For-Profit Colleges

Improving Gainful Employment

  • By
  • Ben Miller,
  • New America Foundation
November 5, 2013
Click here to read a copy of "Improving Gainful Employment"President Barack Obama took to the Northeast in late August to unveil a new plan for college affordability. Standing before raucous crowds at several universities, he laid out a reform agenda, which included the idea that “it is time to stop subsidizing schools that are not producing good results, and reward schools that deliver for American students and our future.” Obama would do this by having the U.S. Department of Education (Department) produce a rating of colleges and asking Congress to tie the results of those ratings to aid eligibility.

The Code of Conduct That Wasn’t

October 23, 2013

Two years ago, a for-profit college industry group unveiled a voluntary code of conduct for its members. The organization, known as the Foundation for Educational Success, said that the code would “provide strong new student protections; guidelines for training, enrollment, and financial aid; and include an enforcement mechanism to ensure that participating schools adhere to the principles of the new standards.”

More than a dozen for-profit college companies, including Career Education Corporation and Kaplan Higher Education, pledged to abide by the code. Meanwhile, the industry’s stalwart supporters in Congress held up the code as evidence that the sector could police itself.

At the time, I wrote a post on Higher Ed Watch questioning whether this was “a serious effort to improve industry standards or simply a public relations gambit that the group hopes to use to stave off any further government attempts to rein in the industry?”

Well now we have our answer. According to a report in The Chronicle of Higher Education this week:

Today hardly any trace of the effort can be found. The Foundation for Educational Success, which was coordinating the effort, no longer exists…In addition, the foundation’s Web site was dormant as of Friday, displaying only a notice from GoDaddy.com stating that the domain name expired on September 7 and was pending renewal or deletion. As of Monday, the domain had had apparently been bought and the Web site converted to a health blog unrelated to for-profit higher education.

Need I say more?

[For more on this, check out David Halperin's excellent reporting in the Huffington Post.]

Obama Administration Should Stop Punting on For-Profit College Job Placement Rates

October 17, 2013

[This post is largely adapted from a previous post that ran on Higher Ed Watch in October 2011.]

Last week I argued that the U.S. Department of Education needs to develop a single, national standard that for-profit colleges would be required to use when calculating job placement rates. Department officials could go a long way in achieving this by revisiting a proposal they offered in the summer of 2010 that would have established a standard methodology to use when determining these rates.

Currently, the federal government leaves it up to accrediting agencies and states to set the standards that for-profit schools must use to calculate the rates, and to monitor them. The only exception is for extremely short-term job training programs, which must have employment rates of at least 70 percent to remain eligible to participate in the federal student loan program.

In June 2010, as part of a package of draft regulations aimed at improving the integrity of the federal student aid programs, the administration proposed extending the standards that short-term programs are required to use to all for-profit college and vocational programs that are subject to the Gainful Employment rules. The proposal was met with a firestorm of protest from for-profit college officials, as the federal methodology is much more strict than that used by accreditors and state agencies.

For example, under the Education Department’s requirements, students are only considered to be successfully placed if they have been employed in their field or a related one for at least 13 weeks within the first six months after graduating. In comparison, some accreditors and state agencies apparently allow schools to consider a graduate to be successfully placed if they work in their field for as little as a day.

Meanwhile, the Education Department has established a strict regulatory regime to make sure the rates are not rigged (the extent to which the agency actually holds short-term programs to these standards is unclear). Institutions are required to provide documentation proving that each of the graduates included in their rates is employed in the field in which he or she trained. According to the Department’s rules, acceptable documents “include, but are not limited to, (i) a written statement from the student’s employer; (ii) signed copies of State or Federal income tax forms; and (iii) written evidence of payments of Social Security taxes.” 

To be fair, for-profit colleges were not the only institutions that objected to the proposal. Community colleges and state universities that have training programs that fall under the Gainful Employment requirements also complained that the plan was too stringent. These institutions may have found these requirements to be especially daunting since they generally have not had to track job placements before.

A Recipe for Failure

How did the Education Department’s political leaders respond to this criticism? They punted. Instead of sticking to their guns or devising an alternative proposal, they kicked the issue to the National Center for Education Statistics (NCES). Under the final program integrity regulations, which were released in October 2010, the Department directed the NCES to convene a Technical Review Panel “to develop a placement rate methodology and the processes necessary for determining and documenting student placement” that schools would be required to use to fulfill this mandate.

But putting NCES in charge of developing a federal standard for calculating these rates turned out to be a major blunder. First, this was not an assignment that the NCES had sought out or has typically been asked to do. After all, the Department was not just asking the center to provide technical assistance in devising a new methodology but to take the reins in setting a new federal policy in this highly contentious and controversial area. Second, the Technical Review Panel that the Department chose to carry out this assignment included a number of representatives from schools that were opposed to this effort.

