New York Times Calls for Reigning in Predatory Schools

For-profit colleges like Everest, ITT , Kaplan and Sanford Brown have destroyed the education and career dreams of thousands of young people. 

These predatory institutions are gaming the federal financial aid system to line the pockets of their investors and CEOs by luring unsophisticated students to take out exorbitant student loans to attend programs whose credits do not transfer and that do not lead to gainful employment. The students end up with broken dreams and a lifetime of debt.

Senator Tom Harkin (Iowa) and Dick Durbin (illinois) and Representative Elijah Cummings (Maryland) are leading efforts in the United States Congress to hold these schools accountable.   

The Department of Education has been attempting to promulgate commonsense regulations that would protect student consumers from the for-profit's predatory practices. But the for-profit sector is waging a multi-million dollar lobbying effort to derail these efforts and protect their huge profit margins.

Last week the New York Times editorial board urged the Obama administration weighed in urging the Obama administration to resist these lobbying efforts and pass strong student protections. It wrote:

The for-profit college industry is pressuring the Obama administration to water down proposed new rules that would deny federal student aid to career training programs that saddle students with crippling debt while giving them useless credentials.

That’s a potent threat from the government, given that for-profit schools can get as much as 90 percent of their revenue from federal student aid programs. But it doesn’t go far enough. The administration should actually strengthen the rules to put the worst actors in this industry under tighter scrutiny.

The proposed rules require career training programs to meet two reasonable standards to remain eligible for federal aid. The estimated annual loan payment of the typical graduate should not exceed 20 percent of discretionary earnings, or 8 percent of total annual earnings. And the default rate for former students should not exceed 30 percent.

The overall approach is sound. But the percentage of people who are actually paying down their loans should also be taken into account to make sure that students are earning enough money to meet their responsibilities. If the repayment rate is left out of the picture, schools might escape sanctions by putting students in temporary forbearance programs that push loan defaults into the future.

The for-profit industry is fighting hard against even the more limited proposed rules, and it is lobbying Congress to stop them. It claims that the new federal requirements would limit educational opportunity, particularly for poor minority students who might not qualify for traditional private or public colleges. The facts, however, show that for-profit schools often hurt the poor by luring them into questionable programs that cost considerably more than comparable courses of study at community colleges.

According to federal data, graduates of two-year, for-profit career training programs average a loan debt of $23,590. By contrast, most community-college graduates owe nothing.

The Department of Education recently reported that, of the thousands of for-profit programs it analyzed, an astonishing 72 percent produced graduates who, on average, earned less than a high school dropout who worked full time. This means that the most debt-ridden students are unlikely to earn enough to ever repay their loans. While students at for-profit colleges are 13 percent of the total higher education enrollment, they account for nearly half of all student loan defaults.

The department’s analysis, which covered both for-profit and nonprofit career programs, found that 98 percent of the students enrolled in the lowest-performing programs are in for-profit schools.

And among the certificate programs most commonly found to be substandard are the ones that typically advertise on buses and subways in cities all over the country, targeting less sophisticated audiences; these include programs that claim to train cosmetologists, medical assistants, paralegals and other fields.

For the sake of poor students and their families all over the country, the Obama administration needs to issue strong rules that will push substandard programs to improve and force predatory schools out of business.

University of Phoenix to close 115 locations

The University of Phoenix, the nation’s largest for-profit university, is closing 115 of its brick-and-mortar locations, including 25 main campuses and 90 smaller satellite learning centers. The closings will affect some 13,000 students, about 4 percent of its student body of 328,000.
      

It is also laying off about 800 employees out of a staff of 17,000, according to Mark Brenner, senior vice president for communications at the Apollo Group, which owns the university.

 

After the closings, which are to be completed next year, the University of Phoenix will be left with a nationwide network of 112 locations and a physical presence in 36 states, the District of Columbia and Puerto Rico.

