A tangled web of for-profit connections adds up to more bad news for struggling students.
For-profit college chain Career Education Corporation (CEC) announced last week that William D. Hansen has joined the company’s board of directors. It’s a disturbing validation by Hansen, a former top Department of Education official under George W. Bush, of a predatory for-profit college business, at time when such bad companies are seeking a comeback, now that Donald Trump and Betsy DeVos are abandoning protections for students and taxpayers.
Hansen is the CEO of Indianapolis-based non-profit Strada Education Network. Strada is the new name of USA Funds, which until January, was a student loan guarantee agency and also a loan servicing agency, paid to collect federal student loan debts from borrowers. Now Strada styles itself as a charity, describing its mission as helping students “build a more purposeful pathway through college or other postsecondary education to rewarding careers and fulfilling lives.”
It’s not clear how Hansen’s new public-minded pose squares with service on the CEC board, which will provide him with $150,000 per year in cash and stock, plus $1500 for each meeting he attends.
But we’ll see how it all squares in just a moment.
Career Education Corp.'s record
Career Education Corporation, which has received billions in taxpayer-funded student grants and loans, has been under investigation in recent years by the Federal Trade Commission, Securities and Exchange Commission, and the attorneys general of no less than 21 U.S. states. The predatory practices at overpriced CEC schools have ruined the financial futures of thousands of veterans, single mothers, immigrants, and others seeking to build better lives through career training.
In 2013, CEC agreed to pay $10 million in fines and restitution to New York students over charges by the state that the company significantly inflated its job placement rates in communicating with students, accreditors, and government officials. CEC’s alleged bad acts included: counting as placed in a permanent job a student who worked one day at a health fair created by CEC; counting graduates of criminal justice programs as placed “in field” if they obtained retail sales jobs; and claiming placement rates as ranging from 55 percent to 80 percent, when the actual figures were 24 percent to 64 percent. CEC was also accused of failing to inform prospective students that some of its programs lacked programmatic accreditation, meaning that graduates would have no opportunity to apply for the kinds of jobs for which they thought they were training.
In 2010, CEC agreed to pay $40 million to settle a class action lawsuit brought by students who said its San Francisco-based California Culinary Academy had misled them by claiming that 97 percent of graduates were hired for culinary jobs. The school failed to explain to applicants that that figure included graduates working as baristas, prep cooks, and waiters, jobs for which a degree was not required. The students also alleged that CEC invented fake job placements.
In both the New York and California settlements, CEC admitted no wrongdoing.
CEC also has a history of pushing students into expensive private loans, knowing full well that many students would default, but accepting that cost because it needed non-federal revenue to comply with the federal 90 percent limit on Department of Education funding.
CEC’s chief executive is Todd Nelson, who had previously been CEO of the University of Phoenix and, after that, of EDMC. Both of those companies have faced law enforcement investigations based on conduct that occurred during Nelson’s tenure. Robert Eitel, now at the Department of Education as a senior advisor to DeVos, previously worked at CEC, raising questions about conflict of interest.
But, then, Bill Hansen’s own record, and Strada’s, make his new membership on CEC’s board less surprising, though no less troubling.
Bill Hansen's record
Hansen, as Bush’s Deputy Secretary of Education, helped lay the groundwork for well-documented recruiting abuses by for-profit colleges. Under Hansen, the Education Department, ignoring the advice of university leaders and student advocates, made it easier for for-profit schools to pay recruiters based on the number of students they signed up, despite the fact that such practices were illegal. In 2002, Hansen sent a memo declaring that the Administration would go easy on violators of the incentive compensation ban, fining offenders rather than ending their eligibility for federal aid. The coercive and deceptive recruiting that followed has helped fuel revenues in the for-profit education industry, but has left many students deep in debt and without useful training or degrees.
Although the Obama Administration took a much more sensible approach to for-profit colleges, namely that they shouldn’t be engaging in predatory practices, apparently, as the Department’s inspector general found in March 2015, some Department bureaucrats didn’t get the message, and essentially continued to operate as if the Hansen memo still ruled. Which, technically, and astonishingly, it still did, until Under Secretary of Education Ted Mitchell formally rescinded it in June 2015.
Meanwhile, after joining USA Funds as CEO in 2013, Hansen fought to see that some of the same students enrolled on the basis of such recruiting abuses could be socked with enormous collection fees that went into his company’s coffers.
In 2015, USA Funds sued the Department of Education over a policy letter barring companies from charging loan collection fees to students who defaulted but promptly made arrangements to resume payments.
USA Funds’s complaint said the Department letter was “an obvious response” to a legal brief that USA Funds filed in a separate lawsuit. In that case, a Kansas woman, Bryana Bible, sued USA Funds for assessing more than $4500 in extra collection fees against her to remove her loan from default status. Bible had acted to resume her payments within 18 days of receiving notice of default. USA Funds didn’t care — it wanted its extra $4500 from Bible, and presumably similar fees against a whole bunch more folks.
