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Obama Must Stop Giving Taxpayer Billions to Colleges That Ruin Students' Lives

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Tonight at midnight ET is the deadline for people to comment on the Obama Administration's gainful employment rule for career college programs.  Below is the text of my comment (pdf here), just submitted. 

To: Secretary of Education Arne Duncan

Re: Program Integrity - Gainful Employment, Docket ID ED-2014-OPE-0039

Dear Secretary Duncan:

I participate in the work of the coalition of more than 50 organizations, from the AFL-CIO to Consumers Union, the NAACP to National Council of La Raza, Paralyzed Veterans of America to Young Invincibles, who have today submitted a comment urging you to strengthen the gainful employment rule with specific changes, and I join that comment.  I also strongly endorse the comments submitted by coalition participants, including The Institute for College Access and Success, the Center for Responsible Lending, the National Consumer Law Center, New America Foundation, the Mississippi Center for Justice, a comment by ten veterans groups, and a joint comment from Consumer Federation of California, Consumers Union, and negotiated rulemaking participant Margaret Reiter.

I write separately to stress a few points, all of which are driven by the principle embodied by the gainful employment provision that Congress enacted in 1965: Federal aid should go only to those career education programs that actually help students to train for and build careers. Your Department must stop delivering billions of dollars of our taxpayer money to programs that consistently leave a large percentage of students worse off than when they started.

I want to emphasize at the outset that I am not opposed to the idea of for-profit companies providing higher education. There are some good programs today in for-profit education, and some outstanding teachers and students even at poorly-performing predatory schools. With appropriate rules in place, for-profit schools could provide innovative competition for the more traditional higher education sectors, to the benefit of students, taxpayers, and our economy. But there need to be real rules governing the provision of federal aid, sensible rules that give career training schools incentive to compete and make money by helping students, rather than the current rules, which create a race to the bottom in which profits are maximized instead by abusing students.

Such a shift is exactly what a strong gainful employment rule, implementing the statutory mandate, can help accomplish.  And that is exactly what the predatory for-profit colleges are fighting so tenaciously to oppose, because they seem to believe they are permanently entitled to a torrent of federal billions without regard to the quality, or lack thereof, of their performance, or the integrity, or lack thereof, of their operations.  The administration should take this opportunity to disabuse predatory career colleges of that notion, and act decisively to protect students and taxpayers.

What's wrong with these predatory schools? It's pretty simple.

  • Their prices are too high.
  • They admit too many students incapable of succeeding in the programs, and they know it.
  • Their program quality is too low, their reputations are too weak, and their placement efforts are woefully inadequate -- and as a result far too many of their students can't get the jobs and salaries they expected.

How, then, do predatory for-profit colleges sell to students programs that are such a bad deal?  I believe the record on that is clear, as discussed below: through deceptive and coercive marketing and recruiting.

The gainful employment rule should send the predatory for-profit college companies a message that they must end these bad practices, improve their educational quality, fundamentally reform, and do so promptly, or else lose federal aid.

Across America, predatory for-profit colleges injure people

I have worked on public policy issues for more than twenty years. From 2004 until 2012, I was senior vice president at the Center for American Progress and the founding director of Campus Progress, now called Generation Progress, an organization that advocates with and for young Americans on policy issues, including higher education matters. In that position, I became actively involved in the debate on for-profit colleges and gainful employment. I left CAP and Campus Progress in January 2012 to start my own legal and advocacy practice. In this capacity, among other tasks, I have worked with non-profit organizations, government officials, and others on for-profit colleges issues. I also have published numerous articles, combining original reporting and advocacy, on these matters.[1]

In the course of this work, I have been in direct contact with many current and former students, faculty, staff, and executives of for-profit colleges. (Most of them reach out to me with their stories and information, rather than me finding them.) I also, with several colleagues, have reviewed about 1000 student and employee complaints submitted to our coalition organizations.

The students tell of enrolling at for-profit colleges as a result of coercive boiler room tactics, and based on false promises about the quality of programs, the value of degrees, the transferability of credits. They tell of weak academic programs, enormous student loan debts, and resulting personal financial disaster.

