Biden Must Cut Off Taxpayer Billions To Predatory Colleges That Ruin Students’ Lives
On a quarterly earnings call for investors last week, Todd Nelson, the CEO of Perdoceo Education Corporation, bragged about his company’s financial success providing online career training programs, especially during COVID-19. “The pandemic has further reinforced and validated the value proposition of online learning,” Nelson declared, “and I believe that our primarily online universities and programs are resonating well with prospective learners.” Nelson boasted of enrollment growth at both of Perdoceo’s online schools, American Intercontinental University (AIU) and Colorado Technical University (CTU), and “year-over-year growth in revenue and operating income,” with $39.9 million in net income this quarter, and a 17.2 percent increase in enrollment.
In other words, Perdoceo is getting more students to sign up, and is making more money. And Nelson claims the school is good at teaching; he boasted about how the company’s artificial intelligence technology “enables us to efficiently serve prospective students as well as customize our outreach and engagement with current students to help them stay and succeed in school.”
Nelson’s statements about Perdoceo’s growth are consistent with new research showing that for-profit colleges, many of which already had closed most ground campuses and taken most programs online in recent years, are doing very well in the pandemic era, as struggling Americans have lost their jobs, are stuck at home, and are vulnerable to advertising and recruiting pitches promising a way out in hard times.
Perdoceo, in particular, seems to have thrived financially in the Donald Trump era, with Secretary of Education Betsy DeVos erasing all the hard-fought accountability standards and mechanisms developed toward the end of the Obama administration to curb predatory abuses.
But the arrival of Joe Biden and Kamala Harris at the White House, and new management at the Department of Education and other agencies, will, I hope, dramatically change the landscape — not just for Perdoceo, but for the entire for-profit college industry.
Perdoceo scams US students
Some of the biggest and worst for-profit chains, like Corinthian Colleges and ITT Tech, collapsed during the late Obama years under the weight of law enforcement probes, regulatory changes, and media exposes of their bad behavior, and other bad chains died similar deaths in the Trump years despite DeVos’s coddling of the industry. But Perdoceo, which at its 2010 peak received an astounding $1.9 billion in taxpayer dollars in a single year, has hung on, even resisting the trend of many big predatory schools to convert themselves into faux nonprofit schools in order to evade the stigma and regulations tied to for-profits.
Perhaps one reason Perdoceo has done well is because the company knows well its regulators: DeVos’s top two higher education aides — Robert Eitel and serial deceiver Diane Auer Jones — were both previously senior executives at the company (previously known as Career Education Corporation), among several other ties between Nelson’s operation and the DeVos Department.
But Todd Nelson’s own employees tell a very different story from his about what Perdoceo’s schools are really about — and why they may be making big money in the DeVos era. These employee accounts are similar to what employees at Education Management Corporation told me about predatory practices at that for-profit college operation when Todd Nelson was the CEO there, and reflect similar practices at the University of Phoenix when Nelson ran that operation. All three Nelson-run companies have faced multiple law enforcement probes and actions for predatory practices and other legal violations, as they brought in billions of taxpayer dollars.
Perdoceo had to agree to settlements worth over $500 million last year to resolve major actions pursued by the Federal Trade Commission and 49 state attorneys general alleging deceptive practices.
A number of Perdeceo employees spoke with me earlier this year, and they made clear the abuses at the company were ongoing. They recounted in detail how their supervisors relentlessly pressure them to push people into low-quality college programs — often pitting recruiters against each other in a struggle to keep their jobs. Those who previously worked for other for-profit colleges said Perdoceo is far worse in terms of deceptive and coercive recruiting tactics.
Also, contrary to what Todd Nelson tells Wall Street, employees who have taken classes at Perdoceo schools tell me they are poor quality, rudimentary, low on instructor involvement, and almost impossible to flunk, because the company wants to keep students enrolled until they graduate or run out of financial aid.
The students recruited, as at other predatory schools, tend to be low-income, single parents, immigrants, people of color, veterans — people struggling to build better futures, often with little family experience in higher education, and no match for the sophisticated and relentless recruiting practices Perdoceo throws at them. Many of the prospective students, employees say, are identified through online lead generators, often bait-and-switch operations that promise people jobs but then steer them to boiler room recruiters for predatory schools.
In the past week yet another Perdoceo staffer called me, a financial aid officer from AIU. This employee is planning to resign because “I don’t want to lie to people.” The employee says AIU managers direct staff to do “whatever it takes to get them enrolled, after that they don’t care.” Both admissions and financial aid staff are trained to overcome prospective students’ objections to enrolling and to be vague about the total costs of a degree — “keep the student in the dark as much as possible.” None of this predatory playbook is written down anymore, likely because companies were caught in the past; now at Perdoceo schools it’s all told to staff orally.
