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For-profit colleges brace for reckoning in Biden era

Aarthi Swaminathan
·Reporter
·8 min read

After years of deregulation by the Trump administration, for-profit colleges are bracing for a major reckoning as consumer advocates and lawmakers pressure the Biden administration to take action.

“For four years under President Trump and Secretary DeVos, the for-profit college industry had an outsized voice and influence at the Department of Education,” Toby Merrill, director of the Project on Predatory Student Lending at Harvard Law School, told Yahoo Finance. “The Trump administration repeatedly sided with this predatory industry and against the very students our government is supposed to serve. That must end.”

Former Education Secretary Betsy DeVos loosened several Obama-era regulations intended to hold for-profit schools accountable, including rules based on whether their graduates were able to repay their student loans and how information about colleges was presented on department’s website.

US Vice President Joe Biden takes his sunglasses off as he arrives for a campaign event with President Barack Obama at Strawbery Banke Field in Portsmouth, New Hampshire, on September 7, 2012.   AFP PHOTO / Saul LOEB (Photo by Saul LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
Then-Vice President Joe Biden arrives for a campaign event with then-President Barack Obama at Strawbery Banke Field in Portsmouth, New Hampshire, on September 7, 2012. (Photo: AFP/Saul LOEB)

“One of the many shameful legacies of the Trump administration is the extreme lengths taken by its Department of Education to expedite public money to predatory for-profit colleges,” California Attorney General Xavier Becerra stated when announcing a lawsuit regarding a separate DeVos-era rule change.

Expecting a crackdown, one industry group which represents several for-profit colleges wrote a letter to the Biden administration asking for nuance when evaluating for-profit schools.

“We share many of the same goals as the President-Elect,” Career Education Colleges and Universities President and CEO Jason Altmire wrote, “including expanding access for those who wish to pursue postsecondary education, maximizing student outcomes, ensuring a return on educational investment, and rebuilding the economy through job training and career education opportunities targeted toward high-demand professions.”

(Graphic: David Foster)
(Graphic: David Foster)

The Obama administration, in its last year, finally got tough’

Official suspicion of for-profit colleges grew out of concern over whether these schools were using predatory recruitment practices, leaving their graduates with heavy levels of debt and lost time.

When the Obama administration started cracking down on the industry — the same rules that the Trump administration later reversed — it was a U-turn from the Bush administration’s stance.

“The Obama administration, in its last year, finally got tough, realizing how urgent it was to stop sending taxpayer money to deceptive, predatory colleges that ruin students’ financial futures,” David Halperin, an attorney who works on education issues, told Yahoo Finance. “Betsy DeVos spent four years giving the industry every break it wanted, undoing every reform.”

SANTA ANA, CA - APRIL 27: A security guard inside Everest College keeps away a member of the media and a former student Gary Montano after the embattled for-profit Santa Ana school was shut down along with 28 others on Monday. Montano, 30 who graduated two years ago, was trying to collect his transcripts and diploma. "Now I can't walk in. You'd think they'd want to help me out to clear their name," he said.        ///ADDITIONAL INFORMATION:  Ð 4/27/15 Ð MINDY SCHAUER,  -  corinthian.0428  shot:042715  Corinthian Colleges Inc. shuts down its remaining 28 for-profit career schools, including Everest in Santa Ana, ending classes for about 16,000 students, in the biggest collapse in U.S. higher education.    (Photo by Mindy Schauer/Digital First Media/Orange County Register via Getty Images)
A security guard inside Everest College keeps away a member of the media and a former student after the embattled for-profit Santa Ana school was shut. (Photo by Mindy Schauer/Digital First Media/Orange County Register via Getty Images)

And while the public may have become more sensitive to possibly predatory schools after some high-profile closings, Halperin added, “many are still operating, some now owned by private equity firms and some of them converted to fake non-profit schools that still enrich the prior owners.”

For-profit schools generally spend more on marketing relative to spending on instruction. Some for-profit schools have faced legal action for fraud and breaking rules on compensating recruiters.

The Biden campaign previously stated that it would “require for-profits to first prove their value to the U.S. Department of Education before gaining eligibility for federal aid” in addition to eliminating the 90/10 loophole, and restoring the Borrower Defense Rule.

In 2019, Democratic lawmakers introduced legislation to cut for-profit colleges off from federal aid. And in a recent evaluation, career staff at the Education Department (ED) wrote a recommendation to strip an accreditor which is responsible for several for-profit colleges of its authority, citing harm to students.

Amid the pandemic, meanwhile, four-year for-profit schools have seen a major boost in enrollments, which has alarmed some experts about the future trajectory of recruiting.