Mike DiGiacomo, an Army veteran whose story I told in an e-book I published earlier this year, Stealing America's Future,[2] was deceived and abused and was left more than $85,000 in debt by two of the largest for-profit college companies, Education Management Corporation (EDMC) and Career Education Corporation.  Mike is speaking out on behalf of his fellow students, and, at the urging of our coalition, he launched a CREDO petition calling for a strong gainful employment rule.[3] In less than a month he garnered over 100,000 signers.

Mike DiGiacomo is bright, articulate, and determined. He's good at explaining what happened to him, and, like some other former students, he's committed to warning others about the perils of for-profit colleges, and demanding that government hold these institutions accountable. But what he can't do is escape his own personal financial hell. And neither can hundreds of thousands of other students across America, many of whom just don't know what hit them. They often blame themselves for what predatory for-profit colleges did to them. They're frequently ashamed. They often do not realize that these schools are often sophisticated, scripted scams, rigged to coerce and mislead students into enrolling, deposit their financial aid checks, and blame the student when the credits and degrees prove to be worthless.

The current and former staff, who mostly remain anonymous for fear of losing their jobs or because the schools have forced them to sign non-disclosure agreements, tell of cynical recruiting abuses, systematic lying to prospective students, admission of students whom recruiters know will not succeed in the program, phony job placement operations, regular false reporting to authorities - and demotions and firings of employees whose consciences compel them to stand up for students and honest practices.  The people who reach out to me really care about students, and their pain over what they have experienced is palpable.

A recruiter for an EDMC school wrote about sleepless nights remembering how he "manipulated [a] man's religious beliefs, hopes, and fears" to get him to enroll in a graphic design program he knew the man could never manage or afford to complete.  An employee at a campus owned by Corinthian Colleges wrote to me last week about a mentally disabled student, reading on a second or third grade level, whom she knew would never be a police officer, which was what he was supposed to be training to become in the school's criminal justice program.  She believes that this student could not possibly have understood the papers he signed enrolling him at Corinthian and taking on student loans. "He breaks my heart," she wrote, "and I feel completely helpless."

I have discussed some of these student and staff accounts in my posted articles and in my e-book, but there are many more in my files, and, I am confident, thousands of similar cases around the country.  These personal accounts have deepened my understanding of these issues, and they have strengthened my sense that our country must act urgently to curb abuses in this sector in order to protect students and taxpayers.

The latest arguments advanced by the for-profit college industry are paper-thin

The for-profit college industry's true currency in this debate is not facts or reasoned argument but actual currency -- cash money. The industry has been receiving as much as $33 billion a year from taxpayers in Department of Education aid plus military and veterans educational aid. Despite declining enrollments and plunging share prices amid mounting public awareness of industry abuses, the industry still has a great deal of money to spend on lobbyists, public relations experts, and economists, and on campaign contributions for Members of Congress. The industry's wealth buys a wide range of these paid friends and endorsers.[4]  Right now, they are using those means and connections to seek to derail the gainful employment rule.

For many of the members of Congress who are actively opposing the gainful employment rule, the most loyal and active donor and fundraiser they have is a for-profit college owner.  Multiple congressional staffers have admitted this to me in explaining why their bosses have voted to stand with these wealthy owners instead of with the veterans, single parents, and others who have suffered at the hands of predatory colleges. These for-profit college owners are highly motivated to assist members in fundraising, because their business is almost entirely dependent on congressional, i.e., taxpayer, support.

The industry continues to pursue an aggressive strategy to attack the administration's efforts to hold it accountable.  A February 2014 strategy document from the for-profit colleges trade association, APSCU, suggests that even before the Department of Education completed the negotiated rulemaking sessions leading to the proposed rule, APSCU was contemplating not only lobbying to weaken the regulation but also filing another lawsuit to strike down the rule a second time.[5]

But the for-profit colleges, directly and through their paid friends and consultants, do feel compelled to put forth arguments in support of their positions. Unfortunately for them, these arguments do not bear even minimal scrutiny.

