December 16, 2013

Corruption Threatens Obama Action on For-Profit Colleges


In the past five years Americans have become increasingly aware that many for-profit colleges — the career training schools that advertise all over TV, the Internet, and city buses — are engaged in systematic fraud. These schools have been caught luring students with false promises about the cost of programs and the value of degrees — and then leaving them unemployed and deep in debt. Unfortunately, it’s now possible that a cycle of corruption built into our political system may allow these institutions to keep abusing students for another generation.

For-profit colleges today have 13 percent of all college students — but 47 percent of student loan defaults. The real cost to a student of a year at one of the major for-profit schools can be almost twice as much as attending Harvard, yet many for-profit college graduates, aiming for careers in health care and high-tech, struggle to find jobs beyond the Office Depot positions they could have obtained without a degree. The people whose financial futures are ruined by predatory for-profit schools are veterans, single mothers, immigrants, and others struggling to build better lives.

One person who clearly understands the problem is President Obama. Speaking at Fort Stewart, Georgia, last year, the President described vividly the coercive and deceptive recruiting tactics that for-profit colleges use. Their recruiters, he told the soldiers, “don’t care about you; they care about the cash.” One of them, the President said, “had the nerve to visit a barracks at Camp Lejeune and enroll Marines with brain injuries — just for the money. These Marines had injuries so severe some of them couldn’t recall what courses the recruiter had signed them up for. That’s appalling. That’s disgraceful. It should never happen in America.” He said such schools were “trying to swindle and hoodwink” servicemembers, and he promised to put an end to it. Answering students’ questions earlier this year, the President returned to these themes, warning that some for-profit colleges were failing to provide the training and certification that students thought they would get when they enrolled. In the end, he said, the students “can’t find a job. They default…. Their credit is ruined, and the for-profit institution is making out like a bandit.”

Yet despite President Obama’s obvious awareness of the egregious, widespread nature of the problem, his own team may be on the verge of failing to effectively implement a key measure needed to hold for-profit colleges accountable for such abuses.

Since 2009 the Obama Administration has been seeking to issue a rule that would implement a requirement written into law that federal money go only to those career education programs that actually prepare students for “gainful employment.”  The Administration devised a formula that penalized, and ultimately removed federal funding from, programs whose students were consistently unable to pay down their loans because their earnings were too little. But the rule that the Administration actually issued in 2011 ended up heavily watered down, after pressure from powerful industry owners and lobbyists, including former Obama advisers retained to influence the White House. Not satisfied with gutting the rule, the for-profit colleges hired Washington’s most expensive lawyers, who managed to get the rule thrown out by a federal judge on the ground that the Administration had failed to adequately explain its reasoning for one of the provisions.

So the Department of Education launched a new round of rule-making this fall, and initially offered drafts that got tougher on bad actors in the industry. But then, last week, on the eve of final stakeholder talks on the rule, the Administration again shifted to a much weaker gainful employment rule.  At the session, a negotiator representing for-profit colleges, while declining to endorse the draft, said he was “pleased” with the direction the Department had taken.

Under this current draft of the gainful employment rule, only 13 percent of current career education programs would be at any risk of losing eligibility for federal aid, and no school would face penalties until 2018. That’s far too lenient. There are some fine programs in the for-profit education sector. But far more than 13 percent of current programs are bad for students and are unworthy of taxpayer support. The major for-profit college companies — including Apollo (University of Phoenix), Education Management Corp. (The Art Institutes, Brown Mackie), Kaplan, ITT Tech, Career Education Corp. (Sanford-Brown, Brooks, Cordon Bleu), and Corinthian Colleges (Everest, Heald, Wyotech) — disserve and abuse a significant percentage of their students. They cannot expect a permanent entitlement to federal money, without regard to how they perform. Precious federal education dollars must go only to those programs that truly help students. We need a stronger rule that would force predatory institutions to reform, or else stop taking our tax money.

There was some talk in the rule-making sessions that the Administration needed to be careful to come up with a rule that the federal court wouldn’t throw out again. But nothing in the judge’s decision demanded a weak rule. Instead, the problem may be coming from another branch of government — Congress.

