Archive for the ‘Commentary’ Category

The U.S. Department of Education is trying to create a clear financial picture for students with a recently developed, not yet implemented regulation called “Gainful Employment.” The Gainful Employment regulation along with many other new regulations are set to be put into action sometime in 2011. These new regulations have been conceived in response to the growing pressure over for-profit education’s questionable recruitment practices.

What the U.S.D.E. hopes to accomplish with these new policies is to make students more informed about the financials of their degree programs. Simply defined, the regulation will “apply a formula to programs in career-oriented majors, like healthcare, business and education to decide which ones lead to ‘gainful employment.’ Those that do not would be eliminated. Students would also get concrete information about graduation rates, employment rates, potential salaries in their chosen field, loan debt info and the like before they choose their school. This information should help students analyze their risk/reward scenario.”

The U.S.D.E. has defined “gainful employment” as employment that provides students with the income they need to successfully re-pay their education debts.

Randy Proto, CEO of the American Institutes school group which operates healthcare-based career schools in a number of states, says that the disclosure agreement found in the “gainful employment” regulation is an “excellent idea.” But, for the regulation to be effective, Proto suggests that the formulas established to decipher the “gainful employment” statistics must “account for differences in: student populations served, programmatic goals, national economic conditions and many other factors.”

As it is envisioned now, the “gainful employment” regulations would only apply to for-profit education institutions and a minute percentage of students in non-degree programs at ground schools. So, Proto asks, what about the “7.5 million additional students enrolled in career-oriented degree majors at public and private universities? Why leave any students and programs out of its reach? If the proposed regulation is a good idea and provides the anticipated benefits and protections, it should be broadly applied.”

Proto, clearly a proponent of for-profit education, supports the “gainful employment” measure, but would also like to see regulations emplaced across the board to ensure equality, not just at for-profit online schools or career training institutions.

Proto seems to be on the right track. “Gainful employment” regulations are a good idea but shouldn’t be enforced only at for-profit schools. All students should be able to benefit from the information “gainful employment” statistics will provide. Says Proto, “this is a real opportunity for higher education. But only if it is ‘Gainful Employment’ for all students.”

 

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From: http://community.elearners.com/all_blogs/online_student_blogs/my_bellevue_university_experience/b/bellevue_university/archive/2010/10/19/keiser-university-sues-florida-state-college-jacksonville-how-this-may-concern-you.aspx

The “for profit vs. non-profit” fight has gotten a little bit uglier this month.  I’ve mentioned it on the forums but I’ve decided to do a little more digging before blogging on this particular news article.  In a nutshell, Keiser University (a for profit school) finds out about a collaborative effort between Florida State College Jacksonville (a non-profit school), the Institute for College Access and Success (a connected lobby group which is anti “for profit” schools), Gilchrist Bert (founder of the Water Street Capital hedge fund and famous for short selling) and of course Steve Eisman (a hedge fund analyst also famous for short selling) conspiring to drive Keiser University out of Jacksonville.

 

So who are all of these actors and how does this play out?  Why would they do this?  Is this a crusade to protect the interests of students?

 

Florida State College Jacksonville, generally a community college in Jacksonville who allegedly believes that Keiser University would steal enrollment dollars and decrease the demand for the college’s services.  The conspirators acting on behalf of FSCJ were Steven Wallace the president of the college and Susan Lehr, the vice president of government relations.

 

The Institute for College Access and Success (ICAS) is a lobby group who has a primary agenda of placing restrictions on for profit schools placing them at a competitive disadvantage to non-profits.  This organization is most famous recently for producing Robert Shireman who became the Deputy Undersecretary of Education at the U.S. Department of Education.  It was Shireman who started the ball rolling in changing the U.S. Department of Education’s official stance from neutral to hostile towards for profit education as a whole.  More on himhttp://www2.ed.gov/news/staff/bios/rshireman.html

 

Gilchrist Bert founded the billion dollar, Jacksonville based hedge fund Water Street Capital.  Gilchrist is famous for turning massive profits short selling.

 

Steve Eisman is a portfolio manager for FrontPoint Financial Services, a connected hedge fund, who is also very famous for making big bucks short selling, especially in this last mortgage crisis the nation underwent.

 

So the next logical question is, why do these hedge fund guys care about what happens to for profit schools and how exactly do they anticipate making money by short selling?  I’ll take a shot at giving an admittedly oversimplified explanation of short selling and how these guys make money doing it.  Basically a hedge fund manager borrows a stock at a given value on interest from a brokerage and then sells them.  To settle the account eventually the hedge fund manager will then have to buy back the same number of shares and return them to the broker.  If the shares can be devalued or drop in price, the hedge fund turns a profit because they are buying them back for a smaller amount of money than they borrowed them.  They keep the difference.  I’ll give an example, say you borrow a pen worth $1,000 from a friend and agree to pay him/her 10% for every month you keep the pen out of their possession.  You then turn around and sell the pen for $1,000 and during the following weeks the manufacturer of the pen drops the price to $500.  You buy the pen, return it to the owner plus the interest you owe on it and keep the difference.  Make sense?

 

So why are these guys so vested in seeing the education shares fall?  Simple, because they’ve borrowed shares and would like to return them by buying them back at a reduced price.  So other than the for profit schools who stands to lose?  The brokerage firm, that’s who.  And why should we care if the brokerage firm loses?  Take a look at your 401K, guess who is managing this account for you?  That’s right, a brokerage firm.  The brokerage is betting that the stock will remain stable or otherwise grow, meaning that the hedge fund will have to pay interest and return the stock that is now more valuable than before, thus the brokerage firm (and you) will see greater returns on your initial investment than you would otherwise.  This is a win/lose game, either the brokerage and your average investor win or the hedge fund wins.