APSCU delivered at its meeting with White House officials earlier this year a document warning that the gainful employment rule will "deny access to nearly 2 million students."[6]

The Department has a lower estimate for the number of students whose programs may be placed in jeopardy by the rule.  But the real question is, access to what?  If a gainful employment rule ultimately prevents some students from enrolling in programs that will leave them worse off than when they started, that is a good thing.  That is what the gainful employment provision that Congress enacted in 1965 intends, and that's what the regulation implementing that law should do. In far too many cases, predatory for-profit college programs hurt students, and they divert taxpayer money from higher quality education programs.

The weak programs include many of the programs run by some of the biggest companies in the industry, with a huge share of the student market: the University of Phoenix, Education Management Corporation, DeVry, Kaplan, ITT Tech, Corinthian Colleges, Career Education Corporation, and Bridgepoint Education.

All of these companies and others in the industry are now under investigation by federal and / or state law enforcement agencies for their treatment of students or their reporting to regulators. A bipartisan group of more than two dozen state attorneys general are now probing for-profit college companies, as are the U.S. Justice Department, Federal Trade Commission, Securities and Exchange Commission, Consumer Financial Protection Bureau, and your own Department of Education.  Below I have appended a memorandum that I have compiled and posted online[7] with references to many of the current and recent government investigations of major players in the for-profit college industry.

Many of these matters are still pending, or they have been settled without the company in question admitting guilt. But the facts alleged are overwhelming, and they are consistent with Senator Tom Harkin's (D-IA) comprehensive investigation of the industry[8], with numerous media reports, and with the accounts from insiders that my colleagues and I hear on an almost-daily basis.  These career education programs are in dire need of improvement, to say the least, and it is entirely appropriate that the gainful employment rule put some of them at risk of losing taxpayer support.

A similar "sky is falling" argument was advanced by the CEO of Corinthian Colleges, in the company's latest earnings call[9], when he cited a report[10] by the company Edvisors that concludes that 42 percent of programs at for-profit colleges will "lose eligibility" for Title IV aid, when weighted by enrollment, if the current draft gainful employment rule is implemented.  Edvisors is a lead generation company; it describes itself as "a leader in student marketing," specializing in "consumer product marketing and lead generation,"[11] so it might have incentives to bolster the arguments of the for-profit colleges.

But the more important point is that the Edvisors report is fundamentally flawed on the merits.

The analysis purports to find the number of students and programs that "will lose eligibility" based on just one year's measure of data. But, in fact, under the proposed rule, programs would not lose eligibility based on their gainful employment measures in any one year; it would require two to four years of bad performance to lose eligibility.

The Edvisors analysis further assumes that career education companies have been and will be paralyzed and unable to adapt to the rule by improving the quality of their programs beyond their low-performing efforts in recent years.  In fact, because the rule requires a school to flunk its test over several years before losing eligibility for aid, it would ease in its reforms, giving companies time to adjust their behavior, and students time to adjust their plans. Indeed, the looming gainful employment rule already seems to have prompted many career colleges to undertake reforms - such as freezing or lowering prices, or offering students trial periods.[12] Meanwhile, there is time for higher quality career education programs to emerge from other, more capable providers and to better serve students.

In fact, given what we now know about the abuses of many for-profit colleges, what is concerning is not that the current proposed rule might potentially put at risk 42 percent of current for-profit college programs.  What is concerning is that, accepting the Edvisors analysis as true, 58 percent of for-profit college programs would walk away, scot-free, with no major concerns about the gainful employment rule, no need to seriously reform.  That is one of many indicators that the current proposed rule is in fact too weak and needs to be strengthened along the lines that our coalition has suggested.

What is concerning is that, based on the data that the Department released with the proposed rule, there are 114 programs -- all at for-profit colleges -- where students receiving federal aid are more likely to default on their loans than to graduate.[13]  This figure actually understates the problem, because it relies on defaults from one cohort year compared with two years' worth of completers, and because many for-profit colleges manipulate their default rates to understate the debt problems their former students face.[14]  What is concerning is that 20 percent of these programs with more defaulters than graduates actually pass the current proposed gainful employment rule, and that even the 68 percent of programs that fail outright would still be eligible for federal aid unless they failed the next year.

