March 4, 2020

Will DeVos Allow The Latest Troubling For-Profit College Trick?

Will DeVos Allow The Latest Troubling For-Profit College Trick?

A report this week from the news service Capitol Forum presents strong evidence that the for-profit college business Perdoceo, formerly Career Education Corp. (CEC), is using questionable tricks to avoid violating the federal 90-10 rule. That measure requires for-profit schools to obtain at least 10 percent of their revenue from sources other than grants and loans provided by the U.S. Department of Education.

The theory behind the 90-10 rule is that a school is not worthy of taxpayer support and student enrollment unless someone other than the government — such as employers, scholarship funds, or students themselves — would be willing to pay for sending students there. Schools whose revenues come almost entirely from taxpayer funds to support lower-income students tend to provide poor quality programs, and often leave graduates and drop-outs alike without the career advancement they sought and deep in student loan debt.

Instead of improving their programs to actually attract non-government funding, many for-profit schools, including Perdoceo’s, have tried to evade the rule by, among other things, aggressively and deceptively targeting military service members and veterans, because their VA and Pentagon education aid, under a loophole in the rule, does not count toward the 90 percent federal ceiling.

But it looks like Perdoceo’s schools have still come close to violating the rule, which could lead to a cutoff of federal aid.  The Department of Education each year collects and posts the 90-10 performances of for-profit schools but, without explanation, CEC/Perdoceo’s data has been missing from the Department’s spreadsheet for years. Capitol Forum, however, was able to get the data from the Department for the years 2015-2017, and it shows that the company’s American Intercontinental University (AIU) chain took in more than 89 percent of its revenue from Department grants and loans each year — way too close for comfort. (The company’s other chain, Colorado Technical University, was in a slightly safer zone, at around 82 percent.)

A recent filing by Perdoceo with the Securities and Exchange Commission reveals that the Department agreed to defer paying $39.3 million in 2019 federal aid to AIU until early 2020. This shift may have been the only thing that kept Perdoceo in compliance with the rule; in the the SEC filing, the company explains that one “measure to maintain compliance is deferring the receipt of Title IV Program funds within the parameters permitted by ED cash management regulations, which AIU did in 2019.”

But as the Capitol Forum report notes, Perdoceo may also be pursuing another 90-10 management trick, one familiar to the company’s CEO, Todd Nelson. A new SEC filing this week announces that Perdoceo has completed its acquisition of another for-profit chain, Trident University International, and is merging it with AIU. Trident has many students from the military and veterans community, and thus has a much better 90-10 percentage.

By merging the two schools, Perdoceo can go a long way toward solving AIU’s chronic 90-10 problems without actually doing anything to improve educational quality and value for students. (A 2019 report by Capitol Forum documented a decline in educational quality at Perdoceo/CEC under Nelson.)

Using such mergers to fix 90-10 problems is a shady practice that was noted by the Senate HELP committee in its landmark 2012 report on the for-profit college industry; among the companies engaged in such practices was CEC. As Republic Report showed in a 2013 article, the big for-profit chain EDMC in 2012 audaciously merged together campuses based in Phoenix and Vancouver. Most students at the Vancouver campus were Canadian and thus not eligible for U.S. federal aid, so the merger, while geographically ridiculous, seemed to fix any 90-10 problem for the Phoenix campus. The CEO of EDMC at the time: Todd Nelson.

As the Capitol Forum report describes, the Department of Education has authority to reject Perdoceo’s acquisition of Trident, or reject the merger of the two schools for 90-10 accounting purposes. It has particular discretion in the case of schools, like American Intercontinental, that are under provisional program participation agreements, a kind of probationary status for schools caught engaging in troubling behavior.

Perdoceo/CEC has faced numerous law enforcement issues for its deceptive practices. In 2019, it agreed to pay $30 million to settle Federal Trade Commission charges of using deceitful third-party lead generators. It also reached a $494 million settlement with 49 state attorneys general over alleged deceptions of students.

The following fact should be shocking, even if at this point you’re probably numb: The two top higher education aides to education secretary Betsy DeVos, Diane Auer Jones and Robert Eitel,  were both previously senior executives at 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. Nelson has been bragging to Wall Street about Perdoceo’s success.

But as I told Capitol Forum, there remain conscientious career officials, working hard to protect students, at the Department, and the cases they make can be so compelling that, on the few occasions, the DeVos Department has taken a stand against bad or manipulative actions. There are also strong leaders in Congress looking out for students, speaking out against for-profit college abuses, and seeking to hold DeVos accountable. So maybe there’s a chance CEC won’t get away with this latest trick.