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Higher Ed Watch has learned that at least one major for-profit higher education company is going to extraordinary lengths to strong-arm its faculty and staff to lobby against new rules the Obama administration has proposed that would cut off federal financial aid to for-profit college programs whose students take on the most unmanageable levels of debt (in relation to their expected future earnings) and have the poorest record of repayment.

Education Management Corporation (EDMC) has hired DCI Group, a controversial Republican advocacy and public relations firm that is expert in the art of  manufacturing grass-roots lobbying campaigns for corporations (otherwise known as “astroturfing”), to contact the company’s employees individually to help them craft  letters to the U.S. Department of Education opposing the administration’s new proposed “gainful employment” regulations.

“This week, employees throughout EDMC and our schools will be receiving phone calls during business hours from our partners, the DCI Group, to assist you in crafting personalized letters to U.S. Secretary of Education Arne Duncan detailing for him your own views on Gainful Employment,” Todd Nelson, EDMC’s chief executive officer, wrote last Tuesday to the company’s approximately 20,000 employees in an e-mail, which was obtained by Higher Ed Watch.

 “You will be asked a series of short questions that will help DCI Group create a unique letter. These personalized letters will then be delivered to you for a signature, along with a pre-addressed stamp envelope,” wrote Nelson. “We encourage you to mail the letters as quickly as possible so that your comments are received before September 9. The entire process should take no more than 10 minutes of your time, but its impact on EDMC would be immeasurable.”

While Nelson emphasizes that “no employee is under any obligation to take part in these activities,” people who have worked for the company aren’t buying it. They fully expect that those who refuse to acquiesce will suffer some form of retaliation -- perhaps not immediately, but eventually.

“This is scaring a lot of people because they know that, no matter what the company says, it will keep track of those who refuse to cooperate,” said a former EDMC recruiter, who wished to remain anonymous. “That’s just the way the company operates.”

One way or another, the whistle-blower lawsuit filed by Jon Oberg, the U.S. Department of Education researcher who uncovered the 9.5 student loan scandal, against six student loan companies that participated in the scheme should be resolved shortly.

The parties are currently in the third-day of court-ordered settlement talks to resolve the lawsuit, which seeks the return of approximately $1 billion to the government in overpayments these lenders improperly received. If the negotiations break down, the case is scheduled to go to a jury trial in the U.S. District Court for the Eastern District of Virginia on Tuesday.

The defendant with the most to lose in the case is Nelnet, the Nebraska-based loan company that was the most aggressive participant in the scheme, reaping about $300 million in excess federal subsidy payments from the government. The other defendants are: Brazos Higher Education Services Corporation (Texas), Education Loans Inc. (South Dakota), Panhandle Plains Higher Education Authority (Texas), Sallie Mae, and Southwest Student Services Corporation (Arizona). Brazos and Oberg have tentatively reached a settlement, the terms of which are now under review by the Justice Department.

As we have repeatedly said, this case should finally resolve many of the unanswered questions surrounding the scandal -- a goal we have been pursuing at Higher Ed Watch over the last couple of years. After doing a careful review of court documents publicly available on PACER (Public Access to Court Electronic Records), here are some of the truths that we believe have been revealed:

... "People really trust that their schools have their best interest in mind, that they're not going to sell them out," said Stephen Burd, a higher education expert with the New America Foundation think tank. ...

Remember last August when Tea Party activists flooded Congressional town hall meetings to fight President Obama's proposal to overhaul the nation's health care system? The protests galvanized the news media and, for a time, looked like they might create enough momentum to derail the president's plans.

The Career College Association (CCA) is apparently hoping to have the same impact this summer -- as it is urging its members to come out in force during the Congressional recess this month and "attend as many town hall meetings as possible." The group is hoping to build opposition to new "Gainful Employment" rules the Obama administration has proposed that would cut off federal financial aid to for-profit college programs whose students take on the most unmanageable levels of debt (in relation to their expected future earnings) and have the poorest record of repayment. The association is also likely hoping to use these gatherings to make new friends on Capitol Hill who can pressure the Senate Health, Education, Labor and Pensions (HELP) Committee to back down from its investigation of the sector.

Now that the U.S. Department of Education’s notice of proposed rules on “gainful employment” is out, one thing should be perfectly clear: the Obama administration has come not to bury the for-profit college sector but to try and help save it from itself.