Another report trumpeting a "sky is falling" scenario is a new one prepared for APSCU by their long-time paid economist, Professor Jonathan Guryan of Northwestern University, and Matthew Thompson, Ph.D., of the consulting firm Charles River Associates.[15]  This paper repeatedly worries that matters outside of the industry's control, such as a declining economy, may unfairly penalize for-profit colleges.  But in weighing the balance of harms, it is entirely appropriate for the administration to emphasize the harms to students and taxpayers from weak career education programs over the harms to companies that they may lose aid for their programs.  It is entirely appropriate for the administration to heavily weigh the severe harm every academic year when perhaps 300,000 students enroll in for-profit colleges, many in programs that will leave them jobless and with insurmountable debt.

Eligibility to receive federal aid should be considered a privilege that career colleges must continually earn, rather than a permanent entitlement that they may presumptively possess forever.  Thus it also is entirely reasonable for the gainful employment rule, as the current proposal does, to require programs to pass multiple independent tests in order to retain eligibility, rather than, as the 2011 final rule did, make each test an independent way to escape accountability.  Using "and," not "or" thresholds is the appropriate approach to a problem of this documented magnitude, especially given all we have learned since 2011, from the Harkin report, law enforcement investigations, and media reports, about industry abuses and cynical behavior.

APSCU and its member schools also have claimed that their failure to help many of their students is not because their schools lack quality but because of the socio-economic status of the students they admit.  But APSCU's own study (when it was still called the Career College Association) concluded that even after accounting for differences in student demographics, students who attended for-profit colleges are at least twice as likely to default on student loans as students at public and non-profit colleges.[16] An Education Trust study concluded that at colleges where generally all applicants are admitted, the graduation rate at 4-year for-profit colleges (11 percent) was about three times lower than the rates at public and non-profit 4-year colleges (31 percent and 36 percent, respectively).[17] A June 2012 paper from the National Bureau of Economic Research, authored by Professor Kevin Lang and Russell Weinstein, both of Boston University's Department of Economics, found that "even after controlling for an extensive set of background variables, students at for-profit institutions do not benefit more and often benefit less from their education than apparently similar students at not-for-profit and public institutions."[18]

Another point in the industry's filibuster is the claim that the same gainful employment rule should apply to all higher education programs, not just career education programs and those at for-profit schools, and that unless the administration wants to issue a uniform rule covering every sector, it should issue no rule at all.

In the first place, purveyors of this argument often obscure the fact that the gainful employment rule would in fact apply to all career education programs, not just those at for-profit colleges.  It's just that only for-profit college programs are at serious risk of flunking, owing to the toxic mix of high prices and low quality that these programs often present.  The industry's complaint is like a bank robber complaining that the bank robbery statute applies only to bank robbers.

Beyond that point, there are excellent reasons for the gainful employment rule to apply only to the subset of programs to which it is directed. One fundamental reason is the law: Congress, in the 1965 statute, mandated that the executive branch impose a gainful employment requirement on the career sector.  The administration has no such mandate or authority with respect to other higher education programs.

Further, while there is a ton of evidence that many former for-profit college students are deep in debt and highly dissatisfied with their experiences at their schools, there is nothing comparable to that recorded degree of dissatisfaction at most other higher education programs, even those that produce high levels of debt.  We have seen advocates for for-profit colleges point to the high debt levels of students at more selective institutions.  While their sympathy for the impoverished graduates of Harvard Medical School[19] is kind indeed, those students, for the most part, are not asking for the Department of Education's help; most of them will be just fine.  And those institutions, in general, are not under investigation for lying to students or deceiving regulators.

Although there certainly are higher education programs outside the career education sector that are producing too much debt and too many bad outcomes, it is clear that by far the biggest problem is in the career sector, and, within that sector, at for-profit institutions. If the Department of Education was a fire department, it couldn't say it would refuse to fight a four-alarm blaze in a packed skyscraper because there were some other nearby buildings with burning toasters.

