June 21, 2012

Why Are a Former President of the MacArthur Foundation, and Former Governors Kean and Rendell, Paid By a For-Profit College Group?

Why would a leader with a good reputation affiliate himself with an industry that has a bad reputation?  If you’ve visited this website before, you might suspect that money is involved. And you’d be right.

On May 29, the New York Times published an editorial calling for government action to address spiraling college debt. The Times editorial noted that, with respect to one type of school, for-profit colleges, “a staggering 54 percent of those who had borrowed to pursue a bachelor’s degree had dropped out” and that dropouts from such schools were more likely to be jobless.

A few days later, the Times published a letter to the editor from one Jonathan Fanton, who proposed an alternative to government regulation.”Recently,” Fanton informed readers, “a group of career colleges signed on to Standards of Responsible Conduct and Transparency, which establish greater disclosure and transparency to support students’ needs.” Fanton’s letter urged all colleges to “follow the example” of these standards. “If they do,” Fanton concluded, “then the ‘heavy debt, no degree’ problem will be sharply reduced.”  Last fall, the Times had published another letter from Fanton, this one praising online education, which he said had been pioneered by “career colleges,” which is what for-profit colleges like to call themselves.

Who is Jonathan Fanton, and why is he endorsing the work of for-profit colleges? Fanton was identified in the Times as a member of the board of advisers at the Foundation for Educational Success and a visiting fellow at Hunter College.  The Foundation for Educational Success is a nonprofit organization affiliated with the Coalition for Educational Success, a trade group started by for-profit colleges. But, as the Coalition for Educational Success has noted in several press releases, Fanton has much more on his resume. He is a widely respected leader in the fields of education, advocacy, and philanthropy. Fanton was for a decade the President of one of the nation’s most prominent foundations, the MacArthur Foundation, and before that was for seventeen years the president of The New School for Social Research. He is a past chair of Human Rights Watch and sits on the board of numerous other organizations.

The reputation of the for-profit college industry is not so sterling. Repeated investigations by government and the media have documented deceptive and coercive marketing and recruiting practices by many businesses in this industry, along with a toxic mix of high prices and weak programs that often leave students — including veterans, people of color, and low-income Americans — with no jobs and overwhelming debt. This industry gets most of its revenue – over 90 percent of income for some schools – from $32 billion a year in federal student aid, i.e. your tax dollars. The sector now has about 11 percent of U.S. college students, but 25 percent of federal financial aid and about 45 percent of student loan defaults. The industry grew enormously during the George W. Bush years, but it was a decade of waste, fraud, and abuse.

Among the questionable actors in this industry are members of the Coalition for Educational Success, including:

ATI Career Training Centerpunished for fraudulent reporting to authorities by Texas, Florida, Arizona, and New Mexico after a series of investigative reports.

ITT Technical Institute, whose training documents included a “Pain Funnel” instructing recruiters to “poke the pain” of prospective students to manipulate them into enrolling.

–Education Management Corp. (EDMC), owner of the Art Institutes and others, 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.)

When the Obama Administration pursued rules that sought to channel federal aid away from sham programs and toward those actually helping students, the industry resisted fiercely, with millions spent on lobbying, advertising, and campaign contributions to many Republicans and Democrats on Capitol Hill.

The for-profit colleges also have invested heavily in liberal validators. To advance their interests in Washington, they’ve hired former Democratic congressman Dick Gephardt and Bill Gray, former Obama communications director Anita Dunn, superlobbyists and Democratic fundraisers Tony and Heather Podesta, and many more.

The Coalition for Educational Success has recruited a number of eminent people, again with an emphasis on Democrats and liberals. The actual founders of CES are private equity executives: Lincoln Frank and Avy Stein. Frank is managing partner of Quad Partners, which invests in for-profit education businesses. Stein is chairman of the board of Education Corporation of America, which operates the for-profit schools Virginia College, Ecotech Institute, and the Golf Academy of America. But the group’s original public face was former Bill Clinton lawyer Lanny Davis, who is known for representing a range of controversial business and foreign clients, but always asserts his credentials as a “liberal Democrat.” In defense of the subprime college industry, Davis combined labored arguments against the gainful employment rule with baseless attacks on the ethics of Department of Education officials. Davis eventually was eclipsed as CES spokesperson by Penny Lee, a former aide to Senate Democratic leader Harry Reid who regularly appears on cable news shows as a “Democratic strategist.”

With these Democratic validators at the helm, CES took an even more aggressive stance than the larger for-profit college trade association, APSCU. CES pushed extra hard to undermine the Obama Administration’s “gainful employment” rule, which was aimed at cutting off federal financial aid to career education programs that consistently left students deep in debt. During the fight, according to Senator Tom Harkin (D-IA), he and Stein, by the Senate dining room, got into a heated discussion during which Stein promised to “make life rough for me” if Harkin didn’t back down. “I took it as a threat — it was one of the most blatant comments ever made to me in my years in the Senate,” Harkin told the New York Times. Stein, who had bought lunch with Harkin in a charity auction, denied threatening the senator.

The lobbying fight ended with the Obama Administration agreeing to water down and delay its proposed rule — a victory for the industry, which celebrated by advancing lawsuits to strike down even the diluted rule and other reforms. With a legislative stalemate on these issues now and new leadership at APSCU, CES has announced it will cut back on lobbying — and focus instead on the code of conduct touted by Jonathan Fanton.