All of this was a recipe for failure. So it was hardly a surprise that, after two days of discussions on this topic in March, the review committee was not able to reach an agreement. The panel suggested in a final report on its deliberations that "the topic be explored in greater detail by the Department of Education.” Translation: This is a job for the Department, and not NCES.

The Education Department's hands have been tied since because the final regulations explicitly require schools to use "a methodology developed by the National Center for Education Statistics, when that rate is available." In the meantime, the job placement rates that for-profit colleges are required to disclose under the new rules are the same ones they report to accreditors and state regulatory agencies. As I've written previously, the methodologies that for-profit schools use to calculate these rates vary state by state and accreditor by accreditor, making them impossible to compare. And because neither accreditors nor state regulators have historically put much of an effort into verifying these rates, the schools don’t seem to have any qualms about gaming them.

As Department officials rewrite the Gainful Employment rules, they need to revisit this issue. Otherwise, prospective students will have to continue relying on faulty information when choosing whether to attend a for-profit college.

Lack of Standard Definition for Job Placement Rates Fuels Abuses

October 15, 2013

Last Thursday California Attorney General Kamala D. Harris filed a lawsuit against Corinthian Colleges accusing the company of deliberately deceiving prospective students and investors about the company’s record in placing graduates into jobs. The California AG’s action comes just two months after New York Attorney General Eric T. Schneiderman reached a $10.25 million settlement with Career Education Corporation over similar charges.

The two cases together underscore the need for policymakers to develop a single, national standard that for-profit colleges would be required to use when calculating their job placement rates and to establish a strict regulatory regime to make sure that the rates are not rigged. U.S. Department of Education officials have the opportunity to establish such standards when they rewrite the Gainful Employment regulations.

Currently, the federal government leaves it up to accreditation agencies and states to set the standards that for-profit schools must use to calculate the rates and to monitor them. The only exception is for extremely short-term job training programs, which must have employment rates of at least 70 percent to remain eligible to participate in the federal student loan program.

As a result, the methodologies that for-profit colleges use to calculate these rates vary state by state and accreditor by accreditor, making them impossible to compare. And without a single standard in place, the schools can easily game the system.

Take Career Education Corporation, for example. According to the NY AG’s findings, officials at the company’s health education schools counted graduates as being employed if they worked for a single day at community health fairs. In some cases, school officials allegedly arranged for these fairs to be held so that they could pump up their institutions’ job placement rates.

These practices were not devised and carried out by “rogue” employees. The investigation found that “high-level Career Services managers” at the company’s headquarters “not only knew about the practice of counting employment at single one-day health fairs as ‘placements,’ but explicitly condoned and even encouraged the practice of recording such employment as ‘placements.’”

Meanwhile, the California AG found that in large part the placement rates that Corinthian Colleges (CCI) has disclosed cannot be substantiated. “The data in the disclosures published on or about July 1, 2012 for all campuses in California and online campuses does not match or agree with the data in CCI’s own database system and/or in student files,” the lawsuit states. “In numerous cases, the placement rate data in CCI’s files shows that the placement rate is lower than the advertised rate.”

For example, Corinthian “advertised job placement rates as high as 100% for specific programs when, in some cases, there is no evidence that a single student obtained a job during the specified time frame,” the AG’s office wrote in a press release announcing the lawsuit.

Some of Corinthian’s Everest College campuses went as far as paying temp agencies to place graduates in short-term jobs to help the schools meet the minimum job placement rates required by their accreditors, the lawsuit states. Others appear to have fabricated the data. In many cases, the documentation needed to verify placements was just plain missing.

The AG’s complaint includes excerpts from internal company e-mails showing that top Corinthian executives were fully aware of the problems with the data but did little about them. “Corinthian Colleges, Inc.’s CEO and/or senior management were, at all relevant times, aware of the falsity, inaccuracy, and unreliability of job placement data and the statements they made concerning the data yet they did not disclose that fact to consumers or investors, or take any action to make consumer disclosures and statements to investors accurate,” the lawsuit says.

These cases show that the Education Department needs to create a single national job placement rate standard that makes clear exactly what types of practices are allowed and which are not. And it needs to develop a strict regulatory regime that will hold for-profit colleges accountable for these types of abuses.

Students rely heavily on job placement rates when deciding which career college program to attend. The least we can do is make sure that schools are not cooking the books on the rates they disclose.