 

So the basically the story is, these hedge fund managers smell blood in the water.  You have an administration in power that is almost openly hostile towards free market enterprise regardless of industry.  Add to that equation a U.S. Department of Education who has no problem imposing unprecedented policy upon schools based solely upon their tax status and who is also using their position to influence the decisions of non-governmental accrediting bodies.  Lastly you have Senators and Congressmen who receive large campaign donations from not only the hedge fund managers, but law firms who may represent them, non-profit schools and other organizations that may have a stake in the game.

The losers in this are the investors (me and you), the for profit schools, students and future students regardless of whether they will or already attend for profits schools or not.  Why?  Because the supply of readily available schools will drop, making it more difficult and expensive to earn a college degree (supply vs. demand).  Secondly the alumni of for profit schools stand to lose as their degree(s) will have an unfair shadow of doubt cast upon it regardless of the reality of the quality of education they received.

 

 

This summer, the U.S. Department of Education introduced a proposal to regulate for-profit universities. Referred to in education circles as the “gainful employment” regulations, the proposal seeks to protect students with the highest financial need who enroll at these institutions, to ensure the likelihood that they will be able to find employment and repay their loans after completing their certificate or degree programs.

The Department of Education is proposing a new sanction, namely that if the for-profit programs are not producing “gainful employment” opportunities for these students, those institutions will lose their student aid eligibility — a major source of income for these education companies. As usual, the issue has raised partisan rancor in several congressional hearings (the latest on Sept. 30) held by Iowa Democratic Sen. Tom Harkin, chairman of the Health, Education, Labor, and Pensions Committee.

As a not-for-profit, four-year and graduate residential university, my institution is not directly affected by these federal rules. But they do bring a critical issue to light for all of higher education, for-profit and not-for-profit alike: What are we doing to prepare and enable our students to secure jobs and succeed in an increasingly competitive and dynamic workforce, especially for those in the highest-need brackets? Are we doing enough? Are new models needed?

According to the Bureau of Labor Statistics, the youth unemployment rate reached 19.1 percent in July, and the United States is experiencing some of the worst youth joblessness of the post- World War Two era. These statistics should sound an alarm across the nation. While penalizing for-profit universities for programs that produce little results and high debt for their students might be an effective short-term solution to protect students and our student loan system, we need a broader national vision from Washington, from corporate America, and from higher education about how to ensure that our young people have a future in our nation’s workforce. Punitive measures from the government and “business as usual” from our nation’s colleges and universities just won’t cut it. Students need a new deal — a promise of access that can actually lead to job opportunity when they complete their degrees.

With the state of our economy, the question is even more urgent for students and their families: What will a degree get me after I graduate? In the salad days of job opportunity, we university administrators could afford to wax a bit more vague about this. For many traditional academicians, this question might even seem out of place. After all, college is about imparting knowledge, the collective inheritance of humanity — not about something as mundane as a job.

Of course that is the case, but our students also want and need to work. I see this mindset in the kind of students we attract to Stevenson University. Almost one-third are first-generation college students. Their parents did not attend college, but they nurtured that dream for their children. These students expect that attending college will lead to a good job, and they consciously chose an education with programs and experiences structured to help make their dreams a reality.

Several years ago, representatives of Maryland’s public and independent colleges and universities joined forces with the Governor’s Workforce Investment Board on a listening tour, dialoging with business leaders around the state about the kinds of programs and initiatives that prepare students to work successfully in their companies and economic sectors. This tour was extremely productive and helped to build the kind of collaboration that higher education, business and government need.

But this process needs to be national, continual and at the top of the president’s and Congress’ agendas.

President Barack Obama’s “Skills for America” initiative, announced Oct. 4, is a step in the right direction. By encouraging partnerships between community colleges and industry, students will be able to connect their educations to careers, many in new and emerging industries. This initiative should also move beyond community colleges to four-year institutions, public and private, that are serving many of the nation’s highest-need students.

What else can higher education do? Diverse employment internships should be a near mandate across college curricula; federal and state employer advisory boards for higher education can update academia on the changing and emerging workforce skills for industry; and we should promote career development standards and requirements that challenge our students and grow their skills as much as their academic coursework expands their knowledge.

Instead of punitive measures that might ultimately limit access and discourage students and working adults from achieving a degree, we need creative measures from leaders in education and the top policymakers that ensure degrees — and the college experiences that support them — remain relevant in an increasingly dynamic and global workforce. Career education should not be sidelined; it needs to be front and center in our strategic institutional plans and national economic policy.

Kevin J. Manning is the president of Stevenson University with campuses in Stevenson and Owings Mills. His e-mail is kmanning@stevenson.edu.
From: http://www.baltimoresun.com/news/opinion/oped/bs-ed-colleges-jobs-20101013,0,2442120.story

By: Mark Hyman at http://www.thelandofthefree.net/conservativeopinion/2010/10/10/assault-on-career-colleges/

The U.S. Department of Education recently conducted a Notice of Proposed Rulemaking (NPRM) that suggests the Dept of Ed will severely restrict access to various federal loan and grant programs to students attending career colleges. Unlike state-owned public institutions and private, not-for-profit colleges, career colleges operate on a for-profit basis.

