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John Boehner Backed Deregulation Of Online Learning, Leading To Explosive Growth At For-Profit Colleges


First Posted: 07/29/2011 9:12 am Updated: 01/23/2012 7:43 pm

With a mere eight lines buried in an 82,000-word budget bill passed in 2006, Congress eliminated legislation that had for more than a decade limited how many students colleges could enroll in online courses -- rules aimed at protecting students against dubious programs. Those eight lines have proven a potent fertilizer for a for-profit college industry that has since grown to enormous proportions, collecting most of its profits via federal student aid dollars.

In the five years since Congress deregulated online education, enrollments at for-profit colleges have nearly doubled. Six major corporations owning for-profit institutions have enjoyed initial public offerings on Wall Street, with each promoting the rapid growth of online classes to investors and netting millions in compensation for executives. Revenues have doubled at the University of Phoenix and Kaplan University, two of the largest players -- so has the rate at which its students have defaulted on their federal loans.

The story of how this single snippet of legislation became law, propelling a collection of for-profit colleges into a full-scale industry, presents a classic case of the workings of power in Washington. It reveals the degree to which for-profit colleges -- now confronting accusations that they have preyed on students and cheated taxpayers -- owe their growth to a sophisticated lobbying effort that has cultivated powerful allies in Congress and in the administration of President George W. Bush. The lobby has played a crucial role in fighting off consumer protection rules that limited the companies' expansion opportunities.

Such was the case with the 2006 removal of a law known as the 50 Percent Rule, which had previously limited enrollment numbers at universities with online course offerings. That stricture was eliminated at the insistence of current House Speaker John Boehner, then the chairman of the House Education and Workforce committee -- now the prime public negotiator in a high-stakes clash over raising the nation's debt ceiling -- and Sen. Mike Enzi, a Wyoming Republican who headed the Senate Education committee. Their legislative handiwork opened the floodgates to online enrollment, while enabling for-profit colleges to more aggressively tap Wall Street for the capital they have used to expand.

"Most of the large publicly traded institutions would not be able to exist the way they do today if that rule had not been taken away," said Kevin Kinser, an associate professor at the University at Albany who studies the history of for-profit higher education. "You have an entirely new revenue source that's been open to these institutions. ... The cost goes down, the revenue goes up, and that's a pretty attractive investment vehicle."

Boehner did not respond to repeated requests for comment. A spokesman for Enzi said the change was needed to enable students who lack access to physical campuses to gain educational opportunities over the Web.

"Senator Enzi has always been a supporter of access to quality education throughout life," the spokesman said. "For many individuals, that means access through technology."

The 50 Percent Rule had been put in place with other consumer safeguard measures in the early 1990s, in an effort to protect students and taxpayers in the face of widespread reports of abuse and fraud involving federal student aid programs. The deregulation was the result of a fierce lobbying effort waged by the for profit-college industry, coupled with strategic campaign donations distributed to Boehner, Enzi and Rep. Howard "Buck" McKeon (R-Calif.), the men who controlled the Education committees in the House and the Senate.

McKeon held and sold stock for Corinthian Colleges Inc., a for-profit college corporation, during the time he was crafting policies for the industry on the House Education committee, according to his required personal financial disclosure forms. According to the documents, he owned between $1,000 and $15,000 in Corinthian stock in 2003, and sold it off in 2004.

For the three election cycles between 2002 and 2006, those three lawmakers and their political action committees alone took in nearly one-fifth of the money donated to federal candidates and committees by the for-profit college industry.

The industry has also benefited from Washington's traditional revolving door: President Bush's assistant secretary for post-secondary education, Sally Stroup, had served previously as a lobbyist for the Apollo Group, which owns the University of Phoenix. During her tenure overseeing higher education policy from 2002 through 2006, she authored a series of reports outlining an imperative to lift the online learning restrictions – a major impetus for Congress to ultimately scrap the 50 Percent Rule.

Through a spokeswoman, Stroup declined to comment.