History Repeats Itself at Corinthian Colleges

October 10, 2013

In 2007, California’s then-Attorney General Jerry Brown filed a lawsuit against Corinthian Colleges accusing the company of deliberately and persistently misleading prospective students and regulators about its schools’ job placement rates. Brown ultimately reached a settlement agreement with Corinthian, requiring the giant for-profit higher education company to pay a $6.5 million fine and provide some restitution to students who had been deceived.

Corinthian, however, didn’t have to admit to any wrong-doing. Nor does it appear to have learned its lesson and changed its behavior.

On Thursday, California Attorney General Kamala D. Harris filed a new lawsuit against Corinthian accusing the company’s of deliberately and persistently misleading prospective students and regulators about its schools’ job placement rates. “According to the complaint, CCI advertised job placement rates as high as 100% for specific programs when, in some cases, there is no evidence that a single student obtained a job during the specified time frame,” the attorney general's office wrote in a press release.

For Corinthian Colleges, it’s like déjà vu all over again.

Should Secretary Duncan Apologize to For-Profits for Parent PLUS Loan Debacle?

October 9, 2013
Publication Image

This blog post is the fourth part in a series that takes a look at recent changes to the credit criteria for Parent PLUS loans and the subsequent effect on colleges and universities. You can find the rest of the series here.

Since making relatively minor changes to the credit check requirements for Parent PLUS loans last year, the Department of Education has been under a firestorm of criticism from historically black colleges and universities (HBCUs) and their lobbying organization, the National Association for Equal Opportunity (NAFEO). According to HBCUs, the impact of the policy change caused a significant decline in enrollments and a huge loss in revenue for their institutions. In an effort to ease tensions, Education Secretary Arne Duncan recently apologized to HBCU leaders at their annual meeting saying, “I am not satisfied with the way we handled the updating and changes to the PLUS loan program. Communication internally and externally was poor. I apologize for that, and the real impact it had.”

But if Secretary Duncan really wanted to apologize to the colleges most affected by the change to Parent PLUS loans, he should have been talking to for-profit colleges, not HBCUs. After all, since the policy change was implemented two years ago, for-profits have lost approximately $790 million dollars more than HBCUs in PLUS disbursements. Why is that? The for-profit sector has a much higher percentage of Parent PLUS borrowers than at HBCUs.

Using recently released data from the U.S. Department of Education’s Office of Federal Student Aid (FSA), I analyzed Parent PLUS loan data from pre-recession 2006 to 2013. From 2009 to 2011, both for-profits and HBCUs saw huge increases in recipients (approximately 50,000 and 15,000 more recipients respectively) and disbursements (approximately $450 million and $156 million respectively). This was the peak of the recession, at a time when family net worth diminished while college prices soared. Parents turned to PLUS loans to help send their children to higher-priced colleges that could not or would not help them fill the gap with institutional aid.

 
 

However, since the change to the credit check, both sectors saw huge declines in recipients and disbursements (Tables 1 and 2). From 2011 to 2013, HBCUs experienced a 45 percent decline in PLUS borrowers and a 27 percent decline in PLUS disbursements. The for-profits experienced a much starker decline over the same period. At for-profits, PLUS loan borrowers and disbursements declined 54 percent. In addition, while HBCUs experienced a decline in PLUS recipients over the past five years, their disbursements increased 14 percent. Meanwhile, the for-profit sector experienced a five-year 30 percent decline in recipients and a 33 percent decline in disbursements.

What’s most startling is the overrepresentation of Parent PLUS borrowers at for-profits compared with HBCUs (see Chart 3 and Table 3).2 While HBCUs have been the most vocal opponents of the changes to PLUS loans, they actually make up a very small share of volume in the program. Approximately 2 percent of undergraduates are in HBCUs and these institutions represent between 3 and 4 percent of PLUS borrowers. The data from for-profit institutions, however, show a larger overrepresentation. From 2006 to 2011, the share of for-profit enrollments fluctuated from 7 to 11 percent, but accounted for 16 to 18 percent of total Parent PLUS loan recipients. In other words, Parent PLUS borrowers at for-profit colleges were almost 1.7 times overrepresented compared to their share of enrollment. That’s incredible considering that normally for-profit institutions have been seen as catering to the needs of adult, “nontraditional,” independent students who don’t qualify for Parent PLUS loans. It seems that there are quite a few traditionally-aged, dependent students attending for-profit institutions, and it’s costing their families a lot of borrowed money.