There are approximately 1,000 career colleges such as the University of Phoenix, Strayer University, DeVry Institute and Westwood College that offer Associate, Bachelor or Master’s degrees. About 1.2 million students were enrolled in these colleges in 2007-08, according to Dept of Ed statistics. Another 1,800 for-profit post-secondary schools offer certificate, continuing professional education or occupation-specific education such as golf academies and culinary, technical and cosmetology schools.
In contrast, there are more than 3,300 public institutions and private, not-for-profit colleges that offer Associate or higher degrees. In 2007-08, about 17 million students were enrolled in these schools.

Career colleges have grown dramatically in the past several years. They primarily market themselves as providing degree and certificate programs that meet local market employment shortfalls and cater to the hectic schedules of a student body that is already in the workforce. Career colleges also provide opportunities to students who are denied admission to public universities and private colleges.

The typical career college student is already employed, 25 years of age or older, minority, female, single and often with dependent children, has lower income, cannot rely on family resources to finance college, and comes from a family without a college degree.
Because of these demographics, career colleges tend to have a much higher percentage of students who rely on federal student financial aid that is doled out under Title IV of the Higher Education Act of 1965 (federally insured loans, Pell Grants, etc.) than do students at public universities and private colleges.

This federal funding totaled $105 billion during the 2008-09 school year. About $24 billion of that amount went to students who attended career colleges.

According to Senator Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions, which has jurisdiction, federal student aid will balloon over the next decade. The U.S. will spend as much as $350 billion just on Pell Grants over the next 10 years. In 2009, $24 billion was spent on Pell Grants; in 2011, the U.S. will hand-out $30.6 billion.
The Dept of Ed has several criticisms of career colleges. The department alleges students attending career colleges default on federally backed student loans at a significantly higher rate than do students at public universities and private colleges. Career colleges dispute this allegation and respond with two points.

First, the demographic of the typical career college student is more prone to defaulting on loans, in general, and this accounts for a slightly higher student loan default rate. This demographic claim is borne out by the high loan default rate of students attending historically black colleges and universities.

Second, career colleges accuse the Dept of Ed of using different accounting techniques when analyzing student loan repayments by career college students. Older students already in the workforce are more likely to consolidate student loans into consumer debt refinance plans. The Dept of Ed, career colleges assert, improperly identify student loans in such situations as “in default” when they are, in fact, being repaid on time or are in approved interest-only payment programs.

The Obama Administration’s first attack on higher education financing occurred when the government conducted a takeover of private student loans. Observers allege the proposed rule change underscores the anti-corporate bias of the Obama Administration.
The Dept of Ed also complains that career colleges create “labor oversupplies” by graduating too many qualified workers for a specific profession causing unemployment and depressing salaries. Of note, the Ed Dept is silent on the thousands of lawyers graduated each year by law schools.

Occupation-specific training programs, argues the Dept of Ed, “that lacked a general education component made graduates of for-profit institutions less versatile and limited their opportunities for employment outside their field.” Career colleges dispute this.
Speaking on background, one career college official stated that graduating students who cannot get employed will cause students to attend school elsewhere. “We are marketplace-driven. We have a strong incentive to ensure our graduates get jobs. And they do,” he said.

According to the NPRM, the Dept of Ed is “determining whether certain postsecondary educational programs lead to gainful employment in recognized occupations.” It further indicates an intent to cut off federal student aid to “educational programs of little or no value.”

One can easily draw the conclusion there is elitism at play. What exactly constitutes a program of “no value”?

Certificate programs leading to jobs in cosmetology, police forensics, and computer repair may not pass muster with the Education Department as having “value” unlike some of the following courses offered in the Fall 2010 at these elite colleges and universities:
• Oberlin College: “Queering the Reel” (RHET 104) – Examining sexual orientation and gender in film.
• Yale: “Gypsies, Tramps and Thieves” (PLSC 154) – Study of “groups who have shown to live outside, or on the margins of, society” including hoboes and 18th century pirates.
• Harvard: “Akkadian Language and Literature” (AKKAD 300) — Study of the extinct Akkadian language that died-out more than 2,100 years ago.
• Columbia: “Transnational Transgender Social Formation” (W3918) — Merely one course offering among the university’s vast human rights curricula.
• Occidental College: “Stupidity” (CTSJ 180) — A Critical Theory and Social Justice offering to prove “[s]tupidity is neither ignorance nor organicity [sic], but rather, a corollary of knowing and an element of normalcy, the double of intelligence rather than its opposite.” Huh?

If the Dept of Ed truly wants “to protect taxpayers against wasteful spending on educational programs of little or no value” then perhaps it ought to prohibit the recipient of any federally-backed student aid from taking classes similar to these or banning tax dollars altogether from going to any school that even offers such nonsense.

Public university officials have been especially critical of career colleges. Students enrolled in career colleges not only attend classes in typical bricks and mortar classrooms but, have also been taking classes online. Public universities have been losing financial aid dollars to students attending career college programs.

GIVEN OLD ACADEMIA’S heavy political support of Democrats, this may be the real motive behind the Obama Administration’s effort to cut-off federal aid to colleges that have profit motives. Adding insult to injury, enrollment at career colleges has steadily increased while enrollment has flat-lined at public institutions and private colleges.

Last year, California denied community college admission to about 140,000 students due to the state’s dire financial predicament. Career colleges have picked up the slack. Today, the University of Phoenix has more than 443,000 students. Only the State University of New York system has a larger enrollment (463,000).

