Buoyed by the ascendancy of Donald Trump, America's predatory for-profit colleges are renewing their multi-front fight to destroy a key measure to hold them accountable: the gainful employment rule. The new battle plan includes pushes in Congress and before the Betsy DeVos Department of Education, plus two new lawsuits aimed at the regulation, including one, in Arizona, that has not been previously reported. It looks like this harmful effort is rapidly gaining traction.
It took the Obama administration nearly eight years of battling well-paid for-profit college lobbyists and lawyers to finally enact and implement this regulation, which has a simple, common sense premise: Career training programs that, year-after-year, leave graduates mired in overwhelming debt should lose eligibility for taxpayer-funded student grants and loans. Career education should make people financially better off, not worse off, and the rule aims to channel money away from programs that do harm -- and channel it toward those honest, effective colleges that are genuinely helping students build careers.
For decades, many for-profit colleges, through a toxic mix of high prices, low quality, and weak job placement, have promised more than they could deliver, and yet have been getting billions annually in federal aid, much of it spent on advertising and profits, rather than education. Many veterans, single moms, displaced factory workers and miners, and others struggling to build a better future have been deceived and abused by unscrupulous college owners, whose offices are in Wall Street suites as well as strip malls.
The final gainful employment rule does not demand much; only the worst programs flunk its test comparing graduate earnings with debt levels. The first round of results, reported in January, showed that 98 percent of the flunking programs were at for-profit colleges.
The for-profit colleges have never stopped trying to overturn the rule, even after federal courts decisively rejected two separate industry lawsuits. Now, however, that the head of another predatory school, Trump University, is America's president, the for-profits have again intensified the fight.
Industry trade groups have filed two new lawsuits, one brought in Washington DC by cosmetology schools, and the other in Phoenix by acupuncture schools.
In the DC suit, filed on February 10, the American Association of Cosmetology Schools makes the somewhat risque claim that hair and beauty school grads’ incomes are understated because some don’t report all their earnings to the IRS. But this claim was already generally considered and rejected by the previous courts reviewing the regulation. And the gainful employment rule, in fact, allows schools to submit to the education department alternative data if they believe the standard earnings measure, using Social Security Administration information, doesn’t do justice to what their graduates actually earn.
In the new Arizona lawsuit, filed February 21, the acupuncture schools claim that the Department of Education measures understate acupuncturists' earnings because they often are self-employed and have business expenses, work part-time, are paid in cash, and have losses in the early years as they build a client base.
These are, again, points that can be raised directly in appeals to the Department, rather than grounds to invalidate the rule.
There are good career schools out there, and the Department should give their concerns a fair hearing. But career colleges must charge students a fair price, and offer a deal that makes economic sense given the earning potential of graduates.
It seems likely that both groups of litigants are hoping their lawsuits will give a new, sympathetic DeVos education department an opening to stop defending the gainful employment rule in court and to effectively gut it.
DeVos already has provided ample signals that she doesn't like the gainful employment rule. In her confirmation process, asked about the rule by Senator Elizabeth Warren (D-MA), DeVos said “The last thing any of us want is to unnecessarily close down important programs — putting students on the street with limited or no other options.” This was the very argument that for-profit colleges made in vociferously attacking the rule in the Obama years, sidestepping the question: What programs would be shut down? By design, the rule only penalizes programs that are performing poorly. Warren told DeVos at her hearing, “Swindlers and crooks are out there doing backflips when they hear an answer like this.” And, indeed, many of the programs that flunked gainful employment also have been under federal and state law enforcement investigation for deceptive recruiting and other fraud.
Despite these realities, the for-profits had their first success against the rule last week, when the Trump/DeVos education department announced it was delaying implementation. The Department gave schools whose programs flunked the gainful test an additional four months to file appeals, and gave programs an extra three months to publish disclosures of their program completion rates, typical income and debt of graduates, and whether programs meet state licensure requirements. Department officials claimed a technical / legal issue forced the delay, but others called the issue a mirage, and I think it fair to say that the late-period Obama Education Department, committed to protecting students, would have found a way to solve the problem without a long delay. Indeed, the DeVos department's announcement suggested a broader concern with the rule in stating the delay would “allow the Department to further review the GE regulations and their implementation.”
All of this reinforced concerns that the Trump/DeVos regime might be ready to gut the rule entirely, that it might stop protecting students and resume rewarding greed and abuse.
The Department's action intensified the post-election rally in stocks for the few remaining for-profit colleges that are publicly-traded. (Many of the industry giants have shut down, gone private, or converted to non-profit status in the wake of Obama-era regulation, law enforcement, media disclosures of abuses, and the improved economy.)
The head of the for-profit college trade association CECU (formerly APSCU), Republican former congressman Steve Gunderson praised the delay and asked for more: “We very much appreciate the Department and the Administration recognizing the problems with this rule. We have asked them to delay the enforcement and to conduct a review of the unintended consequences of this rule as it begins to play out.”
The Wall Street Journal reported yesterday that Gunderson "said he recently met with top Education Department officials to push for the delay and to argue that the gainful employment regulations—which also apply to career-training programs in public and nonprofit schools—should cover all majors or be eliminated entirely."
Clearly, Gunderson, whose strategy of confrontation with the Obama education team proved disastrous, is getting the Trump/Devos team's attention. DeVos has hired as an aide Taylor Hansen, who worked as a lobbyist for Gunderson at the trade association. Lauren Maddox, an outside lobbyist for the same trade group, helped shepherd DeVos's nomination. Meanwhile, Gunderson is connected to Trump through their mutual friend Newt Gingrich.
In case DeVos herself is not prepared to take the political heat for trashing the gainful employment rule, for-profit college lobbyists continue to work for repeal on Capitol Hill, where industry campaign contributions have for decades purchased the allegiance of many key Republicans, and also a small number of Democrats. GOP members are salivating to cancel the rule and please their wealthy donors. Strong support for students among Senate Democrats would likely prevent passage of stand-alone legislation to overturn the rule, but keeping such a measure out of an appropriations bill might be more difficult.
Trashing the gainful employment rule would make it more likely that dishonest, unethical college operators will thrive, while the lives of hard-working Americans -- the forgotten men and women Trump promised to help -- will be made worse under crushing debt loads. Eliminating the rule also would increase the waste, fraud, and abuse with taxpayer dollars that Trump promised to stem. As the Department of Education's inspector general, Kathleen Tighe, testified before a House committee last week, the aim of the rule is to root out "poor performing programs, and it really is designed to protect students but also to protect taxpayers whose investment, the amount of money we spend in federal education money is enormous, and we want that money to be well spent."
This article also appears on Republic Report.