Obama Administration Revisits For-Profit College Student Debt Regulations

By Chris Kikham

The Obama administration has resumed efforts to rein in abuses by for-profit colleges that leave students deep in debt and unable to find decent jobs, renewing a 2-year-old battle over regulations that has produced little more than bitterness and litigation.

The so-called gainful employment regulations are intended to judge the effectiveness of for-profit and other vocational programs by examining whether students are able to manage their debts after leaving school. Programs that leave students with unsustainable debts would face sanctions, including disqualification from federal student loan and grant programs -- the source of nearly 90 percent of revenue at some for-profit colleges.

"This is really designed to weed out the worst of the worst actors," said Mamie Voight, assistant director for higher education research and policy at the Education Trust, a student advocacy group. "It's intended to remove those as options from the table for students, and to make sure that we're not investing taxpayer dollars in college programs that are not providing students with even a minimal level of value."

Representatives of the for-profit college industry, which mounted a $13 million lobbying campaign to weaken the rules in 2011 and convinced a federal judge to strike down the regulations last year, struck a defiant tone earlier this month when the administration announced it was revisiting the regulations. Steve Gunderson, the president and chief executive of the Association of Private Sector Colleges and Universities, said in a statement that the group was "extremely disappointed," calling the effort a "faulty and confrontational process."

The trade group declined to comment beyond a statement and other public comments submitted in recent months. But those in support of tighter regulations say they expect the industry to mount a pressure campaign similar to the one two years ago, when for-profit colleges hired prominent Democratic lobbyists, such as former House Majority Leader Dick Gephardt and Tony Podesta, to buttonhole administration officials and congressional Democrats.

"I think it will be a fight again; that's inevitable," said Robyn Smith, a former deputy attorney general in California who works on student loan issues with the National Consumer Law Center. "A lot of it depends on the will of the department to stand firm, and its willingness to enact a strong rule."

The Department of Education declined to comment on the rulemaking process, beyond describing how negotiators will be selected and when public hearings will be scheduled.

State attorneys general, veterans organizations and consumer advocacy groups have submitted dozens of comments to the administration in recent months, calling for Department of Education officials to come up with a much stronger version of the rules they released in 2011. Those regulations were widely viewed as being watered down in the face of industry lobbying, allowing subpar programs far too much leeway to remain in compliance.

A security training program in Miami, for example, would have dodged the stiffest sanctions even though 85 percent of its students were unable to pay minimal amounts on loans and had debts that consumed 70 percent of their discretionary income.

"Right now there is no accountability," said Lauren Asher, president of the Institute for College Access & Success, a student advocacy group that has pushed for stronger government oversight of for-profit colleges. "Programs that routinely leave students with debts they cannot repay still have unlimited access to federal funds."

The Obama administration began examining troubles at for-profit colleges in 2009, convening panels to gauge whether career college programs -- both for-profit and non-profit -- were satisfying a federal law that required such schools to show they prepare students for "gainful employment in a recognized occupation."

Consumer advocates had long pointed out that the for-profit college sector was taking in a disproportionate amount of federal aid dollars: Despite educating only about 10 percent of students, for-profit colleges receive nearly a quarter of federal loan and grant money and contribute to about 47 percent of federal loan defaults.
The Department of Education determined that programs with high numbers of students who were unable to repay loans, or who had excessive debt burdens compared to income, would be subject to sanctions, including disqualification from federal student loan and grant programs.

The final gainful employment rules released by the administration two years ago were significantly weakened from an earlier proposed version, after vigorous lobbying from the industry. The most significant change was that schools had to fail three student debt measurements -- a student loan repayment rate and two measurements of debt compared to income -- in three out of four years to be disqualified. The original version of the rule would have disqualified programs that failed all three measurements in just one year.

The Department of Education released a test batch of data last summer showing that only a tiny fraction of programs -- just 5 percent of those subject to the rules -- would have failed all three measurements. Yet the data showed abysmal student outcomes for hundreds of programs that would have remained eligible because they passed one of the tests.

In more than 500 programs, fewer than 20 percent of students were repaying at least a portion of their student loan debt, according to the data.

