textbook example of competitive markets. The for-profit sector, which has the potential to make important contributions to educational opportunity in the United States, relies on the federal government for most of its revenues. In fact, very few students are actually paying with their own money to enroll in these institutions.