 

So why aren’t the for-profits crying foul? One reason may be that they are letting HBCUs do it for them. For-profits know that they have been criticized for saddling students with unmanageable debt, and know that complaints about lost revenue from high-cost loans are unlikely to receive a sympathetic ear from the Obama Administration, Congress, or the media. By contrast, HBCUs have strong political connections through the Congressional Black Caucus, a White House initiative located within the Department of Education, and a generally sympathetic ear from the Obama Administration, which secured a total of $850 million from 2010 through 2019 in additional formula money for HBCUs.

So by letting HBCUs make the PLUS loan changes a racially-charged issue, for-profits are able to let a politically popular group seek out changes to the credit check that will help all borrowers, regardless of the institution type. But this approach loses sight of the bigger issue—PLUS loans provide large amounts of intergenerational, inflexible debt to families who may be unable to pay that money back.  And continuing to present the issue in terms of revenue lost to schools allows high-cost institutions (especially for-profit institutions) avoid the real issue, which is that their high tuition—enabled by parent PLUS loans—is pricing students out of an affordable education.

Arne Duncan shouldn’t have to apologize to anyone for making a policy change meant to protect students and families. But if he has to apologize to HBCUs, it’s only fair that he apologize to the for-profits as well.

 

1Also worth noting during this time period was the transition to full Direct lending. Before July 2010, federal loans could be made under two programs—Direct and the Federal Family Education Loan (FFEL) program. The change to Direct Lending saved the government money by cutting out subsidies to loan middlemen. However when the change was made, the number of Parent PLUS loan approvals increased due in part to a discrepancy between how the Education Department defined adverse credit compared with FFEL lenders. In October 2011, the Education Department changed its definition of adverse credit slightly to match what it was under the FFEL program. 

2Note that the data on enrollment from 2012 and 2013, during which time for-profit enrollment dropped significantly, are not yet available so we will have to wait to see how both sectors’ share of enrollments and recipients changed during those two years.

Edited 10/9/2013 at 1:17pm to change title.
Edited 1/10/2014 at 1:18pm to change the over/under representation data.

House Republicans Fight to Keep Loophole in For-Profit Colleges’ 90/10 Rule

October 7, 2013

Update 10/15/2013 2 PM: This post was edited to reflect that the proposed reform would include Tuition Assistance in the 90 percent calculation, not the 10 percent.

Congress failed to reach an agreement on funding the government for fiscal year 2014, which began on October 1, 2013, shutting down the federal government. That high-stakes budget battle has overshadowed a different disagreement between the House and Senate that could have a big effect on education benefits for members of the military – and for-profit colleges.  

The disagreement is on the Department of Defense Appropriations Act, one of the annual bills that funds the DOD. The House passed the bill back in July and sent it to the Senate. The Senate Appropriations Committee passed the bill on August 2 – but included a change to an existing test for colleges called the 90/10 rule.

The 90/10 rule states that private for-profit colleges must get at least 10 percent of their total revenue from non-federal sources, namely tuition collected from the student or his family. Failure to do so can result in losing access to Title IV funds. The 90 percent includes federal Title IV aid – Pell Grants, federal student loans, and more. It does not include nearly $12 billion spent annually on servicemembers’ and veterans’ education benefits through the Department of Defense or the Department of Veterans Affairs (VA), nor does it include more than $25 billion annually lost to tax expenditures.

The new proposed language in the DOD fiscal year 2014 bill would change some of those exclusions. Military education assistance for spouses of servicemembers or off-duty training and education for servicemembers themselves would be included in the 90 percent calculation. Additionally, for-profit colleges couldn’t use any of that Tuition Assistance (DOD) funding to advertise, recruit, or market to students.

All in all, the provision is pretty limited. The Department of Defense spends only about $517 million per year on these benefits, a small share of the DoD budget or even of federal higher education funding. VA benefits, the much larger pot of money that includes the Post-9/11 GI Bill, among other education provisions, would not be affected by the new NDAA provision.

And because there are no publicly available data that provide the institution-level breakdown of the dollar amount of DOD and VA benefits spent, it’s impossible to know exactly how many schools might be affected. A paper published by financial aid expert Mark Kantrowitz this summer used national averages to estimate that adding in DOD and VA benefits would add about 2 percentage points to a school’s 90/10 amount (for example, a school that received 88 percent of benefits from federal Title IV sources under the current system would receive 90 percent when military benefits were added in. Click here to search for a school and see its 90/10 percentage, alongside other data).Those effects could be more or less severe, depending on the school’s reliance on military student benefits.

Kantrowitz also suggested the effects of banning the use of federal money for marketing would be far more drastic. Since the largest for-profit schools spend about 20 percent of their total revenue on advertising and recruitment, he argues it would effectively increase the threshold for schools to 80/20. Again, though, the largest for-profit schools may not be a good sample to judge the effects on all schools subject to 90/10 – for some schools, it could be far less than 20 percent, or for some schools, even more.

