An Obama Policy 'To Protect Students And Taxpayers' Is In Danger Of Not Happening

Screw-ups at the Department of Education could derail Obama's plan to clean up dodgy for-profit colleges.

For years, the Obama administration has promised to punish for-profit colleges that produce graduates who can't afford their student loan payments. The plan, known as the gainful employment rule, would publicly shame colleges that do their students more harm than good, and would threaten these schools' access to federal student aid. The administration has described the plan as its "signature effort to protect students and taxpayers."

But before it can punish career schools for impoverishing their students, the department needs to collect data on how much students are paying -- and how much they're earning. And now, "defects" plaguing a new, multimillion-dollar online portal that was supposed to manage that data have forced the department to temporarily abandon the system.

The technical snafu has left some administration officials fearing that the Education Department will miss its own deadline for poor-performing schools to suffer consequences before President Barack Obama leaves office. Should that happen, it would leave Obama's successor the power to derail the administration’s most ambitious attempt to protect students from schools that take in taxpayer-subsidized student loans and grants but provide substandard education.

Students left hanging

The White House estimates that more than 800,000 for-profit college students are attending career-training programs where typical graduates won’t be able to afford their student loan payments. The federal government is relentless in collecting money it reckons it is owed. Defaulting on a federal student loan can haunt borrowers for the rest of their lives

The Education Department has said that it intends to hold such programs accountable, but it is already eight months behind schedule in that process, records show. The new data system, which the department ordered from Virginia-based General Dynamics Information Technology, was needed because the old one wouldn’t have been able to handle the expected influx of appeals from schools challenging the data’s accuracy, department officials said in federal contracting records. However, the department will now move forward using the old system.

Penalties under the rule are supposed to take effect once the Education Department publicizes schools’ debt and earnings information, which it will obtain from its own database and a database from the Social Security Administration. Career programs that produce graduates who on average devote at least 8 percent of their annual income to student loan payments (or 20 percent of their discretionary income) will have to warn current and prospective students that they run the risk of taking on unaffordable debt.

Colleges’ trade associations in Washington say they expect their members to ask the department for additional time to flag potential corrections before final figures are released, because of the department’s retreat from a new appeals system colleges had been directed for months to learn. Many schools were late to initially report their data to the department, records show.

Consumer advocates said they worry that the department -- which has defended the rule in the halls of Congress and in federal court against attacks from the for-profit college sector -- will succumb to pressure from for-profit colleges to further delay consequences for schools. Advocates met with White House officials on May 4 to underscore their concerns, and publicly released a letter sent to Secretary of Education John B. King Jr.

Schools shouldn’t expect their debt-to-earnings metrics to be published until mid-2017, if not later, said attorneys who counsel colleges on the Education Department’s thicket of rules.

“Given the amount of time, resources and energy devoted to getting as far as we have gotten, it’s really regrettable to see the execution being carried out so poorly,” said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities.

An unattainable goal

The gainful employment rule is meant to clean up a sector that state and federal investigations suggest is rife with abuse, where low-income students are allegedly preyed upon and encouraged to excessively borrow money from the Education Department to pay tuitions that on average cost more than public schools but leave student borrowers with educational experiences that result in the industry’s highest default rates.

Kelly Leon, an Education Department spokeswoman, disputed the idea that the administration will delay publicizing colleges’ gainful employment figures. The department plans to publish colleges’ information by next January, she said. The department’s Federal Student Aid office reiterated those plans in a May 6 notice to schools.

The January deadline has been in place since mid-2014. But at that time, the deadline was based on the assumption that the Education Department would send colleges their preliminary data for their review by September 2015, federal records show.

On Nov. 18, after missing the September deadline, FSA's Cynthia Hammond told schools -- as part of a webinar training them in the General Dynamics data system, which has since been abandoned -- that they’d receive their preliminary figures in the “next few weeks.”