A Government Accountability Office report released in August 2010 (GAO-10-948T) alleges deceptive marketing practices at 15 career colleges and accuses 4 of those schools of conducting fraudulent practices.

The Association of Private Sector Colleges and Universities (APSCU), the industry trade association, has condemned deceptive marketing practices and offers training seminars for financial aid administrators.

There are unconfirmed reports that more than 200 schools were surveyed for the report but, that the GAO cherry-picked only the 15 schools accused of deceptive or fraudulent marketing practices. They are also unconfirmed reports that the Dept of Ed was specifically targeting the University of Phoenix in response to complaints made by public universities. Both of these claims are plausible.

At a June 2010 Congressional hearing, criticism was leveled at career colleges for using “TV advertisements, billboards, phone solicitation, [and] web marketing” to promote their institutions. According to Senator Harkin, “[advertising] spending by a for-profit school system radically [sets it] apart from other [not-for-profit] colleges.”

Career colleges counter that they do not have the monopoly inherent in being a state university nor do they enjoy the free marketing available from the promotion of big-time athletic programs such as football and basketball that are resident in public universities and private colleges.

The NPRM focused on a two-part test to ascertain an institution’s future eligibility for federal student aid. These are student debt-to-income ratios and loan repayment rates. Schools not meeting the minimum thresholds of the two tests would be deemed as not having adequately prepared students for “gainful employment” and would be cut-off from receiving federal student aid dollars.
This proposed rule to determine federal aid eligibility would apply only to career colleges. Career colleges utilizing federal student aid “benefit from billions of dollars in subsidies from taxpayers,” argues Education Secretary Arne Duncan and therefore ought to meet additional burdens not borne by public universities and private colleges.

The APSCU observes that if the same rule were applied to public universities and private colleges then it would severely restrict aid to medical school students. Students attending dental and law schools and other schools with high enrollment costs would also be affected.

According to the APSCU, 9% of nurses and 54% of allied health workers who graduated in 2009 attended career colleges. The trade association argues that drastically cutting back federal aid opportunities to these schools could exacerbate acute health care worker shortages.

There is a related matter that dramatically differentiates for-profit and not-for-profit colleges. Each state pours hundreds of millions of dollars into its public institutions. Additionally, public institutions and private, not-for-profit schools operate on a tax-exempt basis. In contrast, career colleges do not receive direct government subsidies and instead, pay millions of dollars of taxes into federal, state and local governments.

An analysis prepared by Professor Bradford Cornell of the California Institute of Technology on behalf of an advocacy group representing career colleges compared the costs borne by taxpayers by students attending for-profit and not-for-profit colleges.
According to Cornell’s report, “where only direct costs to taxpayers are considered, for-profit 2-year institutions produce graduates at a cost to taxpayers that is $25,546 lower on a per student basis than the public 2-year institutions [emphasis added].” The difference is more dramatic when one factors in tax revenues paid by for-profit schools and the absence of tax revenue from not-for-profit schools.

This assault on career colleges has pit influential groups and 80 members of Congress of both political parties against the Obama Administration. They note that career college students are heavily female and minority and changes to financial aid rules would disproportionately disadvantage them.

According to the Imagine America Foundation, 43% of students at career colleges are minority and 65% are female. Also, thirty-nine percent of degrees awarded at career colleges went to minorities, which is twice the rate at public institutions (20%) and more than double the rate at private colleges (17%).

Reducing access to federal student aid to those who enroll in career colleges would harm an important political Democrat constituency. In a letter addressed to Harkin, one liberal group of politicians urged the Iowa Senator to abandon his “imbalanced” approach to restricting federal aid to career colleges.

The Department of Education is expected to issue new federal student aid rules on November 1 that would take effect next year.

The following letter was sent earlier this week from APSCU President Harris Miller to Dr. Jill Biden regarding the White House Summit on Community Colleges.  While APSCU believes this is a step in the right direction, it is important that Washington not overlook private sector colleges and universities if we are to fulfill President Obama’s goal of the highest percentage of college graduates by 2020:

Dear Dr. Biden:

Congratulations on convening the first Community College Summit.  Your deep commitment to higher education is clear, and your leadership gives those of us who work in higher education confidence that our future workforce is in caring hands.  From business leaders, to lawmakers, to community college administrators and students, your Summit will bring together a diverse and impressive array of stakeholders – all of whom are committed to improving and enhancing higher education.

But one group is missing: the 3.2 million students and the more than 250,000 employees who populate private sector universities and colleges.  We are sorry about this missed opportunity, but we stand ready to support you, President Obama and Vice President Biden and to help attain the goal of the highest percentage of college graduates in the world by 2020.

Our institutions provide paths forward for students who, in many cases, have no other options.  Most students at our schools do not conform to the profile of a traditional student.  For example, 76% are financially independent of their parents; 47% have dependent children; 28% work full time; and 63% are age 24 or older.  Before the discussion turns overly abstract, we should remember the faces and stories of aspiring students.  There are countless examples of people, unable to find success within the traditional educational system, who have turned to private sector colleges and universities — and flourished as a

As you know, our schools work closely with the employer community to ensure that their faculty, curricula and facilities are preparing students for meaningful careers.  Last year, 54% of all new allied health workers and 10% of nurses received their degrees, diplomas, or certificates from private sector colleges and universities.  Though in 2008 our sector represented only 8% of higher education students (we have now climbed to 12%), 15% of all degrees and certificates were awarded by our institutions.  This positive outcome is because our schools focus so intently on outcomes for their students—getting the degree and getting the job.