Yes, the proposal would cut off federal financial aid to for-profit college programs whose students take on the most unmanageable levels of debt (in relation to their expected future earnings) and have the poorest record of repayment. The administration, however, went out of its way to make sure that only the most irredeemable programs -- those, as described by Inside Higher Ed, “where fewer than 35 percent of former students are repaying their loans, and where graduates have a debt-to-income ratio greater than 12 percent of their total income and 30 percent of discretionary income” -- would be put in jeopardy.  What’s more, the proposal caps at 5 percent the number of programs that could become ineligible in the first year, and delays implementation until the 2012-13 academic year, which should at least theoretically give for-profit colleges an opportunity to bring their programs into compliance.

But as the administration explains in a document that accompanied the notice of proposed rule making [starting on p. 98], its real goal is to change the incentive structure driving the industry so that schools are motivated to “design and offer programs that will serve students well: preparing them for high-paying jobs without burdening them with excessive debts that cost them and taxpayers.” In short, administration officials say they are trying to push schools “to provide larger returns on their students’ investment.”

This is clever wording because for a long time now, the biggest players in the industry -- the publicly traded for-profit higher education companies -- have been largely taking their cues from Wall Street, which judges the performance of these companies almost entirely by their quarterly earnings. As a result, to keep their stock prices up and their investors happy, these companies must show that they are continually growing, even if that’s not in the best long-term interest of their students and their schools. Any retrenchment from this single-minded goal sets off alarm and panic.

Until fairly recently, policymakers and college leaders were pretty well convinced that they had eradicated the default rate problems that had once plagued the federal student loan program. After all, year after year, the U. S. Department of Education would announce, with great fanfare, that the official rate at which borrowers were defaulting on their student loans had reached a new record low (see here, here, and here).

Federal officials all the way up to the President would use this occasion to boast of their great skill in managing the federal student aid programs. At the same time, for-profit colleges, which experienced the most dramatic reductions in their rates, would present the results as evidence that they had overcome the problems of the past and were indeed faithful stewards of taxpayer dollars.

But as The Chronicle of Higher Education so ably documented in a set of articles this month, much of this progress has been illusory. The articles, written by my former colleagues Kelly Field and Goldie Blumenstyk, show "that the government's official 'cohort default rate,' which measures the percentage of borrowers who default in the first two years of repayment and is used to penalize colleges with high rates, downplays the long-term costs and defaults, capturing only a sliver of the loans that eventually lapse." Examining unpublished Education Department data, the Chronicle found that "one in every five government loans that entered repayment in 1995 has gone into default," and that the rate reached 40 percent for borrowers who had attended proprietary schools.

Meanwhile, the Chronicle's reporting also clearly shows that changes Congress made in 2008 to help the government more accurately measure the student loan default rate did not go far enough.

The U.S. Department of Justice dealt a powerful blow this week to efforts by the student loan company Nelnet to derail a Federal False Claims lawsuit filed against the corporation and five other lenders that engaged in a scheme to bilk taxpayers by systematically overcharging the government for subsidy payments on federal loans they made to students. The lawsuit, brought by by Jon Oberg, the former Department of Education researcher who uncovered the 9.5 student loan scandal, seeks the return of approximately $1 billion to the government in overpayments these lenders improperly received.

On Monday, the Justice Department (DOJ) filed a brief with the U.S. District Court for the Eastern District of Virginia urging the court to reject a central argument that Nelnet has repeatedly made to try and get the judge to throw out the lawsuit -- namely that Oberg can't sue the company on behalf of the government because federal officials have already resolved the case.

At issue is the settlement agreement that the Department of Education [ED] reached with Nelnet in January 2007. Concurring at the time with the Department's Inspector General that the Nebraska-based loan company and other lenders had illegally grown the volume of loans that they claimed were eligible for the 9.5 subsidy rate, then-Education Secretary Margaret Spellings barred Nelnet from receiving any further 9.5 payments. She did not, however, require the loan company to return the overpayments it had already received. In addition, she included a statement in the settlement saying that "Nelnet and the Department agree that bona fide, good faith disputes and controversies exist between them concerning the matters described."

The for-profit higher education sector is coming under a level of scrutiny unmatched since the early 1990s. But judging from an internal Career College Association (CCA) strategy memo that Higher Ed Watch has obtained, all of the controversy surrounding proprietary schools appears to have done little to temper the organization’s ambitions. In fact, the document, which CCA distributed to its members during its national convention in Las Vegas last month, shows that the group is fighting as hard as ever to get Congress to gut key consumer protection provisions in federal law that aim to prevent unscrupulous for-profit colleges and trade schools from taking advantage of financially needy students.