In its desperation, the for-profit college industry also has sought to redefine the concept of gainful employment beyond any reasonable understanding, implying, as the Guryan-Thompson APSCU paper does, that years of dire financial straits are acceptable for the economically vulnerable populations - single parents, veterans, immigrants, and others -- that predominate in many career education programs [20], or that, in the words of Steve Gunderson, CEO of APSCU, "Debt-­related metrics are not appropriate determination of academic quality"[21] -- an assertion that might trouble the students across the country who have enrolled in career training programs precisely so they can earn a good living, support their families, and avoid excessive debt.  And this, also from Gunderson: "If you are a student who goes into a career that is personally rewarding but probably not financially rewarding and you are low income, and you work either in rural America or in the intercity, you are now being told you can't do that anymore, even though that's what you wanted to do."[22]

What Gunderson appears to be saying is that a serious gainful employment rule would deny Americans the right to attend a program that is extremely expensive -- so expensive that it would be difficult to pay back your student loans even if you actually managed to obtain the job you were seeking when you enrolled.  In other words, the rule might eventually shut down programs that left students $100,000 in debt and, at best, positioned them for a $30,000 job as an assistant chef or medical assistant, with not enough earnings to pay down their loans.

Well, yes: The whole point of the statute and the proposed rule is to protect students and taxpayers by giving career colleges incentives to lower their prices, raise their quality and improve their job placement efforts. The big for-profit colleges get about 86 percent of their revenue from federal aid.  It's a government program, not a free-market program.  And it is absolutely appropriate to condition that federal aid on the schools delivering quality programs, at fair prices, that lead to jobs with earnings that allow former students to support themselves.

This administration knows better than to fall for such thin arguments from the for-profit college industry.  People's lives are being ruined by the cynical business model of predatory actors in the for-profit college industry, and the administration must take deliberate and strong measures to protect our students and our federal investment.

It's time for the Executive Branch to act decisively

President Obama himself has made clear that he fully understands what has been happening in the for-profit college industry, and what is at stake now.

Speaking at Fort Stewart, Georgia, in April 2012, the President described vividly the coercive and deceptive recruiting tactics that for-profit colleges use. These schools, he told the soldiers, "don't care about you; they care about the cash." One of their recruiters, the President said, "had the nerve to visit a barracks at Camp Lejeune and enroll Marines with brain injuries -- just for the money. These Marines had injuries so severe some of them couldn't recall what courses the recruiter had signed them up for. That's appalling. That's disgraceful. It should never happen in America." He said such schools were "trying to swindle and hoodwink" service members, and he promised to put an end to it.[23]  Speaking off the cuff at Binghamton University in New York in August 2013, the President returned to these themes, warning that some for-profit colleges were failing to provide the training and certification that students thought they would get when they enrolled. In the end, he said, the students "can't find a job. They default.... Their credit is ruined, and the for-profit institution is making out like a bandit."[24]

Mr. Secretary, unlike the heartbroken staff member at the Corinthian campus who wrote to me last week about the disabled student, you and the president are decidedly not helpless to address this problem. You have the power to do something right now that could make a huge difference in efficiently channeling taxpayer resources, lifting people out of poverty and hardship and into solid middle-class lives, stemming a dangerous tide of student loan debt, and strengthening our economy and competitiveness.  You can take a huge step toward advancing all of those goals with a strong gainful employment rule.

The for-profit college industry's wealth prompts friends of the administration, from Wall Street to Capitol Hill, to bombard you with calls, pressuring you to "moderate" your approach. But it's time to stop listening to these paid merchants of false arguments, and time to act based on the facts and the national interest.  It's time, long past time - after decades of industry abuses -- for a President to stand up for students and put federal student aid on more solid ground.

The administration should not issue a gainful employment rule that effectively condones conduct that has already been labeled fraud by federal investigators and state prosecutors, and by the President himself.

The president, early on, pledged to take on special interests and make Washington work for people. He also has launched initiatives to ensure that more Americans can successfully train, at prices they can afford, for real careers that support their families. And he has specifically promised to protect veterans and other students from predatory practices by career colleges. All of these Obama goals would be undermined severely, hundreds of billions more will be wasted, and the lives of countless more students will be ruined, unless his administration issues a strong gainful employment rule.