Last week, four Republican members of the House – John Kline, Chair of the Education and Workforce Committee; Jeff Miller, Chair of the Veterans’ Affairs Committee; Buck McKeon, chair of the Armed Services Committee; and Bill Flores, chair of the Economic Opportunity Subcommittee on the Veterans’ Affairs Committee – sent a letter to key members of the House Appropriations Committee disparaging the Senate provisions. They asked that the new restrictions be removed before the defense appropriations bill passes the House again.

Their reasoning?

The marketing provision implies schools are “preying” on unsuspecting members of the military and their families, and the 90/10 rule is both unproductive and unable to account for the fundamental differences between Title IV and military education benefits.

They aren’t the first to suggest concerns with the 90/10 rule, writ large. The rule is intended as a kind of rough, imperfect metric of quality – schools that aren’t able to garner at least 10 percent of revenue from non-federal sources have presumably been labeled by the market as not worth paying for. But it can have other, unintended effects, mainly discouraging schools from serving low-income students or compelling them to raise tuition. Since the 90/10 rule includes no measure of outcomes or of how well the school serves those students, it may just be leading to the exclusion of students who can’t contribute the school’s 10 percent of non-federal revenue. (Incidentally, better data in the form of a student unit record data system could allow for better quality measures and make the 90/10 rule irrelevant.)

But including military benefits within the 90/10 rule is a no-brainer, whether or not the rule is revised to avoid these unintended consequences or to incorporate additional quality measures. The question at hand is whether students and families are willing to shell out for a particular school at which many students receive federal aid – at least 10 percent of the school’s total fiscal intake. DOD and VA benefits, as federal benefits for students, fall squarely on the 90 percent side of the equation. Failing to include them creates a perfect loophole for exploitation of servicemembers and veterans by schools that can’t otherwise meet a basic financial test.

The Federal Education Budget Project, Ed Money Watch’s parent initiative, maintains a comprehensive database that includes data on the 90/10 rule for all institutions of higher education subject to the rule, as well as other cost, finance, demographics, and outcomes data. Click here to search for your school or here to download the institution-level research file.

Gainful Employment Liveblog Day 3

September 11, 2013

We are back for the final day of the first session of negotiations on gainful employment. This session will only be a half day. Here are links to liveblogs from Day 1, Day 2 Morning, and Day 2 AfternooonA summary of the regulatory text under consideration is here.

Working Groups

After a half hour closed session, the committee has agreed to the following six working groups:

  1. Repayment rates--led by Jack Warner from the South Dakota Board of Regents
  2. Placement rates--led by Della Justice, from the Kentucky Attorney General's office
  3. Transition periods/opportunities to improve--led by Belle Wheelan from SACS and Marc Jerome from Monroe College
  4. Program level cohort default rates--led by Brian Jones from Strayer University
  5. Upfront requirements--led by Barmak Nassirian from AASCU
  6. Student consequences--led by Eileen Conner from the New York Legal Assistance Group

Groups will try to get materials in by September 30, but make no promises. The Department does ask that the extent to which thresholds are recommended that they be justified.

Gainful Employment Liveblog Day 2--Morning Session

September 10, 2013

After about a half day of negotiations yesterday (once process stuff got out of the way) we're now back for the second and last full day of negotiations for this first session. Below are occasional updates from the morning negotiation sessions. Yesterday's liveblog is here and the afternoon session can be found here.

Gainful Employment Negotiations Day 1 Liveblog

September 9, 2013

The U.S. Department of Education kicked off its first day of negotiation sessions on how to define what it means to provide a program of training designed to lead to "gainful employment in a recognized occupation." The morning was spent mostly with logistical issues, with the only highlights being the rejection of attempts to add three more members to the committee from a Florida law school, the Chamber of Commerce, and Bridgepoint University. A summary of the regulatory text under consideration is here.

Here are links to liveblogs from Day 2 Morning, Day 2 Afternooon, and Day 3.

Agenda

Here's the order of items for discussion that the panel hopes to cover by the end of midday Wednesday:

  1. Department overview
  2. Upfront Eligibility
  3. Department accountability metrics (should they be phased in?)
  4. Other accountability metrics
  5. Consequences (including for students)
  6. Data correction, challenges, appeals
  7. Reporting requirements
  8. Disclosure requirements
  9. Approval of new programs
  10. Other
  11. Recognition and rewards--exceptional performance
  12. Conforming regulatory changes--second session

What follows are occasional updates on what's going on at the negotiation sessions, which will not have a transcript or audio recording produced.

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