 

Apollo stock closed Wednesday at $21.40, down $6.09, a 22 percent decline.

 

Enrollments at the University of Phoenix and in the for-profit sector over all have been declining in the last two years, partly because of growing competition from other online providers, including nonprofit and public universities, and a steady drumroll of negative publicity about the sector’s recruiting abuses, low graduation rates and high default rates.

 

 In Milwaukee, Everest College, owned by Corinthian College Inc.announced it was closing less than two years after its controversial opening after regulators disclosed that the college had an abysmal 5% job placement rate and a drop out rate of more than 50%. Sanford Brown, another for-profit with a nefarious reputation, has also announced that it is closing its Milwaukee campus        

 

Late last month, Kaplan Higher Education, a division of the Washington Post Company, announced that it was closing nine of its campuses and consolidating four others into nearby locations. The company did not give a reason, but in an August filing with the Securities and Exchange Commission it disclosed that an accrediting commission had warned that its campuses in Baltimore, Indianapolis and Dayton could lose their accreditation — and with it, eligibility for the federal student aid that makes up more than 80 percent of Kaplan’s revenues — for failure to meet student achievement requirements.

 

As the negative publicity about for-profits mounted — including many charges that the schools enrolled students who had almost no chance of succeeding, to get their federal student aid — both Kaplan and the University of Phoenix announced new programs, offering some form of free trial, to ensure that they enrolled only students who had a reasonable likelihood of success. Those programs cut substantially into their enrollment numbers.

 

“We’ve said publicly that about 20 percent of the students in our free three-week online orientation program either don’t complete the program or don’t enroll,” said Mr. Brenner.

To help boost enrollment, the University of Phoenix last week announced a tuition freeze for students who remain consistently enrolled.

 

Students affected by the University of Phoenix closings will have the option of transferring to the university’s online classes — about three-quarters of its students are online — or moving to a nearby site. Students are now being notified of the changes, and a hot line has been set up at (866) 992-3302 for those with questions.

 

Based on an article by Tamar Lewin in the New York Times, October, 15, 2012

 

      

 

 

Kaplan to close 9 campuses

Kaplan higher-education division will close nine campuses and consolidate four others into existing nearby locations, the company said in a Securities and Exchange Commission filing.

The company, owned by the Washington Post, said it would stop new enrollments at the nine campuses it is closing, but that it would continue teaching the students currently enrolled there.

Kaplan's decision comes only a month after Everest College announced that it would close its Milwaukee campus less than two years after it opened. Everest's job placement rate in Milwaukee was a dismal 5% and its drop out rate over 50%. Everest has agreed to pay off the federal loans of all of its Milwaukee students who dropped out without completing their program of study.

Kaplan's parent company did not give a reason for its decision to close the campuses or identify them, but in an Aug. 7 SEC filing it disclosed that an accrediting commission had warned three campuses (in Baltimore, Indianapolis and Dayton, Ohio) that they could lose accreditation “for failure to meet certain student achievement threshold requirements” and had asked for the school to respond by September.

The loss of accreditation would mean the Kaplan campuses would no longer be eligible for Title IV loans from the Education Department, the source of nearly 90 percent of Kaplan higher-education revenue.

Kaplan was still a test-prep company when the Washington Post Company bought it in 1984, after Richard D. Simmons, the president, convinced Katharine Graham of its potential for expansion and profits.

Over the last decade, Kaplan has moved aggressively into for-profit higher education, acquiring 75 small colleges and starting the huge online Kaplan University. Now, Kaplan higher education revenues eclipse not only the test-prep operations, but all the rest of the Washington Post Company’s operations.

The Washington Post's Company chairman, Donald Graham, has emerged as the highest-profile defender of for-profit education. Together, Kaplan and the Post Company spent $350,000 on lobbying in the third quarter of 2010, more than any other higher-education company. And Mr. Graham has frequently gone to Capitol Hill to argue against the regulations in private visits with lawmakers, the first time he has lobbied directly on a federal issue in a dozen years. His newspaper, too, has editorialized against the regulations.