The school is even enrolling people who have previously defaulted on student loans, hoping they can fix their default issues and then backdate the findings. The students — many low-income people from the South, some elderly, some new high school graduates, some living in halfway houses, some drug-addicted — often don’t understand what’s going on finance-wise, other than the $680 per semester stipend pocket money which recruiters dangle at them. Many AIU students drop out after 10 weeks, by which time Perdoceo has banked a semester’s worth of federal aid, and the students are on the hook for huge federal loans they can’t afford to repay.
“I am lying to students,” this AIU employee told me, because in order to graduate, “they are going to need more than they are allowed to borrow.” And they will end up with crushing debt. “It is huge disservice,” the employee said, “to put them in programs not only will they be in debt but will be not successful.”
Occasionally AIU reps are authorized to promise “scholarships,” tuition discounts, on top of the federal Pell grants and student loans. They are usually about $500, if they are available at all. Tuition for a year of AIU bachelor’s degree classes is $13,688.
Todd Nelson received $7,477,668 in compensation from Perdoceo in 2019.
A recruiter at Perdoceo’s other school, Colorado Tech, also got back in touch with me this week. This employee is also planning to quit. “Rationalizing why I work for a company that defrauds people,” this employee wrote, “doesn’t mean that it’s the right thing to do.” This employee says that CTU tells employees in writing that they need to walk students through the federal FAFSA financial aid form when enrolling. But in Zoom meetings, managers tell the recruiters not to worry about explaining the FAFSA until the deadline for dropping classes has passed. In writing, employees are instructed not to telephone prospects more than three times a day. On Zoom calls, managers direct them to “call people as many times as needed” to get them to enroll.
Predatory schools persist nationwide
Perdoceo is far from the only predatory college operation still enrolling students in an era when Betsy DeVos and Diane Jones run the Department of Education and the head of fraud Trump University is, for another two months, the President of the United States.
Some of these bad-acting schools have gotten attention from media and from Democratic Members of Congress, state attorneys general, and accreditors. We’ve tried here at Republic Report to be proactive in identifying and writing about predatory schools. Recently, we’ve written about, among others, Florida Career College, Independence University, Harris School of Business, and Ashford University.
Many other awful schools, though, remain hidden in plain site, offering bad deals to unsuspecting students, and cashing millions or billions in taxpayer checks. In June 2016, I got a tip that former top employees at Trump University were now key executives at a Florida-based career school called Ultimate Medical Academy (UMA). The school was mostly online, had recently undergone a troubling conversion to nonprofit status, and had been accused of engaging in high pressure sales tactics. UMA was receiving some $150 million annually — nearly 90 percent of its revenue — from taxpayers for student grants and loans. After I wrote about the school, I rapidly received calls and messages from more than a dozen current and former UMA staff alleging deceptive recruiting, financial aid abuses, and other misconduct. Yet when I asked around Washington, not a single person I knew in the student advocacy world, and not a single person I knew at the Department of Education (and I knew quite a few), had ever heard of Ultimate Medical Academy. One hundred and fifty million dollars a year, of your tax money, and almost no one knows about it, except for the 13,000 current students and many debt-saddled former students.
Taxpayers have been sending tens of billions every year to for-profit colleges — about a quarter of all federal aid, at its peak more than $32 billion in a single year. Some career schools do a good job, and help students build careers at affordable prices. But much of the time the best deals are at community colleges, rather than at for-profits or at private schools, like Independence, Keiser, Liberty, Purdue Global, and the Art Institutes, that enrich their operators while masquerading as non-profits.
Many career schools spend most of the federal aid they receive on advertising, recruiting, executive salaries, lobbying, litigation, and investor returns, rather than on education. Worse, a generation of low-income students has been left worse off than when they started, deep in debt and with no career advancement. This approach is wasteful and reckless, and it is unsustainable.
What Biden and Harris need to do
Therefore, a first urgent task of the new Biden higher education team, perhaps in association with state attorneys generals, state oversight agencies, and others, is to map out the world of career education abusers: who is getting the money and who is producing bad outcomes for students? Fortunately, the Biden-Harris campaign website promised that the new administration would “require for-profits to first prove their value to the U.S. Department of Education before gaining eligibility for federal aid.” So maybe the schools will be compelled to map themselves. And Vice President-elect Harris noted in her Democratic convention speech, “I took down one of the nation’s largest for-profit colleges,” referencing her important role, as California’s attorney general, in the demise of horrible Corinthian Colleges. She added, “I know a predator when I see one.”
Second, the Biden administration must reassemble and then strengthen the anti-predator tool kit that the Obama administration developed in its final years. Important steps would include:
— Restoring the Obama-era gainful employment and borrower defense rules, and re-writing the DeVos rules on accreditation and distance education, in order to reward honest, good-performing, good-value schools, drive predatory schools and programs from federal aid eligibility, and reduce the harms to students victimized by bad actors.
— Granting broad debt relief to student borrowers, especially those deceived by their colleges.
— Building inside the Department of Education a strong enforcement capacity to crack down on school abuses, a capacity gutted under DeVos, and catch violations of rules like the ones prohibiting misrepresentations to students and payment of sales commissions to recruiters.
