For-Profit Colleges

OPINION: The serious consequences of DeVos’ about-face on for-profit colleges

Will students of color suffer the most?

May 2, 2018, Washington D.C. — Education Secretary Betsy Devos at the Teacher of the Year ceremony at the White House.

Education Secretary Betsy Devos at the Teacher of the Year ceremony at the White House on May 2, 2018.

In 2015, the U.S. Department of Education levied a $30 million fine against for-profit Corinthian Colleges and limited the schools’ ability to participate in federal student-aid programs.

The action was the result of an investigation that found that Corinthian schools had misled prospective students about the job-placement rates of their schools’ graduates, making it seem as though their graduates had a much better record of success in securing employment in their fields of study than they actually did.

Among other findings, the Education Department found that the schools paid temporary agencies to hire graduates part-time and claimed that the graduates had gotten jobs in their fields, and counted as “placed” students those who had gotten jobs even before they were enrolled in a Corinthian school. In some cases, the actual job-placement rates were 30 percentage points below those claimed by Corinthian.

Related: Gouged by for-profit schools, students could soon be out of luck

Faced with a loss of revenue from federal grants and loans, Corinthian declared bankruptcy in 2015, and a year later was ordered to pay $1.1 billion in restitution to students and civil penalties, from a lawsuit filed by the state of California that alleged similar misleading information about job-placement rates and questionable recruitment practices. The Education Department set up a process to relieve the debts of students who had enrolled in the colleges.

While Corinthian’s actions may have been particularly egregious, the company is not the only for-profit postsecondary institution to run afoul of the law. In December 2016, DeVry University and its parent company agreed to a $100 million settlement with the Federal Trade Commission, which had alleged that the university in its advertisements had falsely claimed that 90 percent of its graduates got jobs within six months of graduation and earned incomes 15 percent higher than graduates of other institutions.

In response to these and other incidents, the Obama Administration’s Education Department took several steps to crack down on for-profit colleges. The department issued a rule, known as the “gainful employment” regulation, that required institutions to meet minimal thresholds in student outcomes — specifically, job placement rates and salaries — or risk losing federal student aid. The department also issued a regulation known as “borrower defense to repayment,” which made it easier for students who were defrauded by for-profit colleges to file for debt relief. And the department created an enforcement unit to investigate allegations of illegal activity by postsecondary institutions and take action when warranted.

The Trump Administration is taking a different tack.

The Education Department, under Betsy DeVos, halted the gainful employment regulation and proposed a new rule in its stead that would eliminate any sanctions — that is, institutions would no longer lose access to federal aid if the employment rates and salaries of graduates fall below the federal threshold. The Department also suspended the borrower defense rule. And, according to The New York Times, the department has sharply cut back the staff and mission of the enforcement unit. It now consists of only three people and is focusing on student-loan forgiveness rather than investigating the practices of for-profit institutions.

Liz Hill, a spokeswoman for DeVos, told the Times that oversight of the sector will go on. “Conducting investigations is but one way the investigations team contributes to the department’s broad effort to provide oversight,” she said.

But her claim of a “broad effort” at oversight is as hard to believe as DeVry’s claim of a 90 percent job-placement rate. The head of the now-smaller enforcement unit, Julian Schmoke, is a former dean at DeVry. And several other high-level administration officials also have ties to the for-profit sector — including senior adviser Robert Eitel, who, according to ABC News, played a role in killing the borrower defense rule. Are they going to aggressively watch their former colleagues and employers?

Related: For-profit colleges stay quietly on offense

The consequences of the about-face on regulation and oversight are serious, both for taxpayers and for students. Taxpayers have a right to know that their tax dollars are being used in the ways they were intended. Billions of dollars in grants and loans go to for-profit colleges. Corinthian alone received $1.4 billion a year from students enrolled at their institutions. And the institutions have a strong incentive to keep attracting students, by whatever means, to keep that federal spigot open — they receive nearly all of their revenue from federal grants and loans. (Congress capped the amount they could receive from federal sources at 85 percent of their revenue in 1992, in order to ensure they attracted some students who were willing to pay their own way, but a later Congress raised that cap to 90 percent.) The department has an obligation to ensure this money goes to programs that genuinely help students.

But students are the ones who might be affected the most. The majority of students at for-profit colleges are students of color, and 64 percent receive Pell Grants, which are awarded to low-income students. If they are lured by false promises of high-paying jobs, they will end up with large debts and inadequate skills. The institutions will make out fine.

In her arguments for school choice, DeVos has often said that her concern is students, not schools. “We must shift the paradigm to think of education funding as investments made in individual children, not in institutions or buildings,” she said in a 2017 speech at the Brookings Institution. But her actions in the for-profit postsecondary sector suggest that her top priority is protecting the colleges. Who at 400 Maryland Avenue is looking out for the students?

This story about the regulation of for-profit colleges was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up here for our higher-education newsletter.

Robert Rothman is a Washington-based education writer.

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Robert Rothman

Robert Rothman is a Washington-based education writer. See Archive

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The gainful employment regulation has not been halted. It continues to be enforced, at a pace that will allow an accurate, fair process. The new rule is a vast expansion of accountability.

While the current rule only applies to effectively 6-7% of all students enrolled in higher education, the new rule will provide benefits to all consumers of higher education, with decision-making data presented in a way they have never seen it before. In fact, with data available on the very small scale it is, it actually does a disservice to all students. Many are certainly enrolling in poorer performing programs where there was no data available to make a comparison. Measuring programs on such a small scale provides no practical way for consumers to make better choices.

Once program level data is better understood across all higher education, more stringent sanctions may be appropriate. But most certainly all institutions will be motivated to improve overall outcomes, clearly a benefit to students and employers who hire them.

To clarify, it is very possible there will be sanctions available to the U.S. Dept of Education in the new rule.

- from Jeff Arthur, May 24, 2018

To append to my previous letter:

It is very noteworthy that former Secretary John King just this recently stated that he'd like to see some version of gainful employment expanded to all programs in the reauthorization of the HEA. The new rule applies the metrics his Department came up with to all programs. While he may not be in favor of a change to sanctions, one must conclude that he would be in favor of the direction the Department is going to expand debt-to-earnings and repayment rate accountability to all programs.

- from Jeff Arthur, May 24, 2018