The Education Department said last week that the preliminary data, a list of graduates from each relevant program, will be sent to schools by June 1, roughly eight months after the original September 2015 target date.

Leon declined to address these issues or further explain why the department thinks it’ll meet its January deadline. She also declined to make any senior Education Department officials available for an interview.

"We have to take seriously that the department has some path to reach January 2017," said Jonathon Glass, a lawyer at Cooley LLP in Washington who counsels colleges. "But it just seems to me that everything would have to fall into place perfectly, and even then it’s still very difficult to accomplish."

An agency under scrutiny

To many veteran Education Department observers, the debacle is just the latest example of FSA’s failure to properly implement Obama administration policies meant to protect students. The agency has been dogged by accusations of incompetence.

For instance, the federal government doesn’t want schools signing up students just so schools can receive their federal student aid money. So, in 2010, the Obama administration finalized new rules that eliminated Bush-era loopholes to Clinton-era rules that banned schools from paying bonuses to recruiters based on how many students they enroll.

But FSA and the Education Department failed to rescind a Bush-era directive that the department’s inspector general said discouraged FSA employees from punishing schools that violated the ban. Allowing that directive to stand resulted in years of weak enforcement.

“We constantly run into this issue at the execution level with the department,” Nassirian said.

Members of Congress have criticized FSA for its mismanagement of the federal student loan program and shoddy oversight of its loan contractors and dodgy colleges. The agency pays its employees well and rewards them with big bonuses.

Chief Operating Officer James Runcie runs FSA, and on Dec. 23, then-Secretary of Education Arne Duncan secretly reappointed Runcie to another five-year term in one of his final acts before leaving office. King, Duncan’s successor, was second-in-command at the department at the time.

The student aid unit relies heavily on contractors. And consumer groups and federal officials both say the Education Department is blaming General Dynamics Information Technology for the delay in the gainful employment rule.

Leon, the department spokeswoman, declined to comment on the contractor. Mark Meudt, a spokesman for General Dynamics, said its March 2015 contract with the Education Department prohibits the company from discussing the matter.

The department has already earmarked over $9 million to pay General Dynamics for its work, federal records show. It also has spent millions more on other contractors brought in to test and work with the company’s since-abandoned system -- with little to show for it.

Caught in a bottleneck

General Dynamics' online portal was supposed to help schools and the Education Department manage hundreds of thousands of anticipated challenges to the new gainful employment metrics. Schools can challenge the inclusion of certain graduates in their totals or the department’s figures for their loan balances, among other information.

Colleges have three major opportunities to appeal their figures -- the Education Department’s list of their career programs’ graduates, those students’ reported debt levels, and earnings information for the typical graduate.

Schools have 45 days to appeal each of the first two sets of data, and 60 days to appeal the final figures. Each set of appeals forces the department to manually check its numbers, delaying the rule’s bite. Final federal figures won’t be made public while schools’ appeals are pending.

“You won’t lose anything to appeal,” one industry source said of colleges’ motivations.

Fewer than 20 Education Department employees are expected to evaluate document-heavy appeals, federal contracting records show.

Some of the figures -- such as graduates’ loan balances -- are littered with errors. The department corrected account balances for about 1 in 5 borrowers who complained about inaccurate records during the last fiscal year.

The Education Department expects 300,000 challenges -- several times as many as its current annual caseload. Of those challenges, some 30,000 could each involve as much as 20 hours of staff time, federal contracting records show.

That all adds up to a strong likelihood that Barack Obama won’t be president by the time his gainful employment rule inflicts what Nassirian sees as its biggest consequence: public shame for schools whose graduates are chronically unable to afford their student loans.

Many of the hundreds of former for-profit college students who are publicly refusing to make payments on their federal student loans have said they wouldn’t have enrolled at their schools if they'd known how former students had fared.

“The clock is ticking for bad actors in the career college industry to do right by students,” Duncan said in July. It’ll probably tick for a lot longer than the White House had hoped.

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