BUSINESS
09/19/2013 07:43 am ET Updated Sep 19, 2013

How For-Profit Colleges Stay In Business Despite Terrible Track Record

Damon Dahlen, Huffington Post

By every available indication, Corinthian Colleges Inc., one of the country's largest chains of for-profit colleges, stands out as an institution whose students face especially long odds of success.

At nearly half of Corinthian's schools, more than 30 percent of students default on their federal loans within three years of leaving campus, according to the most recent federal data. California last year cited excessively high default rates in denying access to state tuition grants at 23 of the company's campuses. Over the last three years, attorneys general in eight states and the federal Consumer Financial Protection Bureau have probed Corinthian's recruitment claims and financial aid practices, raising the prospect of lawsuits.

Yet by the reckoning of the accrediting bodies that are supposed to scrutinize Corinthian's 97 U.S. campuses, its schools are meeting standards on student debt and adequately preparing graduates for jobs. Over the past decade, Corinthian's schools have remained fully accredited, enabling the publicly traded company to tap federal student aid coffers for nearly $10 billion, or more than 80 percent of its total revenues, according to a Huffington Post review of securities filings and disciplinary records maintained by its accreditors.

Corinthian's success in maintaining accreditation even as its students sink into default typifies the state of play in the for-profit college industry and underscores both the incentives and the provenance of the people doing the accrediting work: Accrediting agencies receive their funding from fees paid by the very colleges they monitor. The review teams they dispatch to visit and rate schools are composed of volunteers from other schools accredited by the same agencies.

During a congressional hearing on higher education policy held earlier this year, one expert likened this arrangement to the cozy practices that fueled the last financial crisis, when Wall Street banks hired credit-rating agencies to certify the sanctity of the bonds they forged from risky mortgages.

"This is like bond ratings firms giving AAA ratings to mortgage-backed securities sold by the same firms that pay their fees," Kevin Carey, the director of education policy at the New America Foundation, said at the hearing. "It does not work out well in the long run."

The accrediting bodies that oversee for-profit colleges are stocked with executives from the same companies whose programs they monitor. A Corinthian executive vice president for marketing, William Buchanan, serves on the board of the Accrediting Commission for Career Schools and Colleges (ACCSC), the body that certifies nearly half the company's schools. Most of its other schools are accredited by the Accrediting Council for Independent Colleges and Schools (ACICS), whose board includes another Corinthian senior executive, David Luce. Neither executive responded to requests for comment through a company spokesman, Kent Jenkins.

Jenkins said the Corinthian executives each represent only one voice on their accrediting boards and are not allowed to vote on or discuss matters related to their company's schools.

As evidence of Corinthian's quality programs, he pointed to the fact that one of its WyoTech campuses had the highest graduation rate among two-year for-profit colleges, according to a recent ranking by the Chronicle of Higher Education.

Jenkins acknowledged that the company has had issues with high student loan default rates at its schools, but added that the numbers have improved following the launch of a Corinthian program aimed at limiting defaults. The company contacts former students who have fallen behind on their loan payments and informs them of alternatives to default, such as deferring their debts.

"It is wrong to suggest that our schools do not offer a quality education," Jenkins said. "If the goal here is to try to question the quality of education that our schools offer, and then turn around and question the accreditation process, then I would dispute the underlying assumption."

Collegiate accrediting agencies play a decisive role in determining which institutions gain a slice of the $100 billion-plus the federal government distributes in student aid funding each year. The seal of approval from accreditors has been uniquely crucial to the for-profit college industry, which over the past decade has seen enrollment expand at nearly 10 times the rate of the rest of American higher education.

Far from discriminating arbiters of quality, accrediting bodies have consistently certified schools whose students have been most prone to defaulting on their federal loans, conferring legitimacy on some of the worst-performing institutions, a Huffington Post investigation has found.

The two accrediting bodies that oversee Corinthian -- the Accrediting Commission for Career Schools and Colleges and the Accrediting Council for Independent Colleges and Schools -- also collectively monitor nearly 60 percent of all American for-profit colleges. They preside over almost half of those schools with the nation's worst student loan default rates, HuffPost found through a compilation of federal data.

The boards of these two accrediting agencies are packed with executives from prominent for-profit college corporations. Ten of the 15 board members supervising the ACICS are drawn from the industry, including executives from Corinthian, Education Corporation of America and ITT Technical Institute. On the ACCSC board, industry executives fill eight of the 13 slots, representing publicly traded companies such as Universal Technical Institute and Kaplan Higher Education.

