December 4, 2017

To Rewrite Obama Rules, DeVos Picks People Tied to Predatory Colleges

To Rewrite Obama Rules, DeVos Picks People Tied to Predatory Colleges

After Betsy DeVos announced she was dumping the Obama gainful employment and borrower defense rules — measures designed to protect students and taxpayers against predatory abuses by for-profit colleges — and was starting a new round of rule-making, there was evidence that she was stacking the deck. Her Department of Education issued completely one-sided “issue papers” around which the sessions would be framed. The Department’s chief negotiator for the meetings made a legally dubious announcement that the borrower defense discussions would start from a baseline of a 1994 law, rather than the 2016 Obama final rule. And the Department persistently refused to allow members of the public to live-stream the proceedings.

There was also the DeVos Department’s striking announcement that it would include not only the traditional two representatives of for-profit colleges to be on the panels of stakeholders charged with trying to negotiate new rules. Instead, there would be four designated representatives of for-profit colleges on each of the borrower defense and gainful employment panels.

But as the rulemaking process has unfolded in the past few weeks, it has become apparent that there are, in fact, many more than four for-profit college industry representatives around the table. Worse, some of these negotiators are associated with schools that have particularly troubling records, the kinds of schools whose predatory abuses — deceptive recruiting, high prices, low spending on education, financial recklessness, and barring of lawsuits by injured students — were imperiled by the very Obama rules that the negotiators are now empowered to throw away.

DeVos is letting the foxes draft rules for the henhouse.

Perhaps we couldn’t expect otherwise from a Secretary of Education selected by the founder of predatory Trump University.

Borrower Defense negotiators

As we reported last month during the opening sessions on the borrower defense rule, negotiators chosen by the DeVos Department include these individuals:

Linda Rawles, one of four people selected by by the DeVos Department to represent for-profit colleges on the panel, has the title “regulatory counsel” at Bridgepoint Education, a for-profit college company with a remarkably bad record of abusing students and taxpayers, and a long trail of law enforcement investigations, including a blockbuster lawsuit filed last week by California’s attorney general with detailed and startling allegations of illegal business practices. The Department didn’t note Rawles’ connection to Bridgepoint on its negotiator roster, and nor did Rawles mention it in introducing herself at the start of the rulemaking. Bridgepoint, which has a strong stake in getting rid of the Obama accountability rules, is also the company where Robert Eitel worked as chief compliance officer before he joined the Department of Education as senior advisor to DeVos. [Update 12-07-19: Rawles has now changed her Bridgepoint title on LinkedIn to read “Outside Regulatory Counsel.”]

Aaron Lacey, a negotiator chose by the Department to represent “General counsels/attorneys and compliance officers” is a partner with the law firm Thompson Coburn, which represents the collapsed, disgraced ITT Tech for-profit college chain and lobbies for giant for-profit Adtalem (DeVry); both companies have faced multiple federal and state law enforcement investigations. Lacey previously was senior vice president of regulatory affairs and strategic development at Vatterott College, another for-profit college with a disturbing record and legal violations.

Bryan Black, the other legal compliance lawyer picked, has in fact mostly worked as a personal injury lawyer. Although the DeVos Department did not disclose it on its negotiator roster, Black, as he noted in introducing himself at the first rulemaking session, is the owner of four Paul Mitchell for-profit beauty schools.

But there are several others on the borrower defense panel with ties to for-profit schools. They include:

Greg Jones was chosen by the DeVos Department as one of two negotiators to represent all of the private non-profit colleges in the United States. Jones is president of the non-profit Compass Rose Foundation. Compass Rose operates career colleges in Florida — Sunstate Academy and Jones Technical Institute.

According to an IRS filing, Compass Rose in 2015 paid Greg Jones $247,474, paid his father Donald Jones, the foundation’s CEO, $280,577, and paid Donald’s wife Sharon Jones, the treasurer, $174,092. But those hefty non-profit salaries for the Joneses may not reflect the full measure of their incomes over the years. A complaint filed with the IRS alleged that a deal by Compass Rose to sell Southwest Florida College in 2009 to the firm AEA Investors, which has since merged the school into for-profit Southern Technical College, gave the Joneses millions of dollars in consulting fees and for a non-compete agreement. The IRS rejected the complaint without providing a reason. In an email to me, Greg Jones said that the complaint to the IRS “was a baseless claim.”

