May 15th, 2015
by Alec MacGillis
The Obama administration is set to achieve one of its top domestic policy goals after years of wrangling. For-profit colleges, which absorb tens of billions of dollars in U.S. grants and loans yet often leave their students with little beyond crushing debt, will need to meet new standards or risk losing taxpayer dollars.
But as the July 1 deadline approaches, the troubled industry has been mounting a last-ditch effort to avert or roll back the new rules. And suddenly it's getting a lift from a set of unlikely allies: traditional colleges and universities.
For years, the higher education establishment has viewed the for-profit education business as both a rival and an unsavory relation — the cousin with the rap sheet who seeks a cut of the family inheritance. Yet in a striking but little-noticed shift, nearly all of the college establishment's representatives in Washington are siding with for-profit colleges in opposing the government's crackdown.
Most of the traditional higher education lobbying groups signed onto a recent letter to Congress stating their support for Republican legislation that would block the new restrictions on for-profit colleges, as well as undo or weaken other accountability rules for colleges. And a new report on higher education regulation commissioned by the Senate and overseen by the American Council on Education, the leading lobby group for traditional schools, slammed the rules on for-profit colleges as part of a broader critique of the administration's approach.
The emerging alliance points to a new calculation by the higher education lobby. By throwing in with the for-profits, traditional schools might be able to capitalize on Republican control of Congress to limit the government's reach into their own campuses. Among other things, colleges and universities would like to block the proposed new federal ratings system designed to help families choose institutions based on how of their many students graduate and where they get jobs.
This bid for GOP favor may seem counter-intuitive, given that many conservatives view academia as a bastion of pampered liberalism. In reality, the higher education lobby represents an industry as self-interested as any other—the two largest of the its many trade groups reported spending $500,000 on federal lobbying last year—and it spies an opportunity in the deregulatory instincts of the Republican majority.
The gambit underscores one of the under-appreciated truths about lobbying in Washington in an era of divided government: Special interests are often as interested in preserving a favorable status quo as they are in getting government to take an action to their benefit. To that end, gridlock can be a feature to be encouraged, not a bug.
At stake in this case is the roughly $150 billion that the federal government shovels annually into colleges and universities in the form of Pell grants and subsidized loans for students. Current and former higher education regulators say the federal government is obliged to assure that taxpayers are getting results for that spending.
David Bergeron, who served as Obama's acting assistant secretary for postsecondary education before joining the Center for American Progress, a Democratic think tank that's close to the administration, said:
"The higher ed lobby doesn't want any accountability—they want money, and they want money without limitations, without restrictions, without accountability to anybody outside the academy."
"What that has led to is very poor performance by our institutions—graduation rates are alarmingly low, and employers are becoming increasingly concerned that the employees they're hiring out of the academy don't have the knowledge and skills they require."
The colleges say the administration has gone far beyond what's necessary.
University System of Maryland Chancellor William E. "Brit" Kirwan, who co-chaired the recent Senate task force, said:
"This is not about getting rid of regulation—it's about making regulation more rational and relevant. The Department of Education has developed an insatiable appetite for expanding regulation."
For most of Obama's tenure, the department's top regulatory priority has been reining in abuses by the for-profit sector, which as of 2012 accounted for only 13 percent of the nation's college enrollment, but 47 percent of the defaults on loans.
A 2012 Senate report found that taxpayers spent $32 billion in the prior year on companies operating for-profit colleges—which rely almost entirely on federal student aid for revenues—and that most of their students left without a degree, half within four months. The report found that at the 30 companies studied, the average CEO pay was $7.3 million, and that 22.4 percent of revenue went to marketing and recruiting, 19.4 percent to profits, and only 17.7 percent to instruction.
A 2010 Government Accountability Office report found that four colleges "encouraged fraudulent practices" in meetings with undercover investigators posing as prospective students and that all 15 colleges investigated, including industry leaders such as the University of Phoenix and Kaplan Inc., "made deceptive or otherwise questionable statements."
A Bloomberg investigation that year found that for-profit colleges were being particularly aggressive in recruiting military veterans, to capitalize on increased funding available under the GI Bill. Late last year, federal and state authorities in Florida charged that a for-profit chain there was hiring exotic dancers to recruit students.
In 2011, the administration moved to assure that for-profit colleges were giving students the skills they were promised, so they could land jobs and repay loans. The so-called "gainful employment" rules cut off federal aid for programs that fell below certain thresholds for how students were keeping up with payments and how their earnings compared with the debt they'd accumulated.
The for-profit college industry challenged the regulations in court, with vocal backing from congressional Republicans and conservatives. In 2012, a federal judge struck down the threshold on loan repayment rates as overly arbitrary. Last October, the education department released the revised rules, built around two different measures of debt-to-earnings loads for graduates. The industry is challenging them in court as well.
Early on, the traditional higher education lobby generally backed the administration. When the revised regulations came out last fall, Terry Hartle, chief lobbyist for the American Council on Education, which represents 1,700 schools from Abilene Christian University to Yale, called them "an honest effort by the department to find an appropriate balance." He added:
"These issues are complicated, and they're trying to get it right."