At one of those programs, a securities services and management degree from Everest Institute in Miami, only 15 percent of students were repaying at least one dollar of their loans within a year. More than 70 percent of graduates' discretionary income was eaten up by debt from the program, indicating that students were unable to find jobs with decent wages. But the program was still able to pass the third test, the measurement of debt to total annual income: The ratio was 11.92 percent, just under the 12 percent threshold that would have been a third strike.

Kent Jenkins, a spokesman for Corinthian Colleges Inc., which owns Everest, pointed out that the Department of Education's data was several years old, saying the Miami program is "one of 637 that were evaluated; the data you cite is five years old, and the metrics you are applying have been struck down in court." He said the company is eliminating programs that don't meet standards on job placement and completion rates. "We are working hard to make sure our programs offer our students solid educational and economic value," he wrote in an email.

The snapshot of data released last summer is the only one that exists, after U.S. District Judge Rudolph Contreras struck down central parts of the administration's gainful employment rules last year as part of a federal lawsuit filed by the for-profit college trade association.

Although Contreras's ruling forced the administration to redo the process, the judge specifically stated that the Department of Education had the right to craft such regulations -- something the industry's lobbyists had contested for years.

"Concerned about inadequate programs and unscrupulous institutions, the Department has gone looking for rats in ratholes -- as the statute empowers it to do," Contreras wrote in his decision last summer.

The issue was technical: Contreras said the administration had not conducted studies to back up its student loan repayment threshold of 35 percent.

Going forward, the Department of Education is looking for representatives of colleges, student groups, consumer advocacy organizations and state attorneys general to serve on a committee to craft the rules. The committees will meet in September and October to hash out specifics and forward decisions on to the department.

Over the last two years, fortunes have significantly shifted for the industry. Increased government scrutiny, including the formation of a 32-state working group of attorneys general and investigations by the Consumer Financial Protection Bureau, has caused stock prices and enrollments to tumble. Shares for the Apollo Group, which owns the University of Phoenix, have tumbled more than 77 percent from a high in 2009.
Enrollments at Apollo schools have fallen 22 percent since 2010, and enrollments at ITT Educational Services have fallen more than 27 percent over the same period, according to securities filings.
Tom Tarantino, a chief policy officer with Iraq and Afghanistan Veterans of America, said he is glad there is more consumer awareness of unscrupulous programs, but he thinks further regulations are needed to encourage systemic change in the business model.

"They're spending a lot of money defending their industry, as opposed to spending money to improve their industry," said Tarantino, whose group has criticized some for-profit college programs for targeting veterans and GI Bill money. "If they had invested as much money in improving their educational programs as they have in lobbying and marketing and recruiting, there would be some really outstanding programs."

Securities and Exchange Commission investigates Everest College's parent company

The Securities and Exchange Commission is investigating Corinthian Colleges Inc., the for-profit chain disclosed Monday in a corporate filing. Corinthian is the parent company to Everest College, a for-profit chain of technical colleges that has abysmal graduation and job placement rates.

In a subpoena, the commission requested documentation relating to student recruitment, attendance, completion, placement and defaults on loans, according to the company, as well as information about compliance with U.S. Department of Education financial requirements.

Decline of Unions Redistributes Income; Corporate Profits Soar

By Jillian Berman

Corporate profit has been soaring for years at workers' expense and a decline in union membership is to blame -- not a rise in technology, a new study found.

The jump in corporate profit over the past few decades can be explained largely by a decline in union membership over the same period, according to a study by Tali Kristal, a sociologist at the University of Haifa in Israel. The boost in companies’ bottom line comes at workers’ expense, Kristal wrote in an email to The Huffington Post.

“It’s a zero sum game: whatever is not going to workers, goes to corporations,” Kristal said. “Union decline not only increased wage gaps among workers, but also enabled capitalists to grab a larger slice of the national income pie at the expense of all workers, including the highly skilled.”

The findings, published Thursday in the American Sociological Review, add a new dimension to the debate over income inequality in the U.S., suggesting that policies aimed at boosting unions may help. Corporate profit soared to a record high share of the economy earlier this year, according to Bloomberg, while workers' wages have remained largely stagnant. The rise in profit comes as union membership has dropped to a record low.