(AEA Investors operates the former Compass Rose schools through its subsidiary Sextant Education Corp. According to the Washington Post, Betsy DeVos is or was invested in a trust that “has an indirect financial stake” in Sextant / AEA. An AEA Partner, John Cozzi, was, for more than a decade, a board member at predatory ITT Tech.)

In 2007, while Compass Rose owned Southwest Florida College, the foundation entered into a settlement agreement with the U.S. Department of Education to resolve liabilities from a Department program review. Compass Rose was required to pay the Department $567,723 and to repurchase federal loans totaling $608,400. According to a former Southwest employee, the school’s financial aid office was improperly signing loan documents on behalf of students. Greg Jones said by email, “The discrepancy was discovered by our non-profit administration and was immediately self-reported to the United States Department of Education and the Inspector General’s Office.”

Greg Jones spoke on a panel addressing the Obama regulations at the 2016 annual meeting of the for-profit colleges’ main trade association, CECU (formerly APSCU), a group that has relentlessly sought to block the Obama rules and previously included as members some of the most notoriously bad companies in the industry, such as Corinthian Colleges, EDMC, ITT Tech, Kaplan, Career Education Corporation, DeVry, Bridgepoint, ATI, and FastTrain. CECU uses Trump sycophant and former House Speaker Newt Gingrich to advocate against accountability measures. Also speaking at the same CECU meeting, on a panel addressing the gainful employment rule: fellow negotiator Aaron Lacey. (The other negotiator chosen by the DeVos Department to represent non-profit colleges on borrower defense is Ashley Ann Reich, an official from Liberty University, whose president, Jerry Falwell, has publicly opposed the Obama rules.)

Michale McComis, executive director of ACCSC, is the main negotiator selected by the Department to represent accrediting agencies. As of last year, 343 of the 390 institutions accredited by ACICS were for-profits, and some are former for-profit Corinthian/Everest campuses subsequently run by non-profit debt collector ECMC. After the Obama Department of Education last year determined that the notoriously lax accreditor ACICS no longer merited the federal recognition required to make schools eligible for federal student aid, ACCSC became the national accreditor of choice for for-profit schools.

— Chris DeLuca, one of the negotiators formally representing for-profit colleges, was for nine years the chief financial officer and in-house lawyer for a company that owns a chain of for-profit cosmetology schools. DeLuca, like Aaron Lacey and Greg Jones, spoke on a panel — his covering the borrower defense rule — at the 2016 CECU convention.

Gainful Employment negotiators

The second set of negotiations, this time on gainful employment, started this morning, and again there are extra negotiators with ties to the for-profit college industry, some quite troubling:

Sandy Sarge, a negotiator selected to represent chief financial officers and business officers, worked, according to her bio, from 2007 to 2012 at Alta Colleges, the company that ran for-profit Westwood College. Sarge started at Alta as Divisional CFO for Westwood and says “her principle supervisor was the President of Westwood Colleges.” Later she became Senior Vice President – Operational Finance for Alta, overseeing Westwood and the company’s other schools.

Although I’m not aware of any evidence tying Sarge to misconduct at Alta, the company had a disgraceful record during her tenure there:

In 2009, Alta agreed to pay the U.S. government $7 million to resolve allegations that the company’s schools in Texas submitted false claims for federal student grants and loans; the Justice Department alleged that Alta’s Texas colleges obtained its required state licenses by misrepresenting to the state that they complied with job placement reporting requirements and that their interior design programs complied with requirements for a professional license.

In 2012, Westwood paid $4.5 million to settle claims by Colorado’s attorney general that it had engaged in deceptive business practices — misleading prospective students, engaging in deceptive advertising, and failing to comply with Colorado’s consumer lending laws.