The president has made the case.  The facts bear him out.  Only a strong gainful employment can fix the problem, protect our federal aid system, and give students a real chance to succeed.  You need a tougher rule, with improvements as suggested by our coalition.  The current draft rule won't quite get the job done, and a weaker rule would be an absolute travesty, a betrayal of your administration's stated goals.  Please make the right choice.


[1] Many of my articles on these issues are collected at: http://www.huffingtonpost.com/davidhalperin/ . My work on higher education issues is supported by The Ford Foundation, by the non-profit groups the Center for Public Interest Law and The Institute for College Access and Success, and by an individual donor who has no financial interest in these matters.

[2] http://www.amazon.com/dp/B00JAJGIIK.

[3] https://www.credomobilize.com/petitions/hold-predatory-career-colleges-accountable-for-abusing-students-and-ripping-off-taxpayers

[4] See David Halperin, "The Perfect Lobby: How One Industry Captured Washington, DC," The Nation, April 3, 2014, http://www.thenation.com/article/179161/perfect-lobby-how-one-industry-captured-washington-dc#

[5] See David Halperin, "Exposed: For-Profit Colleges' Blueprint for Blocking Obama Regulations," Huffington Post, May 5, 2014, http://www.huffingtonpost.com/davidhalperin/exposed-for-profit-colleg_b_5256688.html

[6] http://www.whitehouse.gov/sites/default/files/omb/assets/oira_1840/1840_02102014b-1.pdf

[7] http://www.republicreport.org/2014/law-enforcement-for-profit-colleges/

[8] http://www.harkin.senate.gov/help/forprofitcolleges.cfm

[9] http://investors.cci.edu/events.cfm

[10] Mark Kantrowitz, "U.S. Department of Education Proposes Stricter Gainful Employment Rule," April 28, 2014, http://www.edvisors.com/student-aid-policy/stricter-gainful-employment/#sthash.mv5yYtcV.dpuf

[11] http://www.edvisors.com/downloads/edvisors-data-overview.pdf

[12] See David Halperin, "Gainful Employment Rule for For-Profit Colleges: Eminently Fixable, Eminently Necessary," Huffington Post, April 15, 2013, http://www.huffingtonpost.com/davidhalperin/gainful-employment-rule-f_b_3084580.html

[13] Debbie Cochrane, The Institute for College Access and Success, "Where More Default Than Graduate: Career Education Program Parasites," May 15, 2004, http://views.ticas.org/?p=1301

[14] The Institute for College Access and Success, "New Data Confirm Troubling Student Loan Default Problems,"http://www.ticas.org/files/pub/CDR_2013_NR.pdf

[15]  Jonathan Guryan and Matthew Thompson, "Report on the Proposed Gainful Employment Regulation," May 23, 2014.

[16] http://www.republicreport.org/wp-content/uploads/2013/11/CCA-study-on-default-rates-controlling-for-demographics.pdf

[17] Education Trust, "Subprime Opportunity," November 2010, http://www.edtrust.org/sites/edtrust.org/files/publications/files/Subprime_report_1.pdf

[18] Lang & Weinstein, "Evaluating Student Outcomes at For-Profit Colleges," June 2012, http://www.nber.org/papers/w18201

[19] http://washingtoninformer.beta.lionheartdms.com/news/2014/apr/02/gainful-employment-rule-throws-black-students-loss/; http://www.huffingtonpost.com/lanny-davis/does-gainful-employment-p_b_736269.html

[20] Guryan and Thompson at 17.

[21] See David Halperin, "Exposed: For-Profit Colleges' Blueprint for Blocking Obama Regulations," Huffington Post, May 5, 2014, http://www.huffingtonpost.com/davidhalperin/exposed-for-profit-colleg_b_5256688.html

[22] Steve Gunderson, "Exploring the Merits of the Gainful Employment Rule," The evolllution, http://www.evolllution.com/opinions/audio-exploring-merits-gainful-employment-rule/

[23] http:// www.whitehouse.gov/ the-press-office/ 2012/ 04/ 27/ remarks-president-and-first-lady-fort-stewart-georgia

[24] http:// www.whitehouse.gov/ the-press-office/ 2013/ 08/ 23/ remarks-president-town-hall-binghamton-university