The for-profit college industry’s abusive toll on students has been well-documented for years now, and President Biden has promised to take action to hold these institutions accountable. The executive branch has an immense amount of power over for-profits: almost a third of for-profit colleges derive almost all of their revenue from federal sources, and the for-profit sector rakes in 15% of the government’s financial aid for higher education every year. The Education Department controls almost every aspect of regulating for-profits, from certifying the accrediting agencies to the enforcement of student protections like the gainful employment rule and the borrower defense rule.
The Biden Administration has taken positive early steps, including approving thousands of borrower defense applications for students who were defrauded by for-profit universities, which discharged their undeserved student loan debt, and promising a comprehensive crack-down on colleges’ abusive tactics.
However, for-profit college chains are notorious for evading government oversight through underhanded tactics, often aided and abetted by corporate lobbyists and industry-tied officials in key roles at the Department of Education. For-profit college chains also frequently rebrand and sell toxic assets (mostly schools facing legal and financial accountability for harm they did to students and consumers) to other for-profit corporations to avoid reputational damage.
These methods dovetail with a trend that accelerated dramatically under the Trump Administration: exploitative for-profit universities reclassifying themselves as nonprofits to gain access to federal funding while avoiding serious oversight. By reclassifying as nonprofits, schools can undermine the so-called “90-10 rule,” which dictates that no more than 90 percent of for-profit institutions’ revenue can come from Federal student aid programs, including Title IV Federal student loans and grants. The nonprofit classification also allows these schools to avoid the regulatory scrutiny for-profit colleges face, especially the gainful employment rule, which requires any program where a typical graduates’ debts exceed 20 percent of their discretionary income to improve student outcomes or risk losing federal funding. It seems obvious that career schools should prepare students for jobs that allow them to repay their loans, and yet more than 350,000 students have completed programs at schools that have failed to comply with the GE Rule.
California-based Bridgepoint Education presents an especially egregious example of this trend. In the latest of a series of scandals about their exploitative practices that included misleading students and targeting veterans, Bridgepoint Education was sued by the California Attorney General in 2017 for misleading students and investors, as well as leaving debt-saddled students unable to find employment. After a failed 2018 plan to reclassify themselves as nonprofit, Bridgepoint changed their name to Zovio and used a complicated deal with the University of Arizona to transform their for-profit college, Ashford University, into a wing of the nonprofit University of Arizona. Under this deal, Zovio has continued to reap profits from Ashford by handling their recruiting, marketing, and design while keeping their corporate structure essentially the same and lessening their responsibilities to students.
For-Profits Under the Biden Administration
For-profit colleges hope to continue the grift under the Biden Administration. In an ongoing case, Adtalem Education Group is acquiring the embattled Walden University from Laureate Education. Laureate has been selling off for-profit institutions for years in order to focus on its campuses in emerging international markets. Meanwhile, Adtalem has been trying to boost its reputation after selling DeVry University, which was considered a “toxic asset” after it agreed to a $100 million settlement of a lawsuit alleging that it falsely advertised the success of its students.
Trading Walden for DeVry was considered a reputational upgrade for Adtalem until the Department of Justice announced it was investigating Walden, leading Adtalem’s investors to urge the group to halt the acquisition. Walden is under investigation for misrepresenting its nursing program to accreditors and falsely advertising elements of the degree to students, including the availability of clinical site placements required to earn the degree. Adtalem previously negotiated an option to abandon the deal if ED sanctions Walden due to the results of the DOJ investigation.
So What Can The Education Department Do?
Adtalem’s attempted acquisition of Walden presents a perfect opportunity for ED to use its powers to rein in the abuses of the for-profit college industry. The Office of Partner Participation and Oversight (OPP) within the Department’s Office of Federal Student Aid has wide-ranging powers to investigate mergers, determine nonprofit status, and award provisional program agreements.
The OPP has the power to reject or impose restrictions on mergers and acquisitions like the pending Walden deal. For instance, the office could require a letter of credit — a financial commitment that would offset the cost to taxpayers and students if the school went under. When Zovio attempted to convert its for-profit college, Ashford University, to a nonprofit in 2018, the DeVos Department required a $103 million letter of credit from Ashford in order to approve its conversion, in addition to certain changes in their corporate structure. It would be quite the embarrassing stance for Biden Education Secretary Miguel Cardona to go lighter on the industry than his notorious predecessor.
OPP also reviews for-profit colleges that apply for non-profit status and decides whether to recognize the conversion. The office has discretion to reject the conversion to non-profit status if it is deemed to primarily benefit shareholders rather than students, even if the IRS has granted the institution non-profit tax status.
OPP also has wide-ranging powers to crack down on Walden, because the school has already been placed on provisional status for bad behavior. Provisional agreements make it easier for the Department to cut off federal student aid to predatory institutions, which would otherwise take years. In an industry that stays afloat almost entirely due to taxpayer dollars, the threat to withhold federal funds can be a powerful accountability measure.
Should OPP leadership choose to approve the Walden deal, the Department can still place the new school under heightened supervision. Changes in ownership and conversions to non-profit status automatically end a school’s existing arrangement for federal aid and trigger a month-to-month evaluation system while the Department evaluates the newly-reformulated institution. This is known as a Temporary Provisional Program Participation Agreement (TPPPA). Biden’s ED should strengthen this review system to hold institutions like Walden accountable, as the Government Accountability Office recently recommended.
However, the influence of the for-profit college industry at ED threatens to prevent meaningful regulation. Under Education Secretary Betsy DeVos, the for-profit industry gained unprecedented political power; DeVos’ top assistant, Robert Eitel, previously worked at both Bridgepoint Education Group and Career Education Corp, and was key to efforts that made it harder for borrowers defrauded by for-profit colleges to discharge their loans. DeVos also hired Julian Schmoke, a former dean of DeVry University, as head of an investigation into for-profit abuses, which was, coincidentally, investigating DeVry’s racket (the investigation team was disbanded without holding DeVry accountable).
Although Schmoke and Eitel are thankfully no longer in power, there are still worrisome remnants of for-profits’ influence. DeVos appointee Robin Minor currently serves as acting head of the Federal Student Aid Office, which oversees the Office of Partner Participation and Oversight. This is despite Minor’s history of failing to protect students from predatory for-profit universities while serving under Education Secretary Betsy DeVos. Before going into government in 2004, Minor worked at Dow, Lohnes and Albertson as the senior manager of higher education services. The firm lobbied the federal government on behalf of for-profit colleges both while Minor worked there and after she was in a decision-making position at ED. Progressive groups have criticized Cardona for elevating Minor to the head of the FSA.
Ending the for-profit colleges scam and the harm it does to students should be a top priority for the Biden Administration’s Department of Education. Although Biden should endorse structural proposals like ending all federal funding to for-profit colleges, ED can take important steps in the short-term to prevent more mergers that will hurt students and lessen accountability. Robin Minor should be replaced by a public servant without ties to the for-profit colleges industry, and the FSA should enforce strict limits on how for-profit colleges can act and crack down on those with provisional status currently trying to circumvent their oversight.
PHOTO: “Education Dept. 01” by US Department of State is licensed under Creative Commons.