On September 29, 2010, over 2,000 students rallied on Capitol Hill with lawmakers from both parties to tell their inspiring stories of their time at private sector colleges and universities.  Progressive Democrats and Conservative Republicans—at a time of election-year partisanship—joined hands and stood with these students.  We must follow these students’ lead and together find a way forward.

The millions of students in private sector schools deserve the same attention and encouragement as those students in other postsecondary institutions.  Please don’t forget to include our students in future White House discussions of how best to prepare our future workforce for the 21st Century.  Only by joining forces will we help our country regain its global leadership in higher education and allow many more Americans to achieve their dreams.

APSCU contact: Bob Cohen.

 

From: http://www.career.org/iMISPublic/AM/Template.cfm?Section=Newsletters1&CONTENTID=21401&TEMPLATE=/CM/ContentDisplay.cfm

A recently filed lawsuit alleges that officials of Florida State College at Jacksonville conspired to compete with a for-profit college with a campus in Jacksonville. This is not true.

With an enrollment of 85,000, our college has plenty of students.

What is true is that Keiser University is retaliating against our efforts to raise awareness about excessive student loan debt.

In collaboration with the U.S. Department of Education, Florida State College at Jacksonville has been significantly involved in efforts to improve student loan consumer protection.

In our view, strong measures are urgently needed at state and federal levels to ensure consumer protection against the abusive practices of some for-profit colleges that can saddle vulnerable students and their families with a lifelong burden of debt without any realistic prospect for repayment.

Such excessive debt often precludes further education and may severely impair the student’s ability to secure future employment and housing. Ultimately, American taxpayers pay for loan defaults, which currently total an estimated $47.4 billion.

Federal studies and investigations have found the for-profit college industry to be at the center of this student debt crisis and have raised serious concerns about some of their business practices.

The leaders of Florida State College at Jacksonville are concerned primarily about the exploitation of students in Northeast Florida by profit-focused colleges as these (typically young) citizens pursue their dream of a higher education.

As one of the largest and most comprehensive public colleges in America, Florida State College at Jacksonville offers nearly every program of interest at tuition rates among the lowest in the nation.

The college’s commitment to student loan minimization led to the establishment of the Star Opportunity Fund – one of the largest local need-based financial aid programs in the country.

The number of scholarships awarded by the fund to low-income students has increased by 176 percent over the past two years, and the college’s foundation has launched a massive campaign to make far more resources available to students.

Florida State College at Jacksonville officials will continue to combat excessive student debt while working hard to protect the interests of our local college students.

We will not let this lawsuit deter us from our mission of providing high-quality, affordable education to our community, nor will it deter us from sounding the alarm about some of the business practices of the for-profit college industry.

STEVEN R. WALLACE,

president,

Florida State College at Jacksonville

 

From: http://jacksonville.com/opinion/letters-readers/2010-10-08/story/non-profit-collegesconsumers-need-protection?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JacksonvillecomOpinion+%28Jacksonville.com%3A+Opinion%29

by Grant Explorer on Thursday, October 7th, 2010

For-profit colleges are beginning to launch an all-out war to fight what they see as unfair attacks from such critics as community colleges and the federal government.

Fort Lauderdale-based Keiser University sued a Jacksonville community college on Monday, claiming administrators there maligned its school. At the same time, a group representing 19 other for-profit schools released a study slamming recruiting practices and student achievement at community colleges, which compete for many of the same students and government dollars.

And last week, more than 2,000 career college students and supporters attended a rally in Washington, D.C., to protest proposed regulations that could strip the for-profit colleges of much of their federal aid.

“The misinformation is just extraordinary, and we have been absolutely miserable at defending ourselves,” said Keiser chancellor Arthur Keiser, who also leads the Association of Private Sector Colleges and Universities, the industry lobbying group. “Finally, I think that’s beginning to change.”

The sector has come under fire in the past year, as Senate hearings and federal government reports have raised questions about recruiting practices, student debt and the large amounts of federal dollars the schools receive. For-profits say they are being unfairly singled out.

Keiser claims in its lawsuit that the president and another administrator at Florida State College at Jacksonville launched a smear campaign against Keiser and the entire for-profit sector. The university based many of its claims on documents obtained through a public records request to the community college.

According to the suit, college president Steven Wallace sullied the reputation of Keiser and other for-profit schools in an April 2009 e-mail to a short seller, who would profit if the price of publicly-traded education stocks declined in value, the suit alleges. The community college was launching a new technical school at the time and saw Keiser as competition, according to the suit.

“The new technical college we will launch … is designed, in part, to drive the sleazebags out of our region,” according to Wallace’s e-mail.

The suit also alleges that school officials fed the media stories that for-profit schools “ripped off” their students and provided them with “worthless degrees.” Keiser’s business suffered, with lower than expected enrollments and restricted access to recruit at area high schools.

“They were out to harm our business, and it got to a point where this was intolerable,” said James Waldman, Keiser’s general counsel.

Wallace called the suit “absurd,” adding, “we are not concerned in the slightest because we have done nothing improper.”

Florida State College officials say they suspect Keiser is upset because community colleges have supported tighter controls of the for-profit industry. The U.S. Department of Education has proposed new rules that would limit colleges’ access to student aid if too many students default on their loans or fail to find “gainful employment.”