Kristal’s findings contradict claims that increased computerization largely accounts for the boost in corporate profit at the expense of workers. Kristal argued that the rise of machines is only indirectly to blame, because technology has reduced union workers by replacing some union jobs with automation, directly increasing corporate profit.

“If we want all workers to benefit from the economic growth, then policymakers can initiate some steps to strengthen unions, such as pro-union reforms of labor law, and deterioration with employers' illegal anti-union tactics that increasingly spread over the last decades,” Kristal wrote.

Indeed, other analyses, including one from the left-leaning Economic Policy Institute, have found that that the drop in union membership in recent decades correlates with the rise in inequality during the same period.
“The decline in union members is directly related to the stagnation of wages for working people,” Brandon Rees, acting director of the Office of Investment at the AFL-CIO, an umbrella labor organization for many unions, told HuffPost. “Economic growth has been going somewhere and its been going to the top 1 percent.”

That dynamic could be problematic for the U.S. economy as a whole, Rees said, as middle-class Americans burdened by debt and slow wage growth buy less and hold back the recovery.

“One of the reasons why we are suffering from anemic growth today is because consumers have been reducing their debt levels, but wages are not keeping up with productivity growth,” Reese said. “The rights of workers to join a union has helped create the middle class in this country and the middle class has been hammered in the past 20 years as unions have declined.”

This article originally appeared in The Huffington Post on June 9, 2013

For-Profit School to Pay U.S. up to $2.5 Million for Submitting False Federal Student Financial Aid Claims

American Commercial Colleges Inc. (ACC) has agreed to pay the United States up to $2.5 million, plus interest, to resolve allegations that it violated the civil False Claims Act by falsely certifying that it complied with certain eligibility requirements of the federal student aid programs, the Justice Department announced today.

To maintain eligibility to participate in federal student aid programs authorized by Title IV of the Higher Education Act of 1965, for-profit colleges such as ACC must obtain no more than ninety percent of their annual revenues from Title IV student aid programs. At least ten percent of their revenues must come from other sources, such as payments from students using their own funds or private loans independent of Title IV.

Congress enacted this “90/10 Rule” based on the belief that quality schools should be able to attract at least a portion of their funding from private sources, and not rely solely upon the Federal Government.

The civil settlement resolves allegations that ACC violated the law when it orchestrated certain short-term private student loans that ACC repaid with federal Title IV funds to artificially inflate the amount of private funding ACC counted for purposes of the 90/10 Rule. The short-term loans at issue in this case were not sought or obtained by students on their own; rather, ACC orchestrated the loans for the sole purpose of manipulating its 90/10 Rule calculations.

“American taxpayers have a right to expect federal student aid to be used as intended by Congress -- to help students obtain a quality education from an eligible institution,” said Stuart F. Delery, Acting Assistant Attorney General for the Department of Justice’s Civil Division. “The Department of Justice is committed to making sure that for-profit colleges play by the rules and that Title IV funds are used as intended.”

Under the False Claims Act settlement, ACC, a privately-owned college operating several campuses in Texas, will pay the United States $1 million, plus interest, over five years, and could be obligated to pay an additional $1.5 million under the terms of the agreement.

“Misuse of taxpayers’ dollars cannot be tolerated – not only for the sake of taxpayers, but especially in the case of innocent individuals who seek to improve their lives through a quality education,” said U.S. Attorney for the Northern District of Texas Sarah R. Saldaña.

Today’s settlement resolves allegations brought by Shawn Clark and Juan Delgado, former directors of ACC campuses in Odessa and Abilene, respectively, under the whistleblower, provisions of the False Claims Act, which permit private citizens with knowledge of fraud against the government to bring an action on behalf of the United States and to share in any recovery. Messrs. Clark and Delgado will receive $170,000 of the $1 million fixed portion of the government’s recovery, and would receive an additional $255,000 if ACC becomes obligated to pay the maximum $1.5 million contingent portion of the settlement.

This case was handled by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the Northern District of Texas; and the Department of Education’s Office of Inspector General and Office of General Counsel.

The lawsuit is captioned United States ex rel. Clark, et al., v. American Commercial Colleges, Inc., No. 5:10-cv-00129 (N.D. Tex.). The claims settled by this agreement are allegations only, and there has been no determination of liability.