In January 2017, USA Funds agreed to pay $23 million to settle with Bible and other students, after a federal appeals court sided with her and the Obama administration. But in March the DeVos Education Department rescinded the Obama policy letter that barred predatory collection fees. (The change was announced right around the time that Bill Hansen’s son Taylor, a former lobbyist for for-profit colleges, ended a brief stint at the Department working for DeVos. Strada said it did not ask the younger Hansen for help in changing the policy.)
Before joining the board of predatory CEC, Hansen appeared to take a step toward redemption, when in April he joined the board of directors of the National Urban League, one of the most venerable and honorable civil rights and economic empowerment organizations in our country. But even there, one sees a troubling connection. Urban League CEO Marc Morial himself served on the board of directors of Corinthian Colleges, one of the worst predatory for-profit college chains, until that company was forced to shut down in 2015. While affiliated with Corinthian, and receiving $150,000 annually for his board service, Morial attacked efforts by the Obama Administration to hold predatory schools accountable. Corinthian also donated at least $1 million to the Urban League, although even that cash grant had an apparent self-interested motive.
While stronger government oversight and public scrutiny helped bring down the awful Corinthian and ITT Tech chains near the end of the Obama Administration, predatory for-profit college businesses like CEC, Bridgepoint Education, Education Management Corp., and Kaplan, as well as many smaller operations that behave just as badly, are hanging on, continuing to enroll new students every day, and hoping to thrive again now that the head of Trump University is president of the United States. Bill Hansen’s decision to join the CEC board, while serving as the head of a nominally pro-student charity, is another sign of this troubling resurgence.
The situation becomes more clear, however, when one takes a cursory look beneath the charitable facade of Hansen’s current enterprise. As of the end of 2014, according to its IRS filing, USA Funds had assets of $1.07 billion from its student debt business. This hoard, as a colleague of mine says, is largely “poor people’s money”: things like fees charged to all the Bryana Bibles out there.
Much of that funding is now available for Strada’s charitable use. What are they doing with it?
Strada is paying its executives ― many of them former Republican government officials and for-profit college executives ― handsome salaries. As of 2014, when the company was still USA Funds, the non-profit was paying Hansen about $1.07 million a year. Another $505,000 went to Stephen Ham, executive vice president and CFO, who still holds that title at Strada. Mark Pelesh earned $457,000 from the company in 2014; he joined in 2013 after working for almost ten years as executive vice president for legislative and regulatory affairs at Corinthian Colleges. Carol D’Amico, Strada’s executive vice president, mission advancement and philanthropy, was assistant secretary of education for adult and vocational education in the Bush administration; in 2014 the company paid her $384,000. A newer hire, Strada executive vice president and chief operating officer Thomas Dawson, was deputy assistant secretary for postsecondary education in the Bush administration. Scott Fleming, Strada’s senior vice president, strategy and corporate development, worked from 2001 to 2005 for GOP Senator Mike Enzi on the Senate HELP committee staff, before leaving to work at Chartwell Education Group, alongside Bill Hansen, as a lobbyist for for-profit colleges.
Strada also is engaged with investments in for-profit education businesses. It has a partnership with private equity firm Sterling Partners, which was founded by Chris Hoehn-Saric, who was once the co-CEO of for-profit chain Sylvan Learning Systems (now Laureate, where Strada’s Tom Dawson worked from 2011 until he joined USA Funds in 2015). Sterling is the 88 percent owner of the troubled for-profit law school chain InfiLaw. According to Sterling’s website, the firm’s “Education Opportunity Fund was launched in partnership with Strada Education Network, a mission-driven, nonprofit organization with a focus on promoting a more purposeful path for students to and through college and on to rewarding careers and successful lives. The Education Opportunity Fund will provide capital of between $10 and $25 million per investment platform to distinctive companies that have reached proof of concept and commercial adoption, and are ready for scale.”
Strada’s Mark Pelesh was featured at a private equity education investment conference in New York last summer, along with Sterling Partners’s Jason Rosenberg, and executives from, among other firms, Laureate, Goldman Sachs, and Quad Partners. Among the topics: “Do depressed valuations and a new federal administration mean it’s time to jump back into higher education and career training schools?”
Finally, Strada is providing major grants to education non-profits, gifts with the potential to do much good but also ― as with the Corinthian-Morial partnership ― to turn a potential critic into a silent bystander or even a cheerleader, and to arm existing allies. USA Funds’s 2014 grants, the last year for which they are publicly available, went to organizations including the American Enterprise Institute ($325,000), the Brookings Institution ($245,000), Brigham Young University ($50,000), and the Congressional Hispanic Caucus Institute ($6000). Prior year disclosure forms show that in 2012 and 2013 USA Funds donated a total of $98,600 to APSCU (now CECU), the main lobbying group for for-profit colleges. The US Chamber of Commerce Foundation, the nonprofit educational arm of the hard-line big business lobby, received payments from USA Funds of $2 million in 2013 and $2.09 million in 2014. Also in 2014, the National Urban League got $600,000 from USA Funds.
This is how the fundamental corruption of the student loan business ripples through the entire higher education system. In proper perspective, Bill Hansen’s new membership on the board of predatory Career Education Corporation makes perfect sense.
Strada has not responded to a request to discuss these issues with Hansen or a company representative.
This article also appears on Republic Report.