AN ONLINE COLOSSUS

Any large industry takes heed of federal policy, but the for-profit college industry has a special interest: It has prospered by positioning itself to capture out-sized shares of federal student aid dollars.

In 2000, for-profit colleges took in 13 percent of the dollar value of Pell Grants, which are awarded to low-income students, and 11 percent of federal student loan dollars overall. By the 2009 school year, for-profit schools were taking in 25 percent of both Pell grants and overall aid, an artery of cash that by then reached $32 billion -- a seven-fold increase in less than a decade.


Intake of federal student loan dollars, by higher education sector
Source: Department of Education

The percentage of students failing to pay back their federal loans has also grown, with nearly a quarter of for-profit college students defaulting within three years of leaving school -- more than twice the rate of students at public colleges, and nearly four times the default rate at private non-profit colleges, according to Department of Education data.

Despite the fact that the online learning rule was lifted five years ago, the Department of Education has yet to collect specific data to track student loan default rates or graduation rates for programs that are mostly online.

Eduventures Inc., a higher education research and consulting firm, estimates that enrollment in college classes that are 80 percent online has more than doubled since 2006 -- when the 50 Percent Rule was abolished -- growing from 1.2 million students to nearly 2.5 million students in fall 2010.


Intake of federal Pell Grant dollars, by higher education sector
Source: Department of Education

The for-profit sector amounts to 43 percent of the total online enrollments, according to the firm, although only about 10 percent of students nationwide are enrolled at for-profit colleges.

The new frontier of online learning -- and the federal dollars that come with it -- has led to a host of new players in the for-profit education industry and continued growth for well-established stalwarts such as Education Management Corp. and the University of Phoenix, which now claims more students than the entire for-profit college sector did 10 years ago. Yet graduation rates for some of the largest online-only universities hover at less than 20 percent.

Among the new players since the rule was abolished is Bridgepoint Education Inc. of San Diego, which purchased a small, failing college in Iowa and grew enrollment from fewer than 350 students in 2005 to more than 76,000 students by the end of 2010. Grand Canyon Education Inc. grew online enrollments from 3,000 in 2003 to more than 42,000 by the beginning of 2011.

For the for-profit college industry, the bottom-line benefits of the online realm are considerable, allowing institutions to deliver courses to students virtually anywhere, without incurring the costs of operating a physical facility.

In the documents released to market its 2009 initial public offering, Education Management Corp., a Pittsburgh company backed in part by Goldman Sachs, noted the merits: "Online offerings are also a cost-effective means for us to utilize many of our existing education curricula and generate attractive returns on capital."

Online enrollments at the company grew fivefold between 2006 and July 2009, when the company went public, according to documents filed with the Securities and Exchange Commission. The Justice Department recently intervened in a whistleblower lawsuit filed against Education Management Corp. that accused the company of illegally handing out bonuses and raises to recruiters based on the number of enrollments they secured.

Major state universities, community colleges and long-entrenched private schools have themselves turned to the web in an effort to supplement their offerings and increase access to college. But experts assert that an absence of adequate quality controls governing the online programs at some for-profit schools make them particularly troubling.

"The bottom line is that the accreditation system just hasn't been modernized, and it isn't really structured to be able to deal with these fully online institutions in the for-profit sector," Donald Heller, director of the Center for the Study of Higher Education at Pennsylvania State University, told the Huffington Post, echoing criticisms he made in testimony before Congress in 2003. "Therefore they're not providing the necessary oversight to ensure that students aren't being fleeced and that money is being well spent."

REPEATING HISTORY

The 50 Percent Rule was put in place in 1992 in an effort to prevent the very problems that are again at the forefront of the conversation.

The rule was the product of a Senate investigation that featured a series of high-profile hearings probing waste and abuse of the federal student aid programs by for-profit colleges.

At that time, the makeup of the industry was much different than today. There were no multi-billion dollar, publicly-traded corporations with national advertising campaigns. Instead, the abuses stemmed from a series of fly-by-night vocational programs -- smaller, family-owned beauty and mechanical schools that made money by swindling unsuspecting students.

Timeline of regulations for the for-profit college industry

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