The Obama administration is scheduled to issue, within the next few weeks, a regulation called the gainful employment rule, aimed at cutting off federal student aid to college-level career training programs that consistently leave their students drowning in debt. Lobbyists for the for-profit college industry are pressing the White House hard to weaken the rule or drop it altogether. It's a critical moment for the public to take another close look at this industry, which now has 13 percent of all U.S. college students and swallows more than a quarter of federal aid -- over $30 billion a year in taxpayer money. It's also a critical moment for President Obama to stand up for fiscal responsibility -- and for our veterans and others struggling to build a better future through career training.
In 25 years working in Washington as a lawyer, policy advocate, and government official, I've never seen such blatant and reprehensible abuse of taxpayer dollars as I've seen with bad actors -- and there are many of them -- in the for-profit college industry.
The people who have come to the White House again in recent months to lobby on behalf of this industry are pillars of the D.C. establishment, like former representative Steve Gunderson (R-WI), who is the CEO of the industry's trade group, APSCU; former senator John Breaux (D-LA), also representing APSCU; and the D.C. titan who has been the most influential in this debate, Donald Graham, CEO of the company that previously owned the Washington Post newspaper and still operates the Kaplan for-profit college business. (Graham's stature in D.C. networks can come in handy. He met in June at the White House with Jeffrey Zients, head of the National Economic Council, which has been involved in the gainful employment discussions; Graham is Zients' friend, fellow St. Albans prep school graduate, baseball ally, and charitable donor.)
But behind these trusted faces is something else. I talk every week with insiders in this industry, and it's clear what the bad actors actually do.
I speak with people, for example, who work at boiler room call centers for for-profit colleges and the lead generation companies that provide the industry with many of its students. Recently I've been learning more about one particularly offensive trick the industry uses. Multiple companies maintain fake websites promising jobs, food stamps, heating assistance. But these are just fronts to draw in people -- mostly low income people -- so they can be sold for-profit college programs. Before they can proceed on these sites, people come to a popup window asking for their contact information, and next thing someone is calling and trying to steer them to a for-profit college. According to people who have worked inside the lead generation industry, this particular bait and switch scam steers students to schools operated by Kaplan, ITT, Corinthian, Bridgepoint, the University of Phoenix, Career Education Corp., EDMC, and others. It's an awful scam, and I plan to report more on it soon.
If people hooked by this scam do then express interest in getting job training, the lead generator representative on the line may well steer the prospective student away from what they really want and toward what the representative is paid to sell. For example, if a single mom on the line says she might be interested in a hands-on auto repair program in her own community, the rep might push her instead to an online business or medical coding degree that offers little useful training.
Or that single mom, or a veteran fresh from the service, might be attracted by the ubiquitous misleading ads that the industry places on television, radio, and city buses, and visit a local campus. There she will meet with representatives who engage in high-pressure recruiting pitches, lying to them about the cost of attending, the selectivity of the program, the value of the degree. These companies admit students whom they know won't benefit from the program. They lie to authorities about job placement or about the student's financial aid status. They even lie about whether the student actually graduated from high school, as was charged in a federal criminal indictment brought this month against the CEO of Miami's FastTrain College, which was an APSCU member until its campuses were raided by the FBI and shut down in 2012.
Such for-profit colleges, rooted in deception, often lead students to financial ruin; the 13 percent of students who attend for-profit colleges account for an amazing 46 percent of all student loan defaults.
There is documented proof of abuses of students in the ongoing federal and state law enforcement investigations (which I have compiled here) of all the companies listed above, and more. There is more evidence in congressional investigations and media investigations. It all shows the intensely cynical and abusive nature of many actors in this industry. People are now going to prison for doing these things -- this month a federal judge in Lubbock, Texas, ordered a two-year sentence for Doyle Brent Sheets, the president of for-profit American Commercial College, for lying to the U.S. Department of Education about matters relating to the company's eligibility for federal aid.
Yet the representatives of these schools keep coming back to the White House and saying, you can't take any federal dollars away from us. They continue to spend like crazy on lobbying in D.C., according to the latest disclosure forms covering the last three months -- Apollo / University of Phoenix $500,000, Bridgepoint $410,000, Kaplan $180,000, EDMC $130,000, Corinthian $60,000, ITT $50,000. And that's just on formal lobbying, and doesn't cover the millions more spent on non-lobbyist strategic advisors, issue advertising, and other forms of pressure.