These proposals are part of what has been a nearly 20 year campaign by the career college group to chip away at provisions that Congress added to the Higher Education Act in 1992 to protect students and taxpayers from trade schools that were set up to reap profits from the federal student aid programs. In this effort, CCA, with its high-priced lobbyists and bountiful campaign contributions, has been remarkably successful.

But it appears that the association’s luck has finally run out. With the Senate Health, Education, Labor and Pensions [HELP] Committee holding a high-profile series of hearings examining waste, fraud, and abuse in the proprietary school sector, it’s extremely unlikely that lawmakers will have any appetite for weakening the government’s ability to oversee the schools any further. [Not to mention that any such changes would have to be approved by Sen. Tom Harkin, the Iowa Democrat who has spearheaded the hearings.]

Still, the strategy memo provides a revealing look into the mind-set of an organization that has grown all too-accustomed to flexing its muscles on Capitol Hill and getting its way -- no matter how much controversy is swirling around its schools.

Education advocates rallied around the hearing. “It’s a much-needed and long-overdue examination of an industry that all too often put the interests of shareholders above the students they are supposed to be serving,” said Stephen Burd, education policy expert at the New America Foundation, a nonpartisan think tank.

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Today, the U.S. Senate Committee on Health, Education, Labor and Pensions held the first in what promises to be a series of hearings examining allegations of fraud, waste, and abuse in the for-profit higher education sector. In a written statement, Sen. Tom Harkin, the Iowa Democrat in charge of the committee, said the purpose of the hearings would be to ensure that "for-profit colleges are working well to meet the needs of students and not just shareholders."

At Higher Ed Watch, we very much welcome these hearings, as they are long overdue.

In recent years, some of the largest publicly traded and privately-held for-profit higher education companies have come under intense scrutiny from federal and state regulators and have faced numerous lawsuits by former employees, shareholders, and students over allegations that they have engaged in misleading recruitment and admissions tactics to inflate their enrollment numbers (see here, here, and here). Some of these companies have been accused of deliberately recruiting and enrolling unqualified students and sticking them with huge amounts of debt for training from which these individuals are unlikely to benefit.

Yet, time and time again, federal policymakers have looked the other way, and, in fact, have made it even easier for unscrupulous schools to take advantage of vulnerable students and taxpayers. When the Republicans controlled both the White House and Congress, they willfully ignored these allegations and championed these schools. But they are not the only ones to blame.

After all, it was a Democratic-led Congress that approved legislation in 2008 that significantly weakened a key consumer protection provision, known as the 90-10 rule, that aims to ensure that for-profit colleges receive at least a limited share of their revenues from sources other than federal student aid. In fact, only last summer, the House Committee on Education and Labor, under the leadership of Rep. George Miller (D-CA), overwhelmingly approved an amendment to its version of the student loan reform legislation that would have further gutted this important provision. Thankfully, this proposal didn't make it into the final bill, and Representative Miller has recently taken a more critical stance.

Predictably, for-profit college lobbyists and leaders have already started portraying these hearings as a witch hunt. But in reality, it's a much-needed and long-overdue examination of an industry that all too often puts the interests of shareholders above the students they are supposed to be serving.

In the weeks and months ahead, we will report on the substance of these hearings, and continue our longstanding work in this area. But for now, we want to give credit to Senator Harkin for promising to provide the type of oversight that has for too long been sorely lacking.

To read all of our past coverage on for-profit higher education, click here.

As we reported on Tuesday, Washington, DC socialite Catherine Reynolds is seriously considering jumping back into the private student loan market. Her return would be big news because she left the business three years ago embroiled in controversy -- with her non-profit company EduCap, which marketed private loans under the brand name Loan to Learn, facing heavy and deserved scrutiny from the Internal Revenue Service, the Senate Finance Committee, and the news media over its questionable practices.

But this is not a done deal yet. The question of whether or not Reynolds re-enters the private student loan business rests largely in the hands of Congress, which is currently considering legislation that could stop her in her tracks.

We are referring to a proposal that is included in the House of Representatives version of the mammoth financial regulatory overhaul bill that would require colleges to certify a student’s need for private loans before that individual could receive them from companies, like EduCap, that market these high-cost loans directly to students. The plan aims to give college financial aid administrators the opportunity to counsel students about their financial aid options so that they do not unwittingly take on unnecessary private loan debt. This is important because, according to the U.S. Department of Education, nearly two-thirds of undergraduates who borrowed private loans in the 2007-08 academic year did so even though they hadn’t exhausted their eligibility for lower-cost federal student loans first. One quarter of these private loan borrowers did not take out any federal loans at all.