For-profit colleges absorb about a quarter of all federal student aid — some $33 billion in taxpayer dollars every year. Many of these institutions, including most of the biggest ones, get close to 90 percent of their revenue from taxpayer money. Their dependence on federal cash motivates them to devote a significant chunk of their earnings, in turn, to lobbying and providing campaign contributions to members of Congress, in order to keep that money flowing.

This cash support has helped give for-profit colleges a firm lock on congressional Republicans. The industry’s biggest cheerleaders in the House are the two Republican members who oversee education policy — Reps. John Kline (MN) and Virginia Foxx (NC) — and each is rewarded handsomely by for-profit college donors. Kline raised $138,350 in the second quarter of 2013 from the for-profit college industry — almost 25 percent of the money he raised in that period. Two of Foxx’s three top donors in the last election cycle were the political action committee of APSCU, the for-profit colleges trade association, and Bridgepoint Education, which Senator Tom Harkin (D-IA) has called “a scam.”  In her first year as chair of the House subcommittee addressing higher education, Foxx received at least $48,668 from people or PACs associated with for-profit colleges.

But for-profit college campaign cash also gets the attention of House Democrats.

Aggressive for-profit college owners like Avy SteinArthur BenjaminJeffrey LeedsArt Keiser, Ernesto Perez, and the University of Phoenix’s John Sperling have been major donors to Democrats, and that clearly increases the industry’s leverage on Hill Democrats. Their power is even stronger at the local level, in Florida, Minnesota, and other states where for-profits have a big presence. As a number of congressional staffers tell me, many Members of Congress find that for-profit college owners are among their most loyal, active donors and organizers of fundraising efforts.

This relationship may well explain why some House Democrats, around 20 of them, have agreed on several occasions to oppose gainful employment and other Obama initiatives to hold for-profit colleges accountable. The leaders of this small group of Democrats working to undermine Obama policies are Representative Alcee Hastings (FL) and Rob Andrews (NJ). Each has been a steady recipient of for-profit college money, Hastings at least $54,500 since 2009, and Andrews at least $78,547.

Even worse, other key Members of Congress, while not publicly asking the administration to change course, may be quietly urging the White House not to go too far.

The cause of holding for-profit colleges accountable has some great champions on the Hill, including Representatives Elijah Cummings, Keith Ellison, and Maxine Waters, and Senators Dick Durbin and Harkin. But pressure from other members, doing the bidding of their for-profit college donors, may have a bigger impact.

There’s a word for this state of affairs — corruption.

There doesn’t have to be an explicit quid pro quo. The recipients of the money support the interests of the donors; it’s understood. Why else would free market, small-government Republicans oppose efforts to hold companies receiving federal billions accountable for waste, fraud, and abuse?  Why else would Democrats oppose protecting hard-working low-income Americans from frauds committed by predatory corporations?

And it is a perpetual cycle of corruption, systemic corruption, because it’s federal money that allows for-profit colleges to buy federal influence.  We’ve created a monster.

Gainful employment isn’t the only means of curbing predatory for-profit colleges.  A range of federal enforcement agencies, from the FTC to the SEC, the Justice Department to the new CFPB, have now awoken to the threat and are investigating and issuing warnings to the industry, as are a bipartisan group of 32 state attorneys general. All of this activity is far less immune to congressional interference. But a strong gainful employment rule is a critical tool in the struggle to curb abuses. The Department of Education and the White House should not issue a rule that effectively condones conduct that has already been labelled fraud by federal investigators and state prosecutors across the country.

As a new president, Obama pledged to take on the special interests and make Washington work for people. He also has launched initiatives to ensure that more Americans can successfully train, at prices they can afford, for real careers that support their families. These Obama goals will be undermined severely, hundreds of billions more will be wasted, and the lives of countless more students will be ruined, if this Administration caves on gainful employment. The President needs to tell anyone on Capitol Hill, any party donors, any lobbyist friends who complain — too bad.  His motives are right, and theirs are dead wrong. The President needs to stand up for students, and act decisively, right now.

This article also appears on Huffington Post