New report looks at regulating for-profit colleges

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Student debt at for-profit colleges is student debt on steroids: bigger and "badder." Bigger because nearly all the tuition at for-profits comes directly from student loans. "Badder" because many for-profits fail to provide high-quality education despite raking in billions in federal financial aid—failing their students and, ultimately, the taxpayers.

All that may be about to change. The AFT's earlier work on this has shown the devastating effects of for-profit exploitation of students. Now, a new report shows how Department of Education policies have failed to hold for-profit colleges accountable, and how that is beginning to change. Entwined in the process are delinquent accrediting agencies that perpetuate the problem—agencies now under scrutiny.

Randi Weingarten and Rep. Mark TakanoLeading the charge to clean up for-profit policy is a new report, "Regulating Too-Big-to-Fail Education: Next Steps for the Department of Education." It uses the 2014 collapse of Corinthian Colleges, one of the largest for-profit higher education companies, as an example of how bad oversight of for-profit colleges has been. Corinthian famously defrauded its students with inferior education and the empty promise that they would be prepared for well-paying jobs. Then, hundreds of thousands of students were left in the lurch when the company finally turned belly up. In the end, some had their student loans forgiven, but thousands still have outstanding debt.

"I don't want to say, 'We told you so,' but we have blown the whistle on this for years," says AFT President Randi Weingarten (pictured above with U.S. Rep. Mark Takano). "Now, the for-profit industry is in the situation that we feared. They routinely leave students worse off for attending these institutions. They have become more financially unstable than ever, they pose a huge risk to students whose lives and educations will be disrupted when the institutions go down, and they leave taxpayers the bill for cleaning up the mess."

"If the fraud activity was by a company selling cars or lawnmowers, people would get their money back," she adds. "Don't students deserve a process that offers full relief?"

But oversight of for-profits has been "haphazard and incomplete," with a "weak and slow" regulatory response, say report authors Chris Hicks, an independent researcher, and Angus Johnston, a history professor at Hostos College at City University of New York and member of the AFT-affiliated Professional Staff Congress. They recommend stronger regulations that would kick in the moment an institution shows financial trouble, rather than when it is too late. Other proposals range from using tools the department already has in place but rarely uses—such as limiting executive compensation, restricting unnecessary institutional spending and prohibiting expansion at troubled schools—to new tools that would strengthen financial oversight.

The Department of Education has already begun to change its rules, the report notes, identifying new triggers for earlier sanctions—including adverse acts by accrediting agencies and too many students defaulting on their loans. Lax enforcement on existing sanctions, especially for the largest for-profits, suggests more needs to be done.

Among the report's detailed recommendations:

  • Limit the time during which colleges are put on notice (given "provisional certification"), to incentivize them to improve.
  • Restrict spending for institutions on provisional certification—a time during which they continue to receive federal financial aid—so that the money cannot fund new programs or executive salary increases.
  • Improve regulation enforcement by involving the departments of Education and Treasury, the Consumer Financial Protection Bureau, the Federal Trade Commission and states' attorneys general in the process.
  • Establish more realistic "letters of credit," the cash collateral institutions are required to show when they display signs of possible financial failure. Require that they cover a larger percentage of operating costs (rather than the currently typical 10 percent) based on a longer period of time (rather than the one-year calculation currently in use).

Failed accreditors: The fox minding the henhouse
Accreditors also play a part in holding colleges accountable—but they themselves are failing. In fact, Department of Education staff recently recommended terminating recognition of the largest accreditor of for-profit colleges, the Accrediting Council for Independent Colleges and Schools. Most notably, the agency maintained accreditation of Corinthian until the day the institution filed for bankruptcy, despite numerous and undeniable reports of misconduct and ineptitude.

"ACICS has spent years cranking open the spigot to allow taxpayer funds to flow to some of the sleaziest actors in American higher education," reads a report from Sen. Elizabeth Warren (D-Mass.), a consistent advocate for cleaning up for-profit institutions. "ACICS-accredited institutions consistently post some of the worst student outcomes in the country, measured by graduation rates, post-enrollment earnings and debt burdens."

"ACICS's apparent lack of scrutiny and weak monitoring of Corinthian is not an anomaly, but rather part of a pattern of woeful neglect by the agency," a group of senators wrote to the National Advisory Committee on Institutional Quality and Integrity, the advisory body that recently held a hearing on ACICS. "ACICS has failed to identify compliance problems, ensure rigorous practices, and enforce its own accreditation standards for other schools under its charge." The letter was signed by Warren, along with Sens. Richard Blumenthal (D-Conn.), Sherrod Brown (D-Ohio), Richard Durbin (D-Ill.) and Patty Murray (D-Wash.). The senators will hold a hearing on the matter June 23.

Ultimately, an Education Department official will decide whether ACICS must go. If it does, the 900 institutions accredited by the agency (and their 800,000 students) will be thrown into limbo: The institutions must be accredited in order to qualify for financial aid.

"The Department of Education needs to use this moment not just to respond to existing crisis but to create safeguards to keep these institutions from being treated as too big to fail," says Weingarten.

[Virginia Myers]