In 2014, Illinois Attorney General Lisa Madigan sued Westwood, alleging that the school, starting in 2004, “engaged and continue to engage in deceptive, unfair, and abusive practices in the marketing and selling of their Criminal Justice program. By misrepresentation and omission of material fact, Defendants misled and continue to mislead students about nearly every important aspect of the career-focused degree in Criminal Justice – from the financing and cost of the program to the likelihood of a positive employment outcome after the student departs the school.”

Attorney General Madigan’s complaint included devastating allegations of wrongdoing with respect to Westwood’s criminal justice program, which was pitched to low-income students in Illinois and cost more than $75,000:

In the course of marketing the Criminal Justice program to Illinois consumers, Defendants touted future careers in law enforcement – as police, sheriff officers, and FBI agents – and corrections. In reality, only 3.8% of graduates were employed as sworn law enforcement officers or correctional officers. The two most common jobs for graduates of Defendants’ Criminal Justice program were security guard (18%) and retail (8.9%) – positions which typically require only a high school diploma or equivalency degree. Remarkably, graduates of Defendants’ Criminal Justice program have had a median starting salary below the median salary of a 25-year old with a high school diploma. Not surprisingly, Defendants do not promote these poor outcomes for graduates. Instead, Defendants have misrepresented and omitted key and material information from prospective and enrolled students.

And this cruel trick:

In one recorded phone call with a prospective student, an admissions representative told the prospective student that only a very small portion of interested students will be recommended for admission, giving rise to cause for celebration among Westwood employees: “You know, I want you to know that on a day-to-day basis, we probably interview maybe 50 to 60 students. And out of those 50 to 60 students, we probably are able to, you know, on a good day recommend five to six. And you heard the celebration — you heard the celebration of everybody, you know, when we were able to recommend a student.” In reality, there is no required or formal recommendation process. According to a senior Alta Colleges, Inc., employee, each student determines whether he or she has met the admission requirements by showing proof of high school graduation or equivalency, and then either meeting the requirements of the placement test or submitting prior examination results.

Westwood settled the Illinois case in 2015 for $15 million. A few months later, the school shut down. Alta Colleges, owned by the Boston private equity firm Housatonic Partners, was getting as much as $338 million a year — more than a third of a billion dollars — from U.S. taxpayers.

Stephen Chema, representing “general counsels/attorneys and compliance officers” on the gainful employment panel, is an attorney with Ritzert & Leyton. Peter Leyton of that firm has long advised for-profit colleges and for more than a decade served on the board of their troubling trade association CECU. At a 2014 APSCU conference, Leyton presented a 124-page Powerpoint analyzing the gainful employment rule and dismissing lawsuits and law enforcement actions against the industry as the product of “[s]tudent and disgruntled former employee complaints” and “plaintiff’s attorney ‘trolling.’” Leyton, like borrower defense negotiators Lacey, Jones, and DeLuca, spoke on the Obama rules at the 2016 meeting of the anti-accountability CECU group.

Jeff Arthur, one of the negotiators representing for-profit colleges, is vice president of regulatory affairs & chief information Officer at ECPI University. In December 2015, the Virginia Department of Veterans Services withdrew its approval for a campus of Medical Careers Institute, part of for-profit ECPI, to receive GI Bill education funding, because it found the school had engaged in a series of deceptive practices, including introducing a new testing requirement for nursing students without notifying the students of the impact on graduation if they failed to pass; withholding student transcripts against the published school policy; and “an overall lack of clarity and consistency in communicating school policies and changes.”

In the current round of rulemaking meetings, as well as during such sessions in the last years of the Obama administration, for-profit college representatives have complained to the Department that their industry was being portrayed as villainous. In response, Department representatives and hired meeting facilitators have asked advocates for students on the panel not to heavily criticize the industry or to name particular schools or companies. But now that the DeVos Department has disgracefully stacked the negotiator deck with people tied to some of the worst abusers in the for-profit college industry — like Bridgepoint, ITT Tech, Westwood, Vatterott, and CECU — negotiators, as well as the public, need to speak up.

Bonus negotiator fact:

John Ellis of the Texas attorney general’s office, representing state AGs on the borrower defense panel, was briefly famous as “corner guy” when he worked in Washington for Senator Ted Cruz (R-TX).

This article also appears on HuffPost.