These pressure efforts share a key trait with the industry's underlying operations: deception. One regular aspect of the industry's efforts is the publication of articles by esteemed people, with no disclosure that the writer is paid by the industry. Just for example, a Sept. 22 anti-gainful employment rule op-ed published in The Hill was co-authored by Jorge Klor de Alva, identified as "president of Nexus Research and Policy Center and the former Class of 1940 Professor, University of California, Berkeley." There is no mention of the fact that the Nexus Center was created and is funded with money from the University of Phoenix, just as the watchdog group Citizens for Responsibility and Ethics in Washington (CREW) never admitted, as has now been revealed, that it took the University of Phoenix founder's money as it attacked for-profit college industry critics. Others who recently published similar attacks on the gainful employment rule, all in the same publication, The Hill -- Harry C. Alford, CEO of the National Black Chamber of Commerce; Mario H. Lopez, president of the Hispanic Leadership Fund; and Kevin P. Chavous, a lobbyist and former D.C. Council Member -- did not respond to my inquiries as to whether they have received money from for-profit college interests.
The rumor mill regarding where the administration will come out on a final gainful employment rule is churning fast. Some of my colleagues are pessimistic. We certainly have all heard rumblings that the rule might be considerably weakened from the draft proposal that the Department of Education published in March, a proposal that itself was much weaker than it should have been, given the seriousness of the problem.
Pro-industry Wells Fargo market analyst Trace Urdan says in his latest report to investors that "prospects for the rules to be published as we have seen them, or with some modest concessions to industry, are strong."
But we just don't know for sure. Our coalition of civil rights, veterans, student, educator, and consumer groups have made clear how we think the should be strengthened, and like the industry lobbyists, we (including me) have been back at the White House in recent weeks to press our case.
The industry is arguing that the proposed rule's tests of gainful employment -- (1) student income from the first few years after graduation, as compared with their debt; and (2) loan default rates in the years after graduating or dropping out -- are not the best measure of a program's educational quality. But they are strong measures. This isn't about a criminal defendant's right to proof beyond a reasonable doubt. Education providers deserve a fair shake, but so do students and taxpayers. They haven't been prioritized in the past.
The rule does not have to, and should not, bend over backwards to help career colleges. This is not about government overreach that curbs a free market. This is a government program, where participants can get 90 percent or more of their revenue from taxpayers. Tobacco and oil companies at least only ask the rest of us to pay for their harmful externalities. Bad for-profit colleges demand that taxpayers actually buy their toxic product.
These companies have no entitlement to the money. The administration does not have to prove that its test is the ultimate way to capture the concept of gainful employment -- just a reasonable way.
The for-profit colleges also continue to claim that low income people and people of color will suffer if programs that repeatedly flunk these gainful employment measures lose federal aid. That's shameful. A new report from the Center for Responsible Lending confirms that for-profit colleges disproportionately harm students of color, leaving them with poor job prospects and overwhelming debt. Earlier studies (many cited in this piece) have shown that, even taking into account student characteristics like race, for-profit college students fare worse than students at other institutions. All of the major civil rights organizations have spoken up against for-profit college abuses and for a strong gainful employment rule. No matter how you look at it, programs that perform so poorly that they flunk the low standards of the draft gainful employment rule are harming, not helping, an unacceptable percentage of their students.
The predatory for-profit college companies, especially the large publicly-traded ones, are on the ropes now. In addition to the legal jeopardy they face, their enrollments are down, as news of their shoddy practices and programs has at last reached some in their disempowered target audience. Their revenues and share prices are also sharply down. (If the for-profit college industry had made like the tobacco industry and negotiated a rule back in Obama's first term, rather than waging full-scale war on the regulation and on industry critics, it might have avoided the ensuing five years of dirty laundry that has destroyed its reputation.)
But thousands of students still sign up every week for for-profit college programs that will ruin their lives. If the Obama administration retreats on gainful employment, if it issues a rule as weak or even weaker than the one it proposed in March, or delays its implementation, it potentially gives the predatory schools new momentum to return full-speed to their worst practices.
Some worry that certain administration lawyers, cognizant that a federal judge struck down the original 2011 gainful employment regulation because the White House did not offer enough of a rationale for one piece of the rule, are pressing for a particularly weak rule, one that might measure only results related to graduates, and do nothing about programs where the biggest problem is sky-high dropout rates. But all the administration needs to do is offer clear, reasonable rationales for its choices; it doesn't need to make the rule weaker to make it stand up in court. Worse than a judge striking down the rule would be the White House striking it down preemptively.
President Obama, speaking off the cuff, has made very clear that he understands the nature of the predatory for-profit college scam. A weak gainful employment rule -- one with low standards and / or that doesn't address dropouts -- won't do enough to help students. It won't meet the President's stated goals of making college affordable, protecting veterans and other against predatory college scams, and protecting the federal investment in student aid. I doubt the President wants to read in the New York Times again that the rule was gutted in the White House process under lobbyist pressure, as it was in 2011, when there was an opportunity to solve a major problem by taking bold executive action. Especially because it's even more clear now than it was then that bad for-profit colleges have been engaged in an orgy of fraud and abuses, and that they have crushed the dreams of countless students. I will remain hopeful that the White House will rise to this challenge -- and implement a rule that channels precious federal aid only to those programs that are truly helping people build careers.
Don't let these students down, Mr. President.
This article also appears on Republic Report.