For-Profit College CEOs Reap Rewards of Weak Regulation

In the six weeks since the Obama administration issued weaker-than-expected rules governing student debt at for-profit colleges, the University of Phoenix's founder and executive board chairman has cashed out more than $59 million of the school's parent company’s stock, according to filings with the Securities and Exchange Commission. The company's share prices on Wall Street have climbed to the highest levels in more than six months.

John G. Sperling's sale of 1.8 million shares comes as the stocks at many for-profit college companies have surged in the wake of the Department of Education's issuance of "gainful employment" rules, which the for-profit college industry had been aggressively fighting for more than a year.

And Sperling isn't alone. Donald Graham, the main stakeholder in Kaplan University, reaped a gain of $12.5 million over the last month. Andrew Clark, the CEO of Bridgepoint Education, made a $2.5 million profit on his stock holdings. Dennis Keller of Devry University made $27.6 million.

In total, the CEOs of the 15 publicly traded American for-profit colleges have collected $2 billion from selling company stock over the last seven years.

 

Many for-profit schools have been shown to aggressively recruit low-income and minority students—in some cases providing false information about accreditation and the prospects for salary and job opportunities after graduation—raising the question of whether the recent gains of for-profit CEOs like Sperling are being made on the backs of the most vulnerable students.

As enrollments at for-profit colleges have swelled over the past decade, along with the federal financial aid dollars that deliver as much as 90 percent of their revenues, scrutiny has intensified on students' outcomes. Hundreds of thousands of students at for-profit colleges have emerged with enormous debts and meager job prospects, resulting in a disproportionate share of student loan defaults at for-profit colleges.

The Obama administration's new rules were expected to rein in schools that aggressively recruited students but did little for their academic and employment outcomes once they were in the door. Many industry executives and Wall Street investors anticipated stricter rules that could have barred certain underperforming programs from accessing lucrative federal student aid dollars.

Beginning last summer, when the Department of Education released a draft version of the regulations, stocks at the Apollo Group, the University of Phoenix's parent company, and many other higher education corporations began to tumble. But the resulting rules essentially gave the industry carte blanche to continue as usual, taking a more lenient approach that gives schools an additional three years to come into federal student aid compliance. One former Department of Education official said the administration "caved in" to the industry’s pressure.

The market certainly signaled that the rules changed little, as stocks at many of those schools' parent companies soared and have remained strong ever since.

The weakening of the rules came after an extensive yearlong battle in Washington waged by the for-profit college industry that included substantial lobbying and campaign finance money from the Apollo Group and Sperling himself.