For-profit colleges received $4 billion in federal Pell Grants and $20 billion in federal loans in 2009, making up the bulk of their revenues, federal data show. And while only 12 percent of college students attend for-profit schools, they account for 43 percent of student loan defaults. Most students in community colleges don’t take out student loans, since tuition is state-subsidized and considerably cheaper.

“We are simply trying to protect our local college students from excessive debt,” Wallace said. “We will continue to do so on behalf of our community and will defend the college vigorously in court. ”

Keiser’s fight is not limited to Florida State College. Last week, it sent 28 students and supporters to Washington, D.C., to join a national rally against proposed federal regulations. Keiser nursing program graduate Greg Shaw, 44, of Tallahassee, was one of them.

“I worked very hard for a program where we lost 60 percent of the students who didn’t make the grade,” he said. “Now I’m hearing people sneering, saying, ‘I understand the government is cracking down on programs like yours.’ It has the effect of devaluing the degree I worked hard for, and it’s offensive.”

Career colleges and their supporters say the industry is being unfairly attacked. For example, a recent Government Accountability Report did an undercover investigation of recruiting practices at 15 for-profit colleges, but didn’t look at other education sectors. Problems were found in all the campuses, with potentially fraudulent behavior at four schools. Keiser was not among those visited.

Several for-profits, including Kaplan Higher Education and the University of Phoenix, have issued a long list of changes to address the problems, including restructuring their pay system so advisers aren’t working on commission, thus discouraging the use of high-pressure sales tactics.

Immediately after the government report, Kaplan suspended enrollment at Kaplan College locations in Pembroke Pines and Riverside, Calif., and that’s still in effect. A company statement said Kaplan is conducting a thorough investigation to make sure students and applicants “are treated in the most responsible and ethical manner possible,” and that employees are following all laws and company policies.

But industry officials say community colleges are also guilty of questionable practices. The Coalition for Education Success, made up of such schools as the Art Institutes and Argosy University, commissioned an undercover operation of practices at community colleges. The report states admission officials wouldn’t release graduation data and gave misleading or evasive data about job placement rates and earnings potential of graduates.

The survey also quotes federal data that shows community colleges have graduation rates of 21 percent, compared to 58 percent for career colleges.

“At a time when community colleges are being touted as the answer for educational achievement and job placement in this country, we found troubling evidence to the contrary,” said Jean Norris, lead researcher on the study.

If all the findings are true, it still doesn’t negate the need for reforms in the for-profit industry, said critic David Hawkins, director of public policy for the National Association for College Admission Counseling.

“The stakes must be extraordinarily high for the for-profits to be responding with such aggressive tactics,” he said. “The regulations proposed would fundamentally alter their business model, which is something they’re not interested in doing right now.”

From: http://www.exploringgrants.com/keiser-university-sues-jacksonville-college/

By Larry Stirling

From: http://www.sddt.com/Commentary/article.cfm?Commentary_ID=141&SourceCode=20101006tza

When Navy Lt. Cmdr. David Chigos retired, he tried to enroll at San Diego State University. Since he was working full-time during the day, he sought night classes.

Silly him … thinking that publically-employed academics might teach at night to accommodate working adults.

It is hard enough to get them to teach during the day.

Mr. Chigos must have been fuming as they laughed him out of the registrar’s office.

The experience helped Dave Chigos recognize that the public schools were failing to serve employed adults who worked all day and could only go to school at night.

The result of his frustration and then foresight and energy is the now widely recognized “National University” an institution that he started “out of the trunk of my car.”

Chigos and his team identified several impediments to reasonably-priced degrees.

Public university students are inured to the inveterate unresponsiveness of tenured, unionized and prickly faculties that require certain classes be taken while at the same time not providing enough of such classes to allow a perspicacious student to graduate timely.

Gone is the notion of a four-year degree because the faculty is just too durned busy to be bothered teaching the necessary hours to allow the enrollees to acquire 15 units a semester.

Chigos and his National University team instead arranged to have student registrations drive faculty decisions, not the other way around. When enough students needed a class in freshman English, an instructor was hired and the class provided.

To keep costs down and maintain maximum flexibility, there were no tenured faculty members. Instructors, who were working adults themselves, were hired based on the fact that they were qualified to teach the class.

Since they had other jobs, they did not need expensive benefits.

Quality control was maintained by having the students evaluate the instructors at the end of each teaching period. Lousy teachers were simply not hired back.

National University was decades ahead in applying computers to their administration further reducing overhead and pioneering “distance learning” throughout the world.

The N.U. template became a nearly overnight success spawning dozens of copy cats like Phoenix University, but meanwhile sending shock waves through the traditional schools.

About the same time, a group of investors realized that the existing law schools suffered from the same insular laziness as the big public universities.

So they started the Western States College of Law to serve working adults, such as myself, at night.

They kept costs affordable by hiring actual lawyers to teach instead of full-time faculty. Western States quickly became the largest law school in California.

Were these two innovative institutions lauded for democratizing education and cutting costs? Nope.

Instead, National University was set upon by the educational establishment led by USD President Author Hughes.

The henchman for the educational establishment is the Western Association of Schools and Colleges (WASC) and their hatchet of choice is to withhold accreditation and thereby cut off student access to federal school loans.

In the case of Western States School of Law, the apex man was the American Bar Association.

How dare the school use lawyers to teach law? How dare they rely on the public law library and the internet for access to legal resources?