Four whistle-blower suits against Kaplan under the federal False Claims Act have been made public in the last few years, all making accusations that the company used deceptive practices in its quest for profits, including enrolling unqualified students and paying recruiters for each student enrolled, a practice forbidden by federal law.

In addition, the suits allege, Kaplan kept students on the books after they dropped out, inflated students’ grades and manipulated placement data to continue receiving financial aid. Three of the suits, from Pittsburgh, Milwaukee and Miami, have been consolidated for trial in Miami. A fourth, from Las Vegas, is pending there.

The company said revenue at the campuses to be closed represent approximately 4 percent of total revenue for Kaplan higher education and 2 percent of the total Kaplan division, which includes other educational operations. The Post Co. said Kaplan expects to incur an estimated $18 million in restructuring costs, a portion of which would be recorded in third-quarter earnings, with the remainder recorded through the end of 2013.

Kaplan has about 70 campuses, and about a third of the division’s 67,605 students as of June 30 were on Kaplan ­higher-education campuses, with most of the rest of them studying through online programs.

For-profit colleges sue U.S. to stop rules protecting students

By Diane Bartz Diane Bartz – Fri Jan 21, 2011

A group of for-profit schools sued the U.S. government on Friday, seeking to overturn three rules that are part of a federal crackdown on the sector.

The rules are part of a larger package of new regulations being imposed on for-profit schools, accused of churning out poorly educated students with large debts.

The Association of Private Sector Colleges and Universities (APSCU), which represents more than 1,500 for-profit schools, filed the lawsuit in the U.S. District Court for the District of Columbia. It asked the court to toss out the rules, which are due to go into effect on July 1.

One rule challenged by the suit would stop deceptive advertising by schools, another bars recruiters from being paid based on how many students they enroll and a third requires states to authorize post-secondary schools for their students to be eligible for federal loans.

The lawsuit did not challenge the yet-to-be-finalized and most controversial of the reforms -- the "gainful employment" rule.

That rule would require schools to show that students are paying back federal loans or can do so. Students at schools that fall short would be barred from receiving federal loans, which would cripple many schools.

APSCU members include Career Education Corp, which owns the Sanford-Brown schools; Corinthian Colleges, DeVry Inc; Education Management Corp; ITT Educational Services; and Lincoln Educational Services.

The pending reforms have rocked shares in the sector over the past few months and Friday's suit failed to give the overall sector a lift. The Standard & Poor's education index closed 1.1 percent lower on Friday.

Shares of sector leader Apollo Group, which does not belong to APSCU, fell 2 percent.

Harris Miller, head of the trade group, said the rule barring misrepresentation by the schools was poorly done so that inadvertent misstatements by a single employee would be treated the same as intentional deception.

"We certainly oppose any misrepresentation to any actual or potential students," he said.

The Education Department defended the rules.

"We're confident that the published regulations will do the best job of protecting students and taxpayers," said department spokesman Justin Hamilton in an emailed statement.

Sector analyst Jeff Silber of BMO Capital Markets said the lawsuit was not a surprise since schools had been threatening to file suit.

"But it shows the industry is using all angles to try and fight this. I wouldn't be surprised to see the same strategy used once the final gainful employment regulations are posted," he said in an emailed comment.

The prospect of the rules has already roiled the sector as some schools tighten enrollment standards in a move to push down their loan default rates and increase graduation rates.

On Thursday, Career Education said it would cut about 600 jobs over the next several months and close a culinary school in Pittsburgh because of lower enrollment.

Apollo cut about 700 jobs in late November amid a 40 percent drop in new enrollments at its flagship University of Phoenix. Washington Post's education unit, Kaplan Higher Education, slashed about 770 positions.

(Reporting by Diane Bartz; Editing by Andre Grenon and Tim Dobbyn)