(Screenshot: National Student Clearing House)
(Screenshot: National Student Clearing House)

Accusation of being ‘clever profiteers’

Some for-profits sought to convert to nonprofit status, leading former Education Department (ED) Deputy Under-Secretary Robert Shireman to describe them as “clever profiteers.”

The Government Accountability Office (GAO) found that between 2011 and 2020, 59 for-profit schools attempted this conversion to non-profit status. The GAO recommended that both ED and the Internal Revenue Service (IRS), which has oversight of this process, to tighten monitoring and assessment.

In 2020, University of Arizona announced a deal to acquire a for-profit college, Ashford University, from the company Zovio. The entity would be run as a nonprofit named the University of Arizona Global Campus.

“Predatory, for-profit colleges should not be able to evade accountability by simply converting to a non-profit school,” House Education and Labor Committee Chairman Bobby Scott (D-VA) stated in response to the trend, adding that the committee “will continue to investigate this practice and looks forward to working with the Biden administration to crackdown on predatory schools and put students first.”

Vice President Kamala Harris has a history with for-profit regulation: As California’s attorney general, Harris announced that her office had obtained a $1.1 billion judgement against the now-defunct Corinthian Colleges “for their predatory and unlawful practices.”

SAN FRANCISCO, CA - OCTOBER 10:  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)
California Attorney General Kamala Harris points to a map as she speaks during a news conference on October 10, 2013 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)

Gainful employment

One of the key regulations that the Biden administration could bring back is the gainful employment rule, an accountability measure that sanctions schools that leave students with exceptionally high levels of debt that they’re unable to repay.

The measure, which would mostly impact career training programs, was enacted during the Obama administration to inform prospective students of how much student debt they’re likely to incur if they attended a given program, how much they would be expected to earn a couple of years after graduation, and how past graduates were able to manage their student loans.

Under the measure, ED would also monitor the data and penalize schools when they repeatedly underperform, in effect keeping schools accountable.

DeVos revoked gainful employment and removed ED’s ability to go after schools with poor outcomes. ED instead beefed up the College Scorecard, a federal website that publishes department data.

Former College Scorecard Director Michael Itzkowitz, who is now a senior fellow at Third Way, analyzed the debt data from recent years and found a number of programs were so bad that graduates were left owing much more than they made annually after school.

(TCF)
Student debt analysis from The Century Foundation. (TCF)

According to data shared with Yahoo Finance, Itzkowitz ranked 10 institutions with programs with the lowest percentage of loan repayments to measure how graduates made a dent on their principal within three years of leaving the institution — five were private, 2 were public, and 2 were for-profit colleges.

For instance, if a student took the health and medical administrative services bachelor’s degree program at CollegeAmerica in Flagstaff, Arizona, a private nonprofit school with less than a hundred students, they would graduate with around $53,600 in student debt.

Two years after graduation, the average student would only be making roughly $22,300. And looking at how many students were actually paying down their principal payments, the figure was a stunningly bad 12%.

At Albany Technical College, a public school, a graduate with an associate’s degree in the teacher education and professional development program leaves with an average of $25,800 in student loan debt. Two years later, median earnings are below the poverty line — at $15,000. Only 15% of graduates at the school were able to make a dent on their principal.

The undergraduate certificate in cosmetology and personal grooming services at Pro Way Hair School, a for-profit, leaves students with around $14,000 in debt while graduates only make an average of $13,000 in earnings two years after graduation.

Pro Way Hair School. (Facebook)
Pro Way Hair School. (Facebook)

“What we see through this data is that there's a lot of college programs that leave their students earning even less than the minimum wage and at worst, graduating with a credential that provides them little to no value,” Itzkowitz said. “We even see some programs that leave their graduates living in poverty, yet we continue to fund them with billions of federal dollars every year.”

Under the Biden administration, there is the “opportunity to dramatically improve career education for all Americans by doing four basic things,” said Halperin, the attorney who works on education cases, listing those four things as providing debt cancellation for defrauded students, strengthening accountability, investigating abuses, improving transparency and “throwing bad actors out of the federal student aid program.”

Itzkowitz stressed that without “safeguards in place,” some schools would continue to leave graduates with poor outcomes. He added that “it's unreasonable for the federal government to continue to fund programs that ultimately leave students worse off.”

Merrill of Harvard Law noted that “stopping the predatory behavior of for-profit colleges and cancelling the debt of for-profit colleges students who have been waiting so long for justice will be an essential part of the Biden-Harris administration’s work to fulfill its promises of economic rescue and of racial justice.”

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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