Then the Republicans took control of the Senate and the signals changed.
In February, all major higher education lobbying groups but one—the Association of Public and Land-Grant Universities—sent a letter backing the "Supporting Academic Freedom Through Regulatory Relief Act," authored by Rep. John Kline of Minnesota and Rep. Virginia Foxx of North Carolina, the Republicans who chair, respectively, the education committee and the higher education subcommittee. The bill, which has a counterpart in the Senate, would bar the regulations on for-profits, among other regulatory rollbacks.
The shift cheers the for-profits, which have seen enrollment fall amid all the bad publicity for the industry and threat of tougher oversight (one major chain, Corinthian Colleges, has been shut down entirely).
"We welcome anybody that's interested in stopping over-burdensome regulations that are not helping students," said Noah Black, a spokesman for the Association of Private Sector Colleges and Universities, which records show spent $650,000 on federal lobbying last year. "We're always happy when people agree with us."
The traditional higher education lobby said their groups signed onto the letter because the revised regulations are both too weak to root out the most problematic for-profit colleges and too nettlesome for other institutions that will also have to comply. To address the for-profit industry's charge that it is being singled out, the regulations also apply to non-degree programs at community colleges and traditional universities, which have been expanding such offerings amid the rise in online learning and career certification courses.
Barmak Nassirian, chief lobbyist for the American Association of State Colleges and Universities, said:
"They're extremely expensive, utterly pointless, and disgracefully ineffective."
"Virtually all of the worst actors will pass them with flying colors."
Sarah Flanagan, his counterpart at the National Association of Independent Colleges and Universities, said the same:
"We ended up with this complex reporting requirement with no teeth in it. We said we'd support them if they had teeth in it."
The administration rejects this assessment, noting that the revised regulations are expected to disqualify seven times more programs than the original ones were and are already driving for-profits to close their most egregious programs.
James Kvaal, deputy director of the White House's Domestic Policy Council, said:
"The rule will make a huge difference for the more than 800,000 students enrolled in the worst programs, who otherwise face unaffordable debts and defaults with life-changing consequences."
Black, the for-profit association spokesman, said the revised regulations are unquestionably tougher in how they determine whether a program is falling short. "You can't make the case that this one is weaker" than the initial regulation supported by much of the traditional college lobby, he said.
The more likely motivation for the traditional schools is that it gives the lobby strength in numbers in challenging the administration's other regulatory actions, said Amy Laitinen, a former higher education adviser in the Obama administration who is now at the New America Foundation. Traditional college groups are upset about, among other things, the tightened standards for credit hours, which determine how much student aid the U.S. awards to students. The Department of Education's inspector general found that accreditors were allowing colleges to inflate credit hours, but the higher education lobby said the tightened standards will stifle distance-learning courses.
Traditional universities are also unhappy with the administration's proposed new rules for assessing teacher-preparation programs. Above all, they are resistant to the administration's plan for a new ratings system for colleges to supplement the oft-criticized U.S. News rankings.
University officials—led by private colleges, which are especially opposed to the administration's push for greater accountability and transparency—say the available data aren't good enough to produce reliable rankings. At the same time, many of them have lobbied against a proposal to improve student data.
It is doubtful whether the Kline-Foxx deregulatory bill could advance past a Democratic filibuster in the Senate, much less get Obama's approval, unless it were attached to other must-pass legislation. For now, it is serving as a stand-in for the real battle, the upcoming reauthorization of the 1965 Higher Education Act, which was last updated in 2008. Sen. Lamar Alexander, the Tennessee Republican and chairman of the education committee, is expected to take that up soon, and the task force report commissioned by the committee was the first step in that process.
Alexander has praised the task force report—over-regulation of colleges, he said at a hearing on the report, represents:
"sloppy, inefficient governing that wastes money, hurts students, discourages productivity and impedes research."
This gives the higher education lobby hope that he'll push to include many of its deregulatory proposals in the reauthorizing bill. But consumer advocates say the report should be taken with a dose of skepticism, given that the task force was picked entirely by the higher education lobby's biggest group, with no advocates for taxpayers or students represented.
Pauline Abernathy, of the Institute for College Access and Success, said:
"It should surprise no one that regulated entities want fewer regulations and strings attached to the funds they receive."
At least one university president is chiming in against the higher education lobby's new turn. Louisiana State University Chancellor F. King Alexander said the lobby's complaints of over-regulation ring hollow.
"Naturally, [the lobby groups] love the idea of telling the federal government to get your hands off the money and don't tell us what to do with it—just put it on the stump and leave."
But in the case of the for-profit regulations, this approach is short-sighted, he said. The more that fly-by-night for-profit programs soak up federal aid dollars, the less that is left for students at traditional colleges, and the more calls there will be to reduce funding for student aid, he said.
"We're pouring money into places no one's ever heard of before. We're not going to have any more federal aid unless we have a better handle on who's getting it."
ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.