Tardy praise for the Obama Administration's regulations to cut down on abuse in the for-profit college industry

Arne Duncan

I have criticized President Obama and Secretary of Education Arne Duncan for not doing enough to stop the abuse in the for-profit college industry and for failing to pass measures to ease the suffering of millions of stressed-out student-loan debtors.  I have argued for bankruptcy reform so that insolvent student-loan borrowers can discharge their student loans, and I favor a law that would prohibit the federal government from garnishing the Social Security checks of elderly student-loan defaulters. I also favor a crackdown on Dickensian loan-collection practices against student-loan defaulters.

I still favor those things, and I still think the Obama administration has not done enough to help people who have been injured by their participation in the federal student loan program.  But President Obama and Secretary of Education Duncan have tried to rein in the abuses in the for-profit college industry, and they deserve praise for their efforts.

In October 2010, the Obama administration released new regulations--called the program integrity rules--in an effort to stop fraud, misrepresentations, and high-pressure recruiting by for-profit colleges.  The rules prohibited for-profit colleges from paying bonuses to employees based on the number of students they recruited, a practice that encouraged recruiters to sign up students who were unqualified for the programs they borrowed money to enter.  The rules also contained sanctions against institutions that misrepresented their programs or their programs' costs.

In 2011, the Department of Education issued its gainful employment rules--rules designed to close down colleges that did not produce significant numbers of graduates who made enough money to pay off their student loans.

The for-profit industry sued to invalidate these regulations, and they enjoyed quite a bit of success.  A federal court struck down important sections of the program integrity rules, and another federal court essentially gutted the Department of Education's gainful employment rules.

But a few days ago, the Department of Education released new regulations to rein in abuse among the for-profit colleges. These new regulations wee drafted to avoid the legal pitfalls that led the original regulations to be struck down by the courts.

Of course, the for-profits may sue to strike down these new regulations, and they will certainly turn their lobbyist loose to keep the government from effectively stopping abuses in an industry that is ripe with abuse.

But at least President Obama and Secretary of Education are still trying to clean up the for-profit college industry. They face long odds, but they deserve credit for their perseverance.

References

Association of Private Sector Colleges and Universities v. Duncan, 681 F.3d 427 (D.C. Cir. 2012).

Association of Private Sector Colleges and Universities v.Duncan, 870 F. Supp. 2d 133 (D.D.C. 2012).

Chris Kirkham. For-Profit Colleges That Bury Students in Debt Face Second Obama Crackdown. Huffington Post, March 13,  2014. Available at: http://www.huffingtonpost.com/2014/03/13/for-profit-colleges-obama_n_4961163.html

The Federal Government Should Stop Bankrolling the For-Profit College Industry

Floyd Norris recently wrote a mild but provocative article in the New York Times that focused on ITT Educational Services, a for-profit corporation that offers post-secondary education programs in 48 states. Norris reported that ITT students pay an average cost of $48,000 in tuition and fees to receive a two-year associate's degree in business administration.

Of course students can obtain a two-year associate's degree from a public community college for a fraction of that cost. One would think the federal government would develop policies to encourage students to attend reasonably priced community colleges instead of supporting the for-profit college industry.

As has been widely reported, for-profit colleges enroll about 10 percent of all post-secondary students but get about 25 percent of the federal student-aid money. According to Norris, the federal government guaranteed nearly $24 billion in loans for students attending for-profit schools in 2010-2011 and  distributed nearly $9 billion in grants that went to for-profit institutions.

Without question, most of the for-profit colleges could not exist without federal student-aid money.  For example, in 2011, ITT received 89 percent of its revenues from the federal government in the form of student loans and grants. (Norris, 2012, p. B7)  Meanwhile, state and local-government are drastically cutting their financial support for public colleges and universities.

In my opinion, the federal government should stop funding the for-profit colleges altogether and redirect the money toward public community colleges.  Unfortunately, such a reform is not coming any time soon.  The for-profits pay highly effective lobbyists to protect their interests (Kirkham, 2012), and they make strategic political contributions to key legislators in Washington (Kirkham, 2011).

So this is the situation. Billions of federal dollars flow each year into the coffers of for-profit schools and colleges that educate about 10 percent of the nation's post-secondary students and account for about half of all the student-loan defaults (Kirkham, 2012). Until Congress stops subsidizing the for-profit colleges industry, we will never solve the student-loan crisis, which is growing worse with each passing year.

References
Kirkham, C. (2012, February 3). Auction 2012: For-profit colleges win when lobbying blitz weakens regs. Huffington Post.   http://www.huffingtonpost.com/2012/02/03/auction-2012-education-for-profit-colleges_n_1251072.html

Kirkham, C. (2011, July 29). John Boehner backed deregulation of online learning, leading to explosive growth at for-profit colleges. Huffington Post. http://www.huffingtonpost.com/2011/07/29/john-boehner-for-profit-colleges_n_909589.html

Norris, F. (2012, May 25). Colleges for profit are growing, with U.S. aid. New York Times, p. B1.