So back to Jonathan Fanton and that code of conduct. Fanton serves on the board of advisers of the Foundation for Educational Success with four other impressive people: former Pennsylvania Governor Edward Rendell (D), for whom Penny Lee once worked, former New Jersey Governor Thomas Kean (R), Harvard professor of education Sara Lawrence-Lightfoot, and Elizabeth Morgan of the non-profit group America’s Promise. The group’s first project is the code of conduct — first to create it, and now to implement it. But this project — purportedly an attempt to raise the quality and ethical standards for career colleges — has been beset by some of the same shortcomings that have characterized the industry generally.

Press releases from the Coalition for Educational Success have touted the impressive credentials of the committee members without mentioning a key fact: Kean is a partner at Lincoln Frank’s Quad Partners firm, which invests in for-profit colleges. Kean and Rendell wrote an article in Politico that again trumpeted all these credentials — again without mentioning Kean’s role with Quad Partners — and left the impression that the panel and its standards-setting project is an independent effort, rather than an industry effort.

Notably, this piece by advisory board members Kean and Rendell echoed CES in criticizing the Obama Administration’s proposed gainful employment rule. The article asserted, falsely, that “almost every interested party ‘agrees’ that, for one reason or another, the department’s gainful employment rule misses the mark.” In fact, many interested parties supported the rule, including 47 organizations, from the NAACP to the AFL-CIO to Consumers Union, who a few months earlier had written to President Obama urging him to finalize it promptly. (Disclosure: I was at the time the director of Campus Progress, and I helped draft and organize that letter.)

The CES self-policing standards, released last September, focus on requiring schools to give students information about costs, graduation rates, and job placement, but while there will be a process to verify that schools are providing information, there’s no effort to verify that the information provided is accurate, even though investigations have documented that many for-profit colleges often provide false information.

CES managing director Penny Lee told me this week that the process is leading some schools to review their internal controls. But many of the standards in this voluntary code in fact already are required by federal law. And while the code does include a significant new obligation — a 21-day trial period with a money-back guarantee — that pledge won’t do much to help many students, such as those attending a Kaplan College dental assistant program in North Carolina that shut down after students found out too late that school officials lied to them about the credentials the program would provide. (Kaplan, which is wholly owned by the Washington Post Company, says that after it was caught it paid refunds to about 200 students. But it couldn’t give them back their time.)

The public won’t ever see the reports on schools’ compliance with the CES code —  they will be reviewed by the advisory board and by Patrick Lynch, former Attorney General of Rhode Island, paid by CES as its compliance advisor. The public won’t know how strong a school’s compliance record is — it’s strictly a pass / fail deal. All the public will know is that the schools who have pledged to adhere to the code but then flunk won’t be listed on the website of adherents — and that’s the sole penalty for noncompliance, Lee acknowledges.  The schools were given a year to get in compliance; audits are scheduled to begin in October.

Despite the weaknesses of the standards, some of the Coalition for Educational Success members, including major companies ATI and ITT, have not signed on to adhere to them, while Kaplan and Career Education Corporation, a couple of big players who were not part of CES, at least when its membership was still posted online, did agree to adhere. Lee says that the schools that have pledged to adhere account for 17 percent of all for-profit college students. But no new schools have joined since the code was announced last September.

In an extensive discussion this week, Jonathan Fanton explained to me his motivation for serving on this body convened by for for-profit colleges: “I favor reform in higher education. I want to see the career college sector adhere to high standards and do a good job.” He said that he believed that CES founders Avy Stein and Lincoln Frank “are sincere in wanting to improve the performance of the sector.” If it is implemented appropriately, Fanton said, the code “will improve overall performance.” He said he would act “in good faith” and “be very vigilant in reviewing the audits and the findings.”

But there is one more aspect of the relationship: Lee confirmed that Fanton and other advisory board members are paid by the Coalition for Educational Success — paid by for-profit colleges — as consultants. Their work as advisory board members evaluating compliance with the Foundation for Educational Success code of conduct is on a volunteer basis, however, she stressed. Fanton said he was okay with disclosing how much he was paid if that was okay with Lee, but it wasn’t — she declined to tell me.

Certainly, people are entitled to be paid for their work. And I can tell you that both Fanton and Lee sounded sincere to me in their interest in seeing their client schools act ethically and deliver quality educations. But that earnestness must be considered against the high level of cynicism apparent in various aspects of this industry. Several paid advocates for for-profit schools, speaking to me in social settings or contexts unrelated to this issue, have confessed that they believe they are working on the wrong side, from an educational, fiscal, and moral perspective.  I’ve spent time with former staff members of these institutions, like Rashidah Smallwood, who tells in the video above about rampant fraud at ITT Tech, a CES member. I’ve seen the ways, described above, that CES has packaged its validators in ways that conceal their financial connections to the industry, and I’ve seen CES’s Lanny Davis level baseless attacks on the integrity of proponents of reform.

More than 20 state attorneys general are now jointly investigating the for-profit college industry for fraud, and 21 of them recently called on Congress to close a loophole that they said encourages for-profit colleges to use “high-pressure recruiting tactics” on military servicemembers and veterans. President Obama recently called this conduct by for-profit schools “disgraceful.” But when the President issued an executive order aiming to protect troops and veterans from such predatory practices, the for-profit college trade group APSCU called it a “deeply unfortunate development.” CES founder Avy Stein sits on APSCU’s board.

I would like to see the for-profit college sector reform, so that more students would have the opportunity to receive quality, fair-priced educations that train them for careers. But absent tougher standards, greater disclosure, and willingness by industry to accept common sense government rules, the CES advisory board and code look like another pretty fig leaf masking some troublesome business.