For anyone in the for-profit-college sector who was still dreaming that the spate of investigations into their institutions might amount to nothing, recent actions by the Department of Education and the Securities and Exchange Commission were a wake-up call.
In fining one company and suing another, the agencies made clear that they intend to punish colleges that deceive students and investors about value and profitability. And they're not the only overseers looking to clamp down on the sector. With dozens of state and federal investigations and lawsuits pending, and an interagency task force forming, for-profits are waiting for the other shoe to drop.
The public scrutiny is nothing new, of course. For-profit colleges have been under unrelenting pressure from regulators and enforcement agencies since President Obama took office six years ago.
But until recently, some industry optimists thought they "could just wait it out — that they could litigate their way out of the problem, or lobby their way out of the problem," said Kevin Kinser, an associate professor at the State University of New York at Albany who studies for-profit colleges.
The recent fine and lawsuit send a signal that the pressure isn’t letting up. In fact, it may even intensify in the final months of the Obama administration.
Overdue Oversight or Piling On?
To critics of for-profit colleges, the federal crackdown is long overdue. For years they have accused the Education Department of being soft on the sector, reluctant to penalize those who break the rules.
"The Department of Education is finally standing up," said David Halperin, a lawyer who blogs for the Republic Report, a nonprofit that aims to"expose how big money distorts major policy decisions," according to its website.
"They’re saying, Enough is enough — we have to join the rest of the agencies and start to treat bad actors like bad actors," he said.
To supporters of the sector, however, the flurry of state and federal investigations looks a bit like piling on.
"It’s everybody’s favorite target now," said Trace Urdan, who was until recently an analyst with Wells Fargo Securities. "You can beat this group up with impunity, and nobody will rise to their defense."
Mr. Urdan believes some regulators are afraid they’ll be criticized if they fail to act.
"No agency wants to be left not having done something if there is something bad going on," he said. "You don’t want to be the agency that misses it."
Besides the SEC and the Education Department, for-profit colleges are under investigation by the Federal Trade Commission, the Consumer Financial Protection Bureau, and dozens of state attorneys general. In one case, the FTC is reviewing the marketing of DeVry Education Group Inc.;in another the CFPB has accused ITT Educational Services Inc. of pushing its students into high-cost private loans that it knew were likely to end up in default.
Meanwhile, a coalition of state attorneys general is investigating whether the Career Education Corporation, Corinthian Colleges Inc., the Education Management Corporation, and ITT violated consumer-protection laws. The inquiry focuses on the companies' recruitment practices and the claims they made about student outcomes, the transferability of credits, and licensing requirements.
And there’s more to come: Federal regulators are in the process of forming an interagency task force that will coordinate investigations into the sector.
But the biggest threat, in many colleges' eyes, is the federal "gainful employment" rule, which takes effect in July. The rule, which will judge vocational programs based on their graduates' debt-to-income ratios, has already prompted program closures at some colleges. "That's just the tip of the iceberg," said Noah Black, a spokesman for the Association of Private Sector Colleges and Universities, the sector's main trade group.
"The concern is not about the next shoe dropping," he said. "It is about higher education going away for nontraditional students — who now outnumber traditional ones."
A More Muted Defense
As the lawsuits and investigations have mounted, some of the sector’s allies in Congress have fallen silent. It used to be easy to find lawmakers who would praise the sector publicly; these days they’re a bit harder to come by.
At the same time, the Obama administration has hardened its rhetoric. In the past, Secretary of Education Arne Duncan was careful to distinguish between "good actors" and "bad," and to acknowledge the important role the sector plays in the nation’s economy. Now "that pretense has been stripped away," Mr. Urdan said.
Senate Democrats have also stepped up their criticism of for-profits, with Sen. Richard J. Durbin of Illinois and others calling for tighter rules governing the sector.
Those shifts will make it harder for for-profits to persuade Congress to make changes in the forthcoming reauthorization of the Higher Education Act that would benefit the sector. One such change would soften or eliminate the so-called 90/10 rule, which requires for-profit colleges to receive at least 10 percent of their revenue from nonfederal sources to qualify for aid.
Still, it’s unlikely that Republicans will agree to count military benefits as federal aid, as many Democrats want. And there’s still a chance that they’ll try to replace the controversial "gainful employment" rule with an accountability measure that applies to everyone.
So does this all go away when Mr. Obama leaves office? Probably not, especially if he is replaced by Hillary Clinton, who took aim at the sector in her first official campaign appearance, pledging to "flush out the bad actors." The federal scrutiny might subside if a Republican is elected president, but the state investigations will continue, along with the lawsuits by the CFPB and the SEC.
In the meantime, for-profits should brace for more lawsuits and investigations, Mr. Kinser said.
"It’s kind of a drip, drip that keeps coming," he said. "It doesn’t seem we’re at a place yet where we can say we’ve done a purge, all the bad actors are out, and now we can start rebuilding."
Read more at The Chronicle of Higher Education: http://chronicle.com/article/As-Scrutiny-Intensifies/230215