"The federal government is being played for a chump," Sen. Richard Durbin (D-Ill.), a critic of for-profit colleges who has put forward legislation to reform student loans, told HuffPost in a recent interview. "The for-profit schools' accreditation agencies are guilty of some of the worst conflicts of interest. They are part of the same industry, and they pat one another's backs and rub each other's bellies while students and the taxpayers get cheated."

The accrediting agencies argue that they serve the public interest by using the experience and expertise of executives who have worked in the for-profit college industry. They add that for-profit college executives who serve on accrediting boards themselves demand rigorous standards to safeguard the reputations of their schools.

"These individuals would have nothing to gain and everything to lose by making the process easier," said Albert Gray, executive director of the ACICS. "The integrity of their institutions is what gives them market value."

The executive director of the ACCSC, Michale McComis, was unavailable for comment.

Some deride this logic as the same sort of fanciful thinking that enabled Wall Street to sell toxic piles of mortgages as supposedly rock-solid investments -- a faith that the market can be trusted to discipline bad actors.

"This is like putting the banks in charge of regulating themselves," said Barmak Nassirian, director of federal policy analysis at the American Association of State Colleges and Universities. "We kind of already did that, and it didn't pan out. So I don't understand why we're doing it with accreditation."

BUSINESS AS USUAL

The laissez-faire standards that govern college accreditation present a stark contrast to the data-centric rules increasingly in force through much of American public education.

In recent years, major school districts have pressed to hold teachers and principals accountable for the achievements of their students on standardized tests, with the worst performing schools shuttered. Yet none of the top for-profit colleges has had its accreditation revoked, according to HuffPost's review of a decade's worth of regulatory filings at the five largest publicly traded for-profit college companies.

Some, such as those in Corinthian's Everest College chain -- which had 14 schools disqualified from state funding in California -- have been required to file additional paperwork and assent to follow-up reviews after concerns about low job placement and student completion rates. But they have ultimately secured continued accreditation.

Gray, the ACICS executive director, acknowledged that his agency rarely revokes accreditation. That speaks to the high quality of the agency's standards, he said, because schools have to go through a lengthy process up front in order to gain recognition in the first place.

"We would be concerned if revocation was a common occurrence," said Gray, "because that would tell us something about the rigor of the accreditation process."

In recent years, accreditors have failed to detect schools reporting fraudulent job placement rates, a key standard for accrediting organizations that oversee programs marketing themselves as career-oriented schools. Managers at Career Education Corp., one of the nation's largest for-profit college corporations, falsified job placement rates over the course of at least three years from 2008 through 2011, in some cases asserting that students working at a single-day job fair had been successfully placed, according to an investigation by the New York attorney general's office.

Based on the false data, the company was able to avoid greater scrutiny from one of its primary accreditors, the ACICS, which required job placement rates of at least 65 percent.

The ACICS only learned of the fraud after the New York attorney general's office began probing the company's rates, prompting Career Education Corp. to do its own internal audit, according to disclosures in securities filings. Nearly three-quarters of the company's programs accredited by the ACICS would have failed the job placement standards if the company had reported numbers accurately, the audit found.

Those findings led to the resignation of the company's chief executive, Gary McCullough. Yet even after the company acknowledged its deceit, the accreditors chose not to revoke their seal of approval.

Gray said accreditors put many of the company's campuses on a "heightened monitoring" status. He said Career Education Corp. was able to bring some of the campuses back into compliance on job placement rates, and that company officials voluntarily closed other schools that were unlikely to meet accreditation standards.

"Once a school is found to be out of compliance, we give them a certain amount of time to work with us and report to us, to come back in line," Gray said.

Mark Spencer, a spokesman for Career Education Corp., said the company came forward to its accreditors as soon as the job placement problems were identified. He said the company's schools were placed on probation, which required additional disclosures to students and a prohibition on starting new programs.

"The accreditation enforcement process is not meant to be purely punitive, but corrective, so that students' long-term interests are protected," Spencer wrote in an email. "Those who suggest schools should be closed instead of being afforded an opportunity to make corrections and improve performance fail to take into account the negative impact that a school closure has on both current students and alumni."

Public officials who have investigated for-profit colleges question whether accreditors with limited staffing are simply outmatched by multi-billion-dollar corporations spanning dozens of states.