To gain accreditation, WSU had to hire a full-time faculty of mostly liberals and establish a large, expensive library thus raising costs while making them less competitive, the real agenda for the accrediting agencies.

Done and done. Student costs rose substantially: a cost initially borne by the taxpayers via student loans and later by the students being burdened with larger debts.

However, the harassment of National University and WSU did not stop the creation of the manifestly superior private post-secondary educational market.

Students and parents came to recognize that public universities specialized in providing little more at the end of six year’s education than young, liberal unemployable social workers, oh, and a huge debt hangover.

As a result students flocked to the private-schools knowing that upon graduation they would likely be employable.

From 2000 to 2008, enrollment in private post-secondary schools ballooned to 1.8 million.

So many students have abandoned the public higher education system that a full panic has overtaken the traditional schools.

So they have called on the federal government to simply crush the competition with a proposed “gainful-employment” rule, a rule which no public higher education institution, especially SDSU, could ever meet. (See: http://www.mycareercounts.org for more information).

If the graduates of the private schools don’t pay back their loans within a stipulated period of time (something the school itself has no control over), the school whence they graduated will be cut off from federal loan eligibility.

The Secretary of Education claims that private students, obtaining employable skills are “less versatile” and the success of the schools may result in an “oversupply” of certain classifications of employees such as nurses.

I happen to know that the Department of Labor does not keep track of vacant jobs of which there are many millions in this nation. I also find it ludicrous that the Secretary of Education would attack the schools for their success and claim “oversupply.”

The “gainful employment” rule is nothing more than the public entities trying to suppress successful competition.

Dr. Chigos and the WSU founders would understand.


Stirling, a former U.S. Army officer, has been elected to the San Diego City Council, state Assembly and state Senate. He also served as a municipal and superior court judge in San Diego. Send comments to larry.stirling@sddt.com. Comments may be published as Letters to the Editor.

Click here to read the Keiser Lawsuit against Florida State College Jacksonville.

The Obama administration has taken steps to stop federal funding of for-profit institutions that are preparing too few of their students for “gainful employment” and that boast high student-loan default rates. Jesse Jackson and several members of the Black and Hispanic Congressional Caucuses have spoke out against these steps. In a letter to Secretary of Education Arne Duncan (September 15, 2010), Jackson stated, “I am concerned that the proposed rule casts too broad and too general a brush on many institutions, some of whom are doing an excellent job at serving economically disadvantaged and minority students.”

Herein lies the problem with Jackson’s claim: The institutions that are doing an “excellent job” won’t lose funding as their students are much more likely to secure employment by earning useful degrees. In addition, these same students will be more likely to pay back their students loans because they are employed. Jackson and others are worried that low-income, first-generation African-American and Latino college students will lose out on opportunities for a college education if the Obama administration holds for-profits more accountable. In truth, holding these institutions more accountable will help racial and ethnic minorities. It does not serve anyone well—African-Americans, Latinos, Whites, the nation overall—to have a degree that doesn’t lead to gainful employment or, worse, is not respected by employers. And in fact, granting degrees that are of low quality sets up a two-tiered system in which racial and ethnic minorities as well as low-income Whites pay the price.

Instead of critiquing the Obama administration’s attempt to raise the quality of education for all students—but especially low-income students who frequent for-profit institutions—Jackson, members of the Black and Hispanic caucuses, and all of us for that matter, need to be pushing for more access and greater degree attainment at colleges and universities that care deeply about the future prospects of their students. We need to pay particular attention to racial and ethnic minorities—not only because it is the right thing to do—but because they are quickly becoming the majority of the population.

If you take a closer look at the outcomes of attendance at for profit institutions, the Obama administration’s actions make sense. For example, according to the National Center for Educational Statistics, default rates measured 4 years after students begin repaying their loans show that students who attended for-profit schools have a higher default rate than those who attended non-profit public and private institutions. Specifically, public institutions have a rate of 7.1 percent, private institutions 6.2 percent and for-profits 19.2 percent. In fairness, although the for-profit sector’s rate is higher than that of other sectors, according to Government Accountability Office data, it is still beneath the threshold cut-off rates that disqualify schools from Title IV eligibility.

If we turn our attention to graduation rates, for-profits have lower six-year graduation rates than their non-profit counterparts. For example, according to a recent Chronicle article, 44 percent of students who seek a four-year degree at a for-profit institution graduate. That compares with 54 percent of students attending public four-year colleges and 64 percent enrolled at private, non-profit, four-year colleges. If we look more closely, African-Americans graduate at a rate of 40 percent at for-profit institutions, compared to 45 percent at non-profit colleges and universities (NCES, 2005).  Likewise, Latinos graduate at a rate of 50 percent at non-profits, but only at 46 percent at for-profit institutions (NCES, 2005).

Of course, higher loan-default rates and lower graduation rates can be explained, in part, by the student population served by for-profit institutions. Research tells us that low-income and first-generation students are more likely to default on their loans and less likely to graduate. Other colleges and universities that serve those populations also struggle with the same issues that for-profits do, but they do not operate with a goal of making a profit.

Although there are for-profit institutions that are graduating racial and ethnic minorities at a commendable rate, anytime you mix making money with education—especially the education of low-income, first-generation, or racial and ethnic minorities—it is vital to have the highest level of accountability measures in place. The Obama administration is doing the right thing by holding institutions that make a profit off of education, as well as those that don’t, accountable for providing a quality experience to students and making sure these students graduate with valuable degrees.

