February 5, 2018

DeVos And The For-Profit Colleges’ Self-Destruct Strategy

DeVos And The For-Profit Colleges' Self-Destruct Strategy

For-profit colleges have a decision to make. The Betsy DeVos Department of Education has now formally proposed to almost completely dismantle the rules issued by the Obama administration to protect students and taxpayers against predatory college behavior — deceptive marketing and recruiting, sky-high prices, poor education quality, financial aid abuses. If the for-profit schools endorse these DeVos anti-reforms, as opposed to urging the Department to retain the reasonable Obama rules, and the Department proceeds, it will do immense harm to students, taxpayers, and the integrity of the Department and its student aid programs. But it might also, eventually, destroy the troubled for-profit college industry once and for all, taking down the good actors in order to enable, for now, the abusive behavior of the bad ones.

Judging by the history of this industry’s public policy stances, going back decades and continuing to the present, it seems likely that the industry is headed precisely on such a course of potential self-destruction. It remains mystifying why honest schools continue to shill for crooked ones. But, it seems, here we go.

At the end of the Obama administration, in the face of overwhelming evidence that for-profit colleges receiving billions in taxpayer dollars had deceived, abused, and ruined the lives of countless students, the U.S. Department of Education put aside its long-standing practice of deferring to the arguments of lobbyists for colleges, and at last imposed serious reforms.

The Department issued the gainful employment rule, which would cut off taxpayer funds to over-priced career education programs that consistently left graduates with debt they could not afford to repay. It issued the borrower defense rule, which created a process to allow students abused by Department-approved schools to have their federal loans cancelled, and prohibited schools taking federal dollars from barring lawsuits by their students.

Neither rule was strong enough to deter all the bad behavior in the for-profit college industry, but they had the potential to curb some of the worst actors — especially when combined with other reform measures.

And the Department rolled out such additional measures, in decisive fashion. The Department rejected the bogus conversion of a predatory for-profit college chain to preferential non-profit status, concluding that the maneuver benefitted only the wealthy for-profit owner, Carl Barney. The Department ended recognition of the discredited accreditor ACICS, which looked the other way while predatory schools it had approved — including Everest (Corinthian), ITT, Kaplan, the Art Institutes (EDMC), Sanford Brown (Career Education Corporation), Westwood (Alta), Globe, FastTrain, and Daymar — all engaged in deceptive and abusive behavior.

Finally, the Department dramatically strengthened its capacity to enforce the rules, and brought a range of actions against bad actors, in parallel with other federal agencies, including the FTC, CFPB, SEC, VA, Defense Department, and Justice Department, which all also stepped up.

Then, in November 2016, the head of for-profit Trump University was elected President of the United States. Donald Trump settled the fraud claims against his deceptive, unlicensed real estate school for $25 million. Then he hired Betsy DeVos, whose numerous investments have included holdings in for-profit education companies, to be the next U.S. Secretary of Education.

DeVos is now in the process of reversing every single one of the reforms undertaken to protect students and taxpayers from predatory for-profit schools.

After staffing her team with former for-profit college officials, DeVos gutted her Department’s enforcement unit, and ended cooperation agreements with other agencies on protecting students. The DeVos Department is considering reinstatement of ACICS, sending a signal to other accreditors that it’s okay to let up on accountability measures. The DeVos Department also appears ready to reverse the prior decision on Carl Barney’s troubling non-profit conversion, after already approving equally dubious deals to convert predatory Kaplan and EDMC schools.

And, in the midst of ongoing meetings required to repeal and replace the Obama gainful employment and borrower defense rules, the DeVos Department has unveiled proposals that would totally gut both rules. Under drafts submitted by the DeVos Department, the gainful employment rule would be stripped of all penalties, no matter how badly a school abused students, and even the remaining requirements that schools inform students of failings would be weakened.