The ACICS and the ACCSC each have fewer than 50 full-time staff members, yet the ACICS accredits more than 900 institutions and the ACCSC oversees more than 800.

Both organizations recorded combined revenue of less than $20 million in 2011, according to their most recent income tax filings. Career Education Corp. alone posted revenues of more than $1.4 billion last year.

A former California deputy attorney general, Margaret Reiter, investigated several for-profit colleges in the state over the course of her two-decade career. She came away with the impression that accreditors were behind on every case.

"The accreditation did not prevent the practices that we alleged were unlawful, deceptive and fraudulent," Reiter said. "Even though some of these accreditors are focused entirely on the career programs, they don't have any particular form of training, expertise or educational background to investigate whether or not what's being told to them is accurate."

Three years ago, U.S. Education Secretary Arne Duncan convened a federal advisory group to draft suggestions on how to tighten the accreditation process. Several of the resulting recommendations called for accreditors to work more closely with state and federal regulators to protect students against marketing abuses. The panel proposed directing accreditors to focus their attention on institutions that "present greater potential cause for concern."

Another suggestion laid out a more radical approach: Sever the connection between accreditation and eligibility for federal student aid. Accrediting organizations could pursue their missions however they please, while leaving to the federal government the role of determining which programs ought to be eligible for student aid dollars.

Congress has in recent years held hearings to probe complaints about shortcomings in the accreditation process, with another panel set for a Senate committee on Thursday, but talk has yet to turn into legislation.

"Right now we're in this stage where people recognize there's an issue and they want something to be done, but they're not sure what," said Ben Miller, a former senior policy adviser in the Department of Education and now an analyst at the New America Foundation. "There's more frustration than answers."

VAGUE MANDATE

The American system of collegiate accreditation dates back to the turn of the 20th century, long before the federal government got into the business of subsidizing higher education.

It began as a system of voluntary peer review for colleges, a way for certain institutions to gain outside recognition by allowing professors and administrators from other schools to critique and evaluate their curricula.

But after World War II and the passage of the GI Bill, the government looked to accreditors as a way to distinguish proper colleges from the fly-by-night diploma mills that were cropping up throughout the country to capture federal dollars from veterans' benefits.

When Congress created federal financial aid programs as part of the 1965 Higher Education Act, the law said that only accredited institutions would be eligible to receive funding. Accrediting bodies, in addition to the federal government and state regulators, became the third oversight tool for higher education.

But even as the federal government began pouring billions of dollars into student aid, the mandate for accreditors has remained hazy. Accrediting bodies were private, peer organizations left largely to their own devices, yet they also wielded tremendous power as proxies for federal agencies, effectively determining which institutions could tap government student aid coffers.

"The government didn't want to get into the business of fixing colleges, so in a very pragmatic, uniquely American way, they looked around and said, 'Lucky us, there's already a process in place,'" said Nassirian, of the American Association of State Colleges and Universities. "That makes a lot of sense. Except that when you tie billions of dollars of federal money to any process, you inevitably change the internal dynamics."

During the late 1980s and early 1990s, as students at for-profit and vocational schools began defaulting on federal loans in large numbers, Congress began scrutinizing these institutions. Hearings by the Senate Permanent Subcommittee on Investigations documented widespread fraud among dubious institutions that were seeking to capitalize on federal student aid.

Congressional investigations in part laid the blame on accrediting bodies for continuing to certify trade and vocational schools that didn't deliver the promised career training.

A House higher education funding bill from the early 1990s proposed taking away the accreditors' ties to federal aid funds. The bill cited testimony from the Department of Education's inspector general that "billions of dollars available to students each year through loans and grants are at risk, in part because the recognition process does not assure that the accrediting agencies use appropriate and effective policies to accredit schools."

Congress ultimately decided to leave responsibility with the accreditors, but laid out new standards that accrediting bodies had to consider in examining colleges -- among them, default and graduation rates, and the percentage of graduates who landed jobs in their chosen field of study.

In the years after the congressional investigations, government auditors continued to raise questions about how accreditors were rating colleges, particularly for-profit programs. A 1996 report from the U.S. General Accounting Office (now the Government Accountability Office) found that accrediting agency staff "do not have the experience and expertise for reviewing and accrediting proprietary schools."

One area of particular concern through the years has been measuring job placement rates at vocational colleges that recruit students with promises of career training. A Department of Education inspector general's report from 2003 found that staffers were not requiring all accrediting bodies to evaluate job placement rates.

