March 10, 2020

VA To Cut Off GI Bill Funds For Two Big For-Profit Colleges, Maybe

The U.S. Department of Veterans Affairs announced Monday that it plans to stop approving use of GI Bill dollars for veterans seeking to start education programs at two of the biggest for-profit college operations. One is Perdoceo, which runs American Intercontinental University and Colorado Technical University. The other is the University of Phoenix, long the largest for-profit college business. The VA made the same announcement with respect to non-profit Bellevue University and public Temple University.

The VA action would apply only to new students, not those currently enrolled. But the VA also noted in its statement that state agencies have the power to withdraw approval for those schools as to GI Bill funds for existing students.

This is a big deal — if it is sustained.

The VA said it intends to suspend enrollment of new students at these schools in 60 days unless the schools “take corrective action.”

The reason the VA took this step is that legal actions by the Federal Trade Commission and / or state attorneys general showed that each of these schools has engaged in illegal deceptive advertising or recruiting against GI Bill recipients. Federal law prohibits the VA from providing GI Bill funds in these circumstances.

The organization Veterans Education Success has long pressed the VA to comply with this provision of law. In December, Senators Dick Durbin (D-IL) and Elizabeth Warren (D-MA), Representative Mark Takano (D-CA), chair of the House Veterans Affairs Committee, and other Members of Congress leaned on the Department to act with respect to Perdoceo and Phoenix.

Both of the for-profit companies had indeed been caught engaging in bad acts. In January 2019, Perdoceo (then called Career Education Corporation) reached a $494 million settlement with 49 state attorneys general over alleged deceptive and abusive recruiting practices. In September, the FTC reached a $30 million settlement with Perdoceo  over the company’s use of fraudulent third-party websites to lure students.  In December, the FTC reached a $191 million settlement with the University of Phoenix over ads that falsely implied the school had arrangements with major employers to hire its graduates.

FTC commissioner Rohit Chopra tweeted praise on Monday for the VA’s action.

The penalties in all those law enforcement actions were small compared with the billions that each company has taken in from the Department of Education, Department of Defense, and VA for student tuitions over the years. (CEC bragged to Wall Street that the $494 million settlement with the states really cost them only a few million, because it involved cancelling loans that they never expected students to repay.)

But the VA decision, if sustained, could do more serious, maybe even fatal harm to these schools.

As we reported last week, Perdoceo has been struggling to stay in compliance with the 90/10 rule, the federal law that requires for-profit colleges to get at least ten percent of their revenue from Department of Education grants and loans. Perdoceo’s American Intercontinental University has been perilously close to the 90/10 line, but last week that school acquired and merged with another for-profit school, Trident University International, which has many students from the military and veterans community, and thus access to more VA and Pentagon education dollars, resulting in a much better 90-10 percentage. If the Department of Education approves the merger, that might fix AIU’s 90-10 problem. But not if VA cuts off the GI Bill money.

Even before the Trident merger, Perdoceo was heavily reliant on military money to stay in compliance with 90/10 and to earn big profits. Colorado Tech enrolled 5,535 GI Bill students in 2018, resulting in $46 million in VA revenue. AIU had 2,025 GI Bill students and $14 million in revenue. From 2009 to 2018, the company got $691 million from the GI Bill.

Meanwhile, the University of Phoenix in 2018 had 22,788 GI Bill students, and $151 million in VA funds. Over ten years, the company took $1.9 billion in GI Bill revenue.

Both companies continue to deny wrongdoing, and Phoenix has stressed that the bad conduct caught by the FTC occurred under previous ownership. Both Perdoceo and Phoenix insist they will be able to show the VA that they are now running honest operations.

The first report of the independent administrator overseeing Perdoceo’s settlement with the state attorneys general, filed in October, and just obtained by the Century Foundation through a public records request, found the company to be largely complying with its obligations to stop deceiving students.

Current and recent employees at Perdoceo’s admissions operation, and that of Phoenix, may want to speak up now as to whether they think the schools are running honest operations now, or whether they are still being pressured by supervisors to engage in deceptive and coercive recruiting of prospective students.

There’s certainly evidence that Perdoceo schools are still featured in search results on sleazy lead generation websites like this one.

Beyond determining whether or not the companies have stopped committing violations at this point, the VA could demand other corrective actions to deter future abuses. Like making the executives who were in charge while the abuses occurred step down and return some of their salaries, bonuses, or stock. (Todd Nelson, CEO of Perdoceo, was, by the way, previously the CEO at University of Phoenix.) Or giving refunds to veterans who enrolled based on school deceptions.

Both companies may exercise some political and legal muscle trying to get out from under the VA action. Both have spent heavily over the years on lobbying and campaign contributions, and as a result they have bought many friends in Congress.

House Republicans were already attacking VA officials over the decision at the Veterans Affairs Committee meeting this morning, as a University of Phoenix lobbyist stood and made his presence known in the room.

The companies also have friends in the Trump administration. The two top higher education aides to education secretary Betsy DeVos, Diane Auer Jones and Robert Eitel,  were both previously senior executives at Perdoceo, when it was still called Career Education Corporation. The company, and indeed the for-profit college industry as a whole, have so far received favorable treatment from the Department under the Trump-DeVos regime. Todd Nelson has been bragging to Wall Street about Perdoceo’s recent success.

The last time the University of Phoenix got in real trouble, during the Obama administration, for illegal recruiting on military bases, and faced termination of Pentagon education funding for military service members and their families, the company hired Democratic lawyer Jamie Gorelick, who had been the Defense Department’s general counsel, and later Deputy Attorney General, in the Clinton years. Gorelick managed to get the ban lifted. Now Phoenix has new owners, some of them close associates of Barack Obama, but the White House has a different occupant. However, the resilient Gorelick might still have some influence, as she faithfully served as the ethics counsel to the ethically-challenged second couple, Ivanka Trump and Jared Kushner. Maybe Phoenix will bring Gorelick back for this fight.

Phoenix and Perdoceo also could try taking the VA to court. The VA had initially refused to approve a scam effort by another predatory for-profit, Ashford University, to pretend its new headquarters was in Arizona, in order to come under the jurisdiction of that relatively permissive state. But after Ashford sued, the VA backed off, and last month finally agreed to give Ashford, and its parent company Zovio, everything it wanted, including approval to keep operating in California, where it is actually headquartered, and full access to GI Bill dollars. Did you know that Robert Eitel, the DeVos aide who previously worked at Career Education Corporation, also is a former senior executive at Zovio (back when it was called Bridgepoint)?

Once again we’ll have to see who prevails: The shady for-profit college operations that have deceived and abused veterans seeking a better future, or those student veterans, who served our country and deserve real opportunity from our VA, rather than introductions to fraudsters.