Meanwhile, the DeVos version of the borrower defense rule would impose on low-income students seeking debt relief as high a burden of proof as ever has been required of a party contesting an issue against the government. And, under the new DeVos rule, for-profit schools would be free to continue their oppressive policy of forced arbitration — denying aggrieved students the right to sue them in court — a predatory practice in which no legitimate public or non-profit college engages.

In last month’s installment of the rule-making meetings on borrower defense, for-profit college industry representatives around the table aggressively defended the extremist positions staked out by the DeVos Department. Led by lawyers who have worked for some of the worst-behaving businesses in the industry, including Bridgepoint and Vatterott, the for-profit contingent gave no ground at all, even when another of the negotiators at the table, Michale McComis, the head of the largest accrediting agency of for-profit colleges, ACCSC, candidly stated that the Department rule, combining multiple barriers to loan cancellation “feels a little stacked against the student,” like “belts and suspenders on pants that are too tight.” McComis added, “I find it just not reasonable that a student would be able to achieve anything… If that’s the intent, I’m not sure why we’re here.”

The for-profit lobbyists chewed up hour after hour of meeting time claiming that the problem was not dishonest schools, but hustler students who would fake false claims in order to get out of paying their student loans. The billionaire heiress DeVos has echoed these phony concerns, claiming falsely, and snidely, in speeches to conservative audiences that the Obama rule offered “free money” to any student “who simply claimed their school had defrauded them.”

John Kamin of the American Legion, one of the negotiators representing veterans on the parallel gainful employment rule panel, told the borrower defense meeting that the new DeVos barriers to debt relief were “completely unacceptable.” He dismissed the for-profit college panelists’ “talk about crooked students gaming honest schools” as “at best theoretically speculative, at worse blatant obstruction.”

Industry representatives also have claimed since the Trump election that the only problem actors in the industry were bloated Corinthian and ITT Tech, leaving just honest mom and pop operations that are doing an amazing job. But big predatory operations like Bridgepoint (where top DeVos aide Robert Eitel previously worked) and Career Education Corp. (where top DeVos aide Robert Eitel also previously worked), which have been under investigation by multiple law enforcement agencies for deceptive practices, keep enrolling new students every day, as do many smaller bad actors.

Just last week the Justice Department announced that for-profit Florida Tech College will pay $600,000 to settle a whistleblower’s claims that the school provided false documentation to the government that students had high school diplomas. (The penalty is a paltry amount that would hardly deter bad behavior, given the money to be made, but the point is that egregious behavior persists. The school blamed rogue employees.)

This morning, the Department resumes its gainful employment rule meetings, and it will be interesting to see if the for-profit college representatives at the table — some of them thoughtful individuals who genuinely care about students — will so wholeheartedly embrace a DeVos draft gainful employment rule that, like the draft borrower rule, abandons almost all protections for students and taxpayers.

If the for-profit colleges endorse these utterly anti-student, anti-taxpayer rules, they may, in the long term, be undermining the survival of their entire industry, good actors as well as bad ones.

Because, in reality, the substantial Obama Education Department reforms were not what walloped the for-profit college industry. Instead, the industry was weakened by its own bad behavior, facilitated by decades of lax government oversight.

By the time the late-term Obama regulatory steps were implemented, some of the most abusive companies in the industry, including Corinthian and ITT, already were collapsing under the weight of law enforcement probes, public revelations about their abuses, and their own internal looting and mismanagement. Other big predatory companies facing declining enrollments — the University of Phoenix, EDMC, Kaplan, Career Education, DeVry — were scrambling to announce internal reforms or reorganizations, aware that many students had at last received the message that the friendly recruiter on the line might be fronting for a fraudulent enterprise.

Plenty of investors and executives took a great deal of money out before these companies declined, but the industry had been battered and embarrassed, and quality schools suffered because of the sins of the worst offenders.