The problem stemmed from the decentralized nature of accreditation. The traditional college accrediting organizations that had existed for nearly a century -- known as regional accreditors -- did not evaluate job placement, even though they were overseeing more and more for-profit programs. The so-called national accreditors that usually catered to career colleges looked at job placement rates, but there was very little consistency in standards across the organizations.

In 2005, the Education Department's inspector general, Thomas A. Carter, testified before a House committee that many accreditors were allowing schools to "establish their own standards for student achievement, without any specified minimum standard." Those that did consider job placement had flaws in their methodology that caused the rates to be "overstated," he said.

DUBIOUS BOOKKEEPING

One institution stood out for its particularly brazen manipulation of job placement numbers: Career Education Corp., the bearer of a voluminous record of whistleblower lawsuits and run-ins with government investigators.

Nearly a decade ago, California regulators restricted the company's license to run the Brooks Institute of Photography in Santa Barbara after investigators concluded that the company was misleading prospective students about their job prospects. The state fully reinstated the company's license in 2007, after a judge ruled that the regulators hadn't followed the proper procedures during the investigation. Between 2005 and 2007, the federal Department of Education restricted the company's expansion as it investigated a "history of noncompliance" with financial aid rules.

The separate investigation of the company's falsified job placement records by New York Attorney General Eric Schneiderman led to a $10 million settlement last month.

In a statement, Schneiderman said stricter requirements from accreditors could prevent schools from continuing to mislead students. "We've seen too many instances where students are deceived by for-profit education companies, and I would hope that accreditors seriously consider improving and strengthening their oversight practices," he said.

During this period and up to the present day, none of the Career Education Corp. schools saw its accreditation revoked, according to the company's securities filings.

Spencer, the Career Education Corp. spokesman, said the company has made many improvements on job placement, including hiring an independent third-party auditor to verify data and hiring "dozens of additional career service staff" at its schools.

"As soon as we identified the administrative practices at some of our schools that were inconsistent with our internal policies, we came forward to announce our findings and discuss the corrective actions we were taking to remedy the situation," Spencer wrote in an email.

Gray, the ACICS executive director, said the accreditor is launching a call center to verify the job placement data that schools report. Previously, the agency only checked the data when schools were up for review, anywhere between every three and six years.

"We acknowledge that there have been some problems in that area," he said. "This is one example of where we're increasing the rigor of the accreditation."

Corinthian Colleges has its own checkered history on job placement figures, and paid $6.5 million in 2007 to settle an extensive investigation by the California attorney general's office. State prosecutors had amassed evidence that the school was systematically misleading prospective students by advertising job placement rates that were as much as 37 percent higher than reality. Three years later, the company said leaders of a college in Texas had been falsifying employment records of graduates.

Yet accreditors never rescinded the certification of any Corinthian school.

Jenkins, the Corinthian spokesman, said the issue in Texas was an isolated incident and noted that company officials immediately came forward to regulators once they discovered the discrepancies. As for the California litigation, he pointed out that the company admitted no wrongdoing as part of the settlement.

"We have six years of a track record of placing tens of thousands of students" in jobs, he said. "And in California since that time, I don’t know of anybody who has raised questions about those numbers."

Jenkins said the company maintains a central corporate database that verifies the accuracy of job placement information. Schools hold career fairs throughout the year where "literally hundreds of employers" come to interview graduates, he said.

"Our graduates are getting a quality education and employers want to hire them because they are getting the skills they need," Jenkins said. "There are many clear and significant indicators that our schools offer quality career education."

Corinthian's filings at the Securities and Exchange Commission show that its accreditors have remained concerned about the company's job placement and completion rates. The filings detail a lengthy back-and-forth over the last decade in which some schools were placed on probation or asked to "show cause" for why they should keep their accreditation.

Those sanctions triggered a months-long process of paperwork and site visits. But in almost every case, Corinthian's schools were eventually moved out from under the special monitoring and granted renewed accreditation. The company chose to shut down one school in Georgia that had been on probation.

Experts say the failure of accrediting bodies to withdraw certification speaks to the basic financial arrangements at work: Revoking accreditation reduces the number of schools to monitor, and that reduces the fees the accreditors can collect.

"It's not like there's active policing going on," said Miller, the former Department of Education senior policy adviser. "You get under incredible amounts of pressure whenever you try to take someone's accreditation away."

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