— Appointing Federal Trade Commission members who will continue that body’s commendable work, which actually advanced in the Trump era, to crack down on deceptive practices by colleges and lead generators, and encourage the commissioners’ efforts to use the FTC’s full powers to punish bad actors.
— Re-establishing the Obama-era government-wide task force on for-profit college abuses, and providing stronger enforcement and protections for students by the departments of Veterans Affairs, Defense, and other agencies — including stepped-up criminal and False Claims Act enforcement at the Justice Department.
— Using more frequently the Department of Education’s Provisional Program Participation Agreements for schools, to impose conditions regarding financial responsibility, recruiting practices, and more; and requiring bigger letters of credit for financially troubled operations.
— Renewing Department of Education scrutiny of applications from for-profit colleges that have converted to non-profit to be treated as non-profit for purposes of Department regulations — in order to protect against scam conversions that unjustly enrich owners at the expense of students.
— Providing greater scrutiny of for-profit online program management operations to guard against legal violations and new avenues for waste, fraud, and abuse.
— Returning to tougher oversight of accrediting agencies, so they are held responsible for keeping schools accountable, rather than tolerating abuses of students.
Third, the Department of Education, in particular, must commit to much greater transparency, giving the public and students clear and timely information and documents about schools and their interaction with the Department. Examples of lack of openness at the Department abound, and although they (like most things) have been worse under the Trump administration, the problems have persisted for decades.
Information on the percentage of revenue that each for-profit college gets from federal aid — so-called “90-10” data — is generally years late, comes only on an ugly spreadsheet, and often, without explanation, omits data for some for-profit schools. An explanation I’ve heard before for the omissions is that these schools are disputing their percentages, but that sounds like a presidential candidate saying he won’t produce his tax returns because they’re under audit.
The Department of Education usually does not, but should, tell the public in real time when it cuts off federal aid to a college, when it grants or rejects a college’s application to be treated as non-profit, when it puts a college on provisional status because of financial concerns. Students, advocates for students, and others should not have to file Freedom of Information Act requests and wait months or years before learning such critical information.
Indeed, as more and more for-profit colleges have shifted from publicly-traded corporations to private equity ownership and non-profit status, we have lost the benefits of the Securities and Exchange Commission disclosures required of those schools — about major financial, acquisition, personnel, law enforcement, and other developments. The Department of Education could, and should, require all for-profit colleges getting taxpayer aid to disclose to the Department, and the public, those kinds of changes.
Key information must also be delivered online in user-friendly, mobile-friendly formats for students and prospective students. When the Department, through accreditors, makes a college eligible for financial aid, it is essentially placing a Good Housekeeping seal on the school; it has a responsibility to deliver any warnings or concerns about schools, and to ensure those schools disclose to students the same.
Time for action
Todd Nelson, a strong supporter of Republican candidates for office and a strong beneficiary of Republican education policies, calmly told investors last week that Perdoceo will be able to adapt to new rules in a Biden era. But for-profit college lobbyists and owners will relentlessly try, as they did under Obama with some success, to weaken accountability measures until they are almost worthless.
Some of the people close to Biden evoke concerns on this score. Key Biden and Obama campaign strategist Anita Dunn worked for years, through her public relations firm SKDK, helping Donald Graham’s predatory Kaplan Higher Education to gut the Obama rules aimed at holding predatory colleges accountable. Biden transition leader Jeffrey Zients, a senior Obama White House official, is a long-time associate of Graham’s and at least twice granted Graham special White House access to argue against those rules. Zients himself in 2009 pursued negotiations to buy a for-profit career school, Oklahoma-based Platt College, and visited the campus, according to a source familiar with the talks, although the deal was never concluded.
But Zients seemed to listen when we met with him on those issues at the White House, and the Obama administration issued fairly strong college accountability rules on his watch. In addition, the growing Biden transition effort already includes some dedicated advocates for students, and there is hope that Biden will listen to strong Capitol Hill student champions like Maxine Waters, Bobby Scott, Mark Takano, Patty Murray, Dick Durbin, and Elizabeth Warren.
In the past, through Democratic and Republican administrations, the for-profit college industry, with its heavy roster of highly-paid, well-connected lawyers and lobbyists, has indignantly rejected and resisted almost all proposals that would separate quality schools from predatory schools — always standing up for the rights of the worst actors in the industry to do their very worst. Now, realizing that Biden and Harris are coming to town and may mean business, the for-profit colleges are already aggressively making the rounds in Washington, approaching Democratic members of Congress and advocates for students and veterans, peddling supposedly innovative or compromise deals that they certainly have had no time for in the era of Trump and DeVos, who gave them a free pass.
Proposals that create incentives for colleges of any kind to invest in career education and help students succeed deserve attention. Proposals, and companies, that continue to allow blatant abuses with taxpayers dollars should be pushed out of the picture. If the for-profit college industry resists effective regulation this time, it may be time for Washington to decide their schools are no longer worthy of any federal dollars. The predatory violations have gone on for far too long, and destroyed the lives of far too many people.
Some music to play you out.