The for-profit college industry discredited and depleted itself not only through the poor educational and ethical performance of many of its companies in an environment where they were permitted to run wild. Its downfall also has been hastened by its ill-conceived political strategy. With millions upon millions of taxpayer dollars available for lobbying and litigation, industry members have pursued a wholly-misguided course: They generally have chosen to advocate for an extreme hands-off approach to government regulation, an approach that allows the most unscrupulous actors in the industry — those who mislead, overcharge, and under-educate students — to keep thriving.

The for-profit colleges could have slowed the bleeding much earlier had it not, over the full eight years of the Obama administration, so aggressively resisted reforms. The industry spent tens of millions buying influence in order to weaken the first version of the gainful employment rule back in 2010-11. As Senator Dick Durbin (D-IL) remarked in 2012, “It’s reached a point now when you get little or nothing done when you take on the for-profit schools in Congress. Why? They own every lobbyist in town.” The industry has spent millions more to hire the most expensive lawyers — using our money, as many schools get 80-90 percent of their revenue from the government — seeking to get the Obama reforms overturned in court.

All these efforts failed in the end to stop the Obama rules; instead, the go-for-broke strategy of the industry’s biggest lobbying group, CECU, completely backfired, creating internal dissension, with owners of smaller and more honest schools especially unhappy about the mess.

Even the notoriously resistant cigarette and fossil fuel industries decided at some point to try to make deals, and accept greater regulation, so they could keep selling their toxic products, products that are far less heavily subsidized by taxpayers than predatory colleges. The brazen for-profit college industry — which has received as much as $32 billion in a single year in federal student aid — seems to believe it is entitled to a permanent flow of federal dollars, regardless of its widespread abuses, with no meaningful accountability at all.

The better quality for-profit schools could be pushing now for DeVos to retain the Obama gainful employment and borrower defense regulations — rules that would punish the worst of the worst schools and allow the most ethical and effective for-profits to thrive. Instead, they remain silent or publicly agree with their predator competitors. They apparently don’t want to bear any costs or risks from tougher standards, even if it would drive out the unscrupulous actors who give the industry its horrible reputation. Does that position make sense?

Most of the organizations representing nonprofit and public colleges also stay on the sidelines, rather than standing up for the low-income students who need the protections of these rules. Where is the principled leadership needed from national higher education leaders?

If the hard-line DeVos regulations, or anything close to them, are sustained, many more students will have their financial futures destroyed. There will be more looting of taxpayer dollars by sharp operators, from private equity firms to the strip malls. The economy will suffer, because we will have paid to send students to weak schools instead of strong ones.

But such a victory for the for-profit colleges may end up an illusion, because it contains within it the seeds of the industry’s downfall. A passive regulatory environment has the potential to reignite a race to the bottom among for-profit schools. And as school abuses multiply, the industry will subject itself to greater reputational damage and legal jeopardy.

State attorney general offices across the country are increasingly knowledgeable about for-profit college abuses, and increasingly determined to go after bad actors, as are industry whistleblowers. Principled leaders of Congress in both houses have made for-profit college accountability a priority. Our coalition of student, veterans, civil rights, educator, consumer, and policy organizations is stronger and more determined than ever. Former students are fighting for their rights, exposing the industry’s wrongs, and educating the next generation of prospective enrollees. Smart journalists have unearthed and explained for-profit college abuses across the country. A new blockbuster documentary, Fail State, will bring this tale of blatant injustice to an even wider audience.

The for-profit college industry has bounced back from disgrace and collapse and resumed predatory behaviors at least three times in the past 75 years, and perhaps it can do so again. Surely it can do a lot of harm before it’s curbed again. But the traditional target audiences of predatory schools — low-income single moms, struggling veterans, people of color, immigrants — are today realizing in larger numbers that they can get much better value at state and community colleges. In the Internet age, it may be harder to lure these Americans, and tricking them is the only way poor quality, over-priced schools can stay in business.

If the for-profit colleges back DeVos’s hands-off approach to regulation, industry abuses will once again grow, and they will be exposed and countered at every turn. Unless the industry invites some oversight, it may well extinguish itself.