For-profit colleges are once again fighting furiously, and expensively, to gut a common sense regulation from the Obama Department of Education. The Hill today is calling this latest lobbying battle a "frenzy."
The Obama rule spurring this frenzy would:
1. Implement a law already on the books by providing standards and procedures for the government to forgive the federal loans of students who were defrauded by their schools.
2. Require schools that behave irresponsibly to post financial letters of credit so money will be available to pay claims in case the school melts down.
3. Allow students who believe they were defrauded or abused to take their claims to court, instead of permitting for-profit colleges to keep forcing such students into secret arbitration proceedings that rarely provide relief or accountability.
For-profit college owners and lobbyists have been meeting at the White House, paying for reams of op-eds by consultants parroting industry talking points (call them "Harry Alford pleas"), and trying to enlist representatives of non-profit and state colleges in their quest. As with the Administration's previously-issued gainful employment rule, now in effect after federal courts repeatedly rejected industry challenges (although House Republicans continue to pass measures to block it), for-profit colleges are claiming the new rule would destroy their companies and destroy the opportunity for students to get an education.
But like the gainful employment rule, this rule would impose serious penalties only on those schools that consistently abuse their students, by means of deceptive recruiting and advertising and other serious misconduct. In the emerging environment where the Department of Education begins imposing some basic standards on schools getting federal aid, colleges that offer quality programs and act responsibly will be able to thrive. Such schools should not be fooled by the persistent defenders of awful predatory colleges into attacking proposals that implement President Obama's long-time determination to protect students and taxpayers and the integrity of the financial aid system.
In addition to the usual doomsday announcements from former congressman Steve Gunderson (R-WI), head of the troubled for-profit college trade group APSCU (now CECU), who says, "The reality is, this regulation, as drafted, destroys the sector," an email sent Tuesday to higher education groups by one Edward Wyatt of Sphere Consulting LLC claims the new regulation "will result in the biggest taxpayer bailout since TARP."
There's no doubt that the new rule could produce more loan forgiveness for defrauded students, but within a few years, if properly implemented, the rule should start saving taxpayers billions. The letters of credit would compel irresponsible schools to keep some cash on hand to pay victims; the notorious fraud Corinthian Colleges was getting at much as $1.7 billion a year from taxpayers, and yet when it shut down it claimed it was deep in debt. Seven of the biggest for-profit colleges, all under law enforcement investigation, now get $8.1 billion a year from taxpayers, and one, EDMC, last year pleaded poverty to the Justice Department to limit to an easy $95 million its punishment for an alleged $11 billion worth of fraud. (#crimepays) The new rule's constraints on mandatory arbitration would help punish, expose, and deter egregious misuse of taxpayer dollars. Perhaps most importantly, the establishment of debt forgiveness for victims of fraudulent schools will force the Department of Education to think harder about what institutions should be getting our tax dollars in the first place.
Which is precisely why people like Gunderson and for-profit Kaplan University owner Donald Graham are so worked up.
But who is the newcomer doomsayer Edward Wyatt, who sent the scary letter this week, seeking to meet with higher education groups about the rule? You might recognize the byline from his 20 years as a reporter with New York Times, ending up in the Washington bureau covering economic and regulatory issues, until, according to his LinkedIn profile, he accepted a buyout in December 2014.
While his former Times colleagues have dutifully been exposing for-profit college misconduct, abuses, evasions, and relentless lobbying, and editorializing for reforms, Wyatt is being paid to try to enlist education leaders in an effort to derail the Obama effort, warning in his email that the new rule will:
Put taxpayers at risk for a conservative estimate of $43 billion over the next 10 years. Impact every Higher Education institution in the country. Heavily damage the financial position of longstanding colleges, requiring them to put up millions of dollars in letters of credit to protect against student loan dismissals. Allow unelected Bureaucrats at the Department of Education to serve as judge and jury in determining whether a misrepresentation exists, regardless of intent. Provide a gift to the trial bar. Leave schools with no real due process because of a vague claims procedure. Result in an endless cycle of appeals and reconsideration.
When he hired Wyatt last year, Sphere founder Jim Courtovich explained to O'Dwyer's that "he sees Wyatt's ability to distill complex policy issues as key for clients." I guess that's what Wyatt did above.
As to what client is paying Wyatt to offer this apocalyptic vision of the Obama rule, his email offers, "We represent a consortium of schools that are facing a proposed rulemaking...." Since that's pretty vague, I contacted Wyatt to ask who is paying him, and contacted Gunderson's group to ask whether it's them. Neither has responded.
UPDATE: Please see these follow-up pieces for much more information on this subject:
This article also appears on Republic Report.