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States crack down on for-profit universities

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When Hannah Benbow ran into problems with the for-profit college she attended, she turned to the federal government for help.

Benbow, 24, wrote to the U.S. Department of Education when the Art Institute of Washington in Arlington, Va.—one of more than 50 for-profit Art Institute campuses across the country—told her unexpectedly that she would need to apply for yet another student loan, on top of the nearly $120,000 she’d already borrowed, to cover $7,000 in fees she said were not disclosed to her before she signed up.

“Since my parents and family have already co-signed my other ridiculous amount of loans, they were denied on this one,” Benbow wrote in her letter to the agency, whose responsibilities include regulating higher education.

She never got an answer.

California Attorney General Kamala Harris points to a map as she speaks during a news conference on October 10, 2013 in San Francisco, California. Harris announced the filing of a lawsuit against the for-profit Corinthian Colleges and its subsidiaries for alleged false advertising, securities fraud, intentional misrepresentations to students and the unlawful use of military insignias in advertisements. Santa Ana, California-based Corinthian Colleges operates 111 total campuses in North America with 24 Heald, Everest and WyoTech colleges in California that have an estimated 27,000 students. (Photo by Justin Sullivan/Getty Images)

Oversight of for-profit colleges and universities by the U.S. Department of Education has been mired in political quicksand and thwarted by the colleges’ effective lobbying and legal challenges. But now, states and other federal agencies are stepping in and cracking down.

Attorneys general across the country are investigating for-profit colleges accused of leaving students with overwhelming loan debt and without marketable job skills. At least 32 states are working together to investigate the schools, and 14 of those have already filed subpoenas for information, while several more are working independently on similar cases.

In cooperation with several of these states, the new federal Consumer Financial Protection Bureau—the agency set up after the financial downturn to regulate financial institutions—has sued ITT Education Services for predatory lending practices, the CFPB’s first such lawsuit.

Corinthian Colleges, which, like ITT, has been accused of abuses, has also noted in regulatory filings that the CFPB was considering legal action against it.

The efforts by the attorneys general and CFPB follow several years of stymied Department of Education attempts to impose new regulations on the private, for-profit higher-education industry, and decades of relative inaction by state authorities.

“It’s very important that states have stepped up to the plate,” said Martha Kanter, who, as immediate past U.S. undersecretary of education, was the nation’s top higher-education official. “The fact is we need good regulations and good governance in the states.”

The Department of Education declined to answer questions about its oversight of for-profit colleges.

Critics say the industry’s lobbying arm, the Association of Private Sector Colleges and Universities, is a main reason Congress and the White House have not been able to crack down on dubious practices. The group’s president, former Congressman Steve Gunderson, declined through a spokesman to answer questions about its opposition to federal rules, or the wave of state actions.

Some larger states have taken on for-profit universities and colleges without waiting for others—or the federal government—to catch up.

California Attorney General Kamala Harris filed suit against Corinthian in October, and New York announced last summer a $10.25 million settlement with industry giant Career Education Corp. over claims it inflated its graduates’ job-placement rates.

“I think you need every arrow in the quiver,” said Margaret Reiter, a former state prosecutor in California who was involved in its earlier efforts to regulate for-profit colleges in the 1980s and ’90s. “You’re talking about huge businesses with lots of money and lots of influence. You really have to get everybody involved or nothing’s going to get done.”

After all, students rely on public aid, including grants paid from state taxes, to attend colleges that leave them ill-prepared for the work force, said Allison Martin, a spokeswoman for one of the state attorneys general who has led the clampdown on the for-profits, Kentucky’s Jack Conway.

“States are running out of funds to give to students,” Martin said. “There’s a taxpayer-protection issue here.”

But some industry leaders say recent state enforcement has muddied the already murky waters of regulation.

In Massachusetts, for example, Attorney General Martha Coakley, a candidate for governor, has pushed hard for new limits on for-profit colleges’ lending and recruiting practices. Some of the proposed rules would conflict with federal regulations and accreditors’ requirements, said Catherine Flaherty, executive director of the Massachusetts Association of Private Career Schools.

“They’re not the same, and therein lies the frustration,” Flaherty said. “We’d just like one set of rules to live by. We don’t mind rules and we’re happy to abide by them.”

Those in favor of tougher rules have applauded the cohesive approach of the states led by Kentucky, but some also worry that the separate actions by states including California, Massachusetts and New York could fragment enforcement efforts.

“If you look at the New York settlement with Career Education Corp., that really begs the question, what about students in the other 49 states?” said Pauline Abernathy, vice president of The Institute for College Access and Success, a California-based think tank. “It does nothing to help those students.”

New York Attorney General Eric Schneiderman declined to answer questions about the settlement or potential future actions against the for-profits. Several other attorneys general also declined to comment.

Kanter agreed that the fractured enforcement approach may not be the best way to crack down on these institutions. States and federal authorities need to communicate to make sure they’re not duplicating each other’s efforts.

“When you have so many competing interests, it gets messy,” she said. “We want to keep things clear and simple as a nation.”

Students like Benbow are exactly the reason states should be filling the enforcement void left by what he said is an ineffective Congress and gridlocked Department of Education, said David Halperin, a Washington, D.C., lawyer who has urged state and federal policymakers to take stronger action against the industry.

“This is not like selling pomegranate shampoo based on false claims,” he said. “For-profit colleges are a big drag on the economy. The debt is preventing people from spending money.”

A handful of recent actions suggest that some other federal agencies may join the CFPB in scrutinizing for-profit colleges. The Justice Department, Securities and Exchange Commission and Defense Department all have taken various actions against the industry in recent months.

Not all for-profit schools oppose tighter state and federal regulation.

Monroe College, with campuses in the Bronx and Westchester County, N.Y., welcomes the scrutiny, said President Marc Jerome, whose family has run the school for 80 years. Other colleges should accept the regulatory complications that come with their business models, he said.

“Higher education is a highly regulated area and it’s hard enough to operate in one state, much less several,” said Jerome, who has been working with federal regulators to help craft new rules for colleges. “Schools that have chosen that approach need to deal with it.”

Alumni who say they were burned by for-profit colleges want federal and state regulators alike to do a better job monitoring the schools.

As a computer-animation student at for-profit Gibbs College in Boston, Mike DiGiacomo was told he would have an internship at a television studio. Instead, he ended up carrying laundry and other belongings for a wedding photographer.

“I was looking to pursue animation and my mom had seen a commercial,” said DiGiacomo, 33. “I wish I had done more research. I learned the hard way.”

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