Corinthian Colleges fared the worst in new data from the US Dept. of Education. Its CEO, Jack Massimino, was paid $3.4 million in 2011.

On Tuesday, the federal government released information about which career training programs and for-profit colleges are passing — and which are flunking — its new “gainful employment” rule.  The Obama Administration watered down this regulation last year after a massive lobbying campaign by the for-profit college industry, and the rule imposes only the most minimal standards.  In order to lose eligibility for federal student financial aid, a program must flunk three different tests, so that, for three years in a row:

  • 66 percent of the program’s former students are not repaying their loans.
  • The estimated annual loan payment of a typical graduate is more than 12 percent of his or her total earnings.
  • The estimated annual loan payment of a typical graduate is more than 30 percent of his or her discretionary income.

Look at just that first test. Consider an educational program where two-thirds of former students — graduates and dropouts — can’t pay back their loans. That suggests that the program isn’t providing sufficient training to help students build careers. It suggests that the program’s tuition is too high. It suggests that many students — often veterans, people of color, parents struggling to support their families — are left worse off than when they started.  And it means that taxpayers who pay for federal student grants and defaulted student loans are often left with nothing for the investment.

Why in the world should a program that flunks that test, and related tests, three years in a row, keep getting federal financial aid?  Wouldn’t it be much smarter to channel federal aid to programs that are actually helping students get jobs? Who would be against such a common sense provision?

You know who. The people who own the high-priced for-profit colleges that would be in danger of flunking that test and losing access to the $32 billion a year in federal financial aid that goes to for-profit institutions. Led by their trade association, APSCU, big corporations that own for-profit colleges continue to denounce the gainful employment rule and are suing in federal court to overturn it.

Now we know that the fears of these failing schools were well-founded. This year’s tests were like a pre-season trial run that doesn’t count in the final statistics — no one will officially flunk out until 2015. But the results show that, of the programs tested, five percent — 193 programs in 93 different schools — failed all three tests.  29 percent flunked two out of three, 31 percent failed one out of three, and only 35 percent of the programs tested met all three of these minimal standards.

All of the programs that flunked all three tests are at for-profit colleges. The schools with at least one program that failed all three tests include:

  • Full Sail University, praised on the campaign trail by Mitt Romney for its use of innovative strategies to “hold down the cost of their education,” when it turns out that Full Sail is the third most expensive college in America.  It also turns out that top executives at Full Sail and its part owner, private equity firm TA Associates, are among the top donors to Romney’s campaign and Super PAC, and that an investment firm started by Romney and his son has a business relationship with TA.  TA also owns Vatterott College, home of high-pressure marketing tactics and high student complaint levels. Eight of Vatterott’s 39 programs failed all three tests.
  • Kaplan College and Kaplan Career Institute, owned by the Washington Post Company. Kaplan is under investigation by at least four state Attorneys General. 68 percent of its college students drop out before graduating.
  • The Art Institutes, part of Education Management Corporation, which the U.S. Justice Department and half a dozen states have sued for fraud, alleging the company paid its recruiters based on the number of students signed up, in violation of federal rules. (EDMC denies these claims. It also said Tuesday that there were errors in the new Education Department data.)
  • Sanford–Brown, a division of the Career Education Corporation, where 11 of 44 programs failed all three tests, and Westwood College, where 16 of 45 programs flunked.
  • Everest College and Universities, part of Corinthian Colleges, Inc., which performed the worst — 43 out of 143 programs failed each of the three tests.  Corinthian is under investigation by at least six state Attorneys General. Sixty-six percent of its associate degree students drop out, and 36 percent of students default on their loans within three years – the highest default rate of all publicly traded for-profit education companies.

These schools can keep hiring lobbyists, lawyers, and PR firms to fight against reasonable accountability standards. But truth — and fiscal pressures — are a strong weapon against a strategy of continuing to rip off students and taxpayers.  Smarter executives will start looking for ways to compete and succeed in for-profit education by actually doing a good job of preparing students for careers.

UPDATE: The Department of Education this evening released a Webinar discussing the gainful employment data.  Among the points to consider: 1500 of the 3700 programs that were evaluated flunked the loan repayment test described above, meaning that at least two-thirds of the former students were not paying down their loans.

 

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