Would the nation’s 1,200 community colleges (and their 11 million students) be better off if the national trade association that represents them severed its ties to One Dupont Circle, the long-time headquarters of most of the national higher education associations?

Wick Sloane, a journalist who teaches writing at Bunker Hill Community College in Boston, thinks so. In a witty and provocative column last week in Inside Higher Ed, Sloane, who regularly writes about inequities in higher education, laid out the agenda he would pursue if he was handed the reins of the American Association of Community Colleges (AACC), which is currently in the midst of a presidential search. Among his top priorities would be to end the group’s membership in the “Big Six,” the major national higher education lobbying groups, which, he argued, primarily represent the interests of four-year public and private colleges and research universities.

“I hereby stipulate the integrity of The Five, whose interests are legitimate too,” Sloane wrote. “But am I the only one to have noticed that since the beginning of time the colleges and universities in the Five have received pretty much all of the federal money? While community colleges have had the most students with the highest need?”

Given the role that some of the associations recently played in helping undermine an ambitious Obama administration proposal to revitalize the country’s community colleges, he certainly has a point. We’re referring to the now-defunct American Graduation Initiative, a ten-year, $12 billion effort that was designed to boost the number of community college graduates by five million over the next decade. The program, which was initially to be included as part of the student loan reform legislation that Congress approved in March, would have also provided funds for community colleges to build stronger links with high schools and the workforce, expand their course offerings, improve their remedial and adult education programs, and upgrade and expand their facilities.

The additional resources would have been like manna from heaven for these cash-strapped schools, which are facing such an extreme funding crisis that many of these generally open-enrollment institutions are being forced to turn away tens of thousands of low-income and working-class students who are in desperate need of their services.

But most of the other college groups -- “The Five,” as Sloane calls them -- were not persuaded. Officials at the National Association of Independent Colleges and Universities (NAICU), which represents private colleges, were particularly irate about the favoritism being shown to community colleges. In an e-mail to his members, David Warren, the president of NAICU, railed against the proposal before the president had even unveiled it. “There are some disturbing signs,” he warned, “that enthusiasm for expanding their [community colleges’] role may drive policy decisions that are both unfair and unwise.” The plans, he complained, “have the federal government providing funds to one sector of American higher education, to the exclusion of other sectors.”

After NAICU officials learned that the chairman of the House Committee on Education and Labor had included the community college proposal in the panel’s version of the student loan reform bill, they sent out a legislative alert to their members arguing that the proposal “shifts the relationship with the federal government from student-based toward institution-based.”

At Higher Ed Watch, we find the audacity and the pettiness of these arguments difficult to fathom. Was NAICU suggesting that policymakers should not be able to devote the government’s limited resources to institutions that are most in need of the help and where they believe the money would do the most good for the welfare of the country? Or that the government should hold off from providing any new money to higher education unless it can ensure that each sector gets an equal cut, no matter how deserving?

NAICU officials well know that the financial aid programs, largely designed over the last 40 years by New England lawmakers with lots of prestigious private colleges in their home states, as a whole tilt heavily in their institutions’ (and the public flagship universities’) favor. The private college group has successfully fought time and again to defeat efforts by policymakers to rewrite the campus based aid funding formula to ensure that the schools that predominantly serve the most disadvantaged students (i.e. community colleges) get their fair share of the funds. At the same time, private college lobbyists have not hesitated to lobby for generous tuition tax deduction proposals that provide little benefit to community college students but favor their sector's students disproportionately.

To be clear, we recognize that it would be unfair to place the blame for the demise of the American Graduation Initiative entirely on the shoulders of the college groups that opposed it or at least signaled their distaste for it. The program was one of several that Congressional leaders slashed in a last-minute scramble to make sure that the reconciliation measure met its revised and lowered budget targets. If Democratic lawmakers had acted on the legislation sooner -- before March when the Congressional Budget office was due to re-estimate the measure’s savings -- the program probably would have survived intact in the final bill. [To mollify community colleges, lawmakers did include $2 billion over four years for a job training program that had been created in the economic stimulus legislation but never been funded.]

Still, the fact that the administration’s proposal caused such dissension among the college lobbying groups made it an easy target when the bill had to be pared down.

Will the community college association leave One Dupont Circle, as Sloane suggests it should? There’s no chance. But frankly, given the shoddy treatment community colleges received from the higher education associations and NAICU in particular, we’re surprised that more of the group’s members are not demanding that the option at least be considered.