From: http://chronicle.com/blogPost/Gainful-Employment-Jesse/27192/?sid=at&utm_source=at&utm_medium=en

BANGALORE (Reuters) – U.S. for-profit colleges, widely criticized for saddling students with big debts and not fully preparing them for the workplace, are kicking back as they garner public support.

Having seen their stock prices slump by a third since April as their business model has come under sustained attack from the Obama administration, education companies such as Apollo Group and Corinthian Colleges have begun a counterattack.

Corinthian has run a marketing campaign to raise awareness of the “unintended consequences” of the proposed rules, and has urged Washington to reconsider them.

Student unions, Republican senators and even some Democrats are lining up behind these schools in opposing the proposals that are seen crimping colleges’ growth and tightening enrollment policies.

The new rules would limit schools and the amount of help students could get, according to Dawn Connor, president of Students for Academic Choice, a student group that opposes the regulations.

“Default rates are up all over the place, that’s because the economy is down. I don’t think it should all be blamed on for-profit schools,” said Connor, who this week organized a student rally on Capitol Hill to protest the proposals.

The tough rules framed by the Department of Education could see fewer courses on offer and more students excluded from post-secondary education at a time when high unemployment and a slow recovery are bringing more people back to schools.

The department last week delayed releasing a final rule on the most controversial reform, citing the large number of critical comments, some 100,000, it had received.

The ‘gainful employment’ rule says the government would stop lending to college programs if more than 65 percent of ex-students fail to pay the principal on federal loans.

In August, the department released loan repayment rates of for-profit schools that showed most did not meet the required threshold to qualify for federal aid.

Morningstar analyst Todd Young said companies and industry groups were waiting to see the detail of the gainful employment proposals before firing back in earnest. These are now expected early next year.

“As the public comment period came to an end in September, the industry finally started its counterattack,” Young said.

Republicans also voiced their opposition to the proposed rules at a Senate hearing on Thursday.

“It’s naive to think these problems are limited to just the for-profit sector,” said Republican Sen. Michael Enzi, noting large debts owed by many law school graduates. “We’re just looking at this in a vacuum and that’s not fair.”

Democrats face the threat of losing control of one or both chambers of Congress in November mid-term elections amid voter anxiety over jobs and the slow pace of economic recovery.

The proposals could prompt 400,000 students out of post-secondary education each year, and trigger 90,000-100,000 job losses, according to a study by Parthenon Group — as schools will have to trim programs that don’t offer students solid job prospects.

“The government needs to think about access to education, how they can help students who want to get education but can’t afford loans and certainly can’t afford to get themselves into a lot of college-loan debt,” said Steve Loflin, executive director of The National Society of Collegiate Scholars, which provides scholarships to high-ranking students.

Some for-profit schools argue their default rates are high as they primarily serve some of society’s weaker elements.

“The biggest effect I see is the underserved population are going to be turned out again. I don’t think that’s a great result because those are the folks that are likely to need public assistance,” said Signal Hill analyst Trace Urdan.

STILL TAKING FLAK

But the schools are still coming under fire for charging high fees and running loose admission policies.

Rich Williams, higher education advocate at U.S. Public Interest Research Group, said for-profit colleges were still being irresponsible in their recruiting, and noted that they charge $15,000 for certification for programs like massage therapy — that costs about $520 at community colleges.

“If anything, these high-risk students should not be going to for-profit colleges,” said Williams, one of a 13-member team that helped the education department draft the new regulations.

Sara Fuller, a student at Apollo’s University of Phoenix, said she was never asked if she had a job or could repay loans before being enrolled on an associate degree in criminal justice.

“I called the university and was enrolled in classes on the same day,” said Fuller, who is pushing for tougher regulation as, even after investing over $12,000 in her degree, she’s not sure of getting a job.

Former Clinton aide and current for-profit higher education lobbyist Lanny Davis–whose other clients include Equatorial Guinea President Teodoro Obiang Nguema Mbasogo, a man who Foreign Policy ranked as the 14th-worst dictator in the world after he “amassed a fortune exceeding $600 million while the masses are left in desperate poverty”–has dutifully published an anti-”gainful employment regulation” article on behalf of his paymasters that doesn’t even try to be truthful or make sense. For example:

Liberals supporting these proposed regulations rightly complain about marketing and other abuses. But the fact is, such abuses occur at non-profits and public institutions as well as at for-profits and, in any event, the gainful employment regulation doesn’t even address the issue of these abuses

So we should be against regulations that prevent some abuses in the for-profit sector because they ignore other abuses in the for-profit sector? This is a defense? Also, I’m pretty sure that non-profits and public institutions don’t actually engage in boiler-room style recruiting tactics. Davis continues:

Liberals who cite the excess “cost” of student loan defaults among the lower income and minority students ignore two inconvenient, indisputable facts: first, billions of dollars of taxpayer subsidies that go to non-profits and public colleges are not available to for-profits; and for-profits cost taxpayers substantially less per-student each year than non-profits and public colleges.

Liberals (and everyone else) who cite the cost of student loans are most concerned about the cost to students, not the taxpayer, since students are the ones who get stuck with unmanageable, undischargable loans that metastacize with fees and penalties over time.  Davis then says:

According to the Department of Education’s own data released last month, its proposed “gainful employment” regulations are so poorly crafted that if applied to non-profits too (which they currently are not), Harvard Medical School, D.C.’s famous minority school, Howard University, and 93 of 100 Historic Black Colleges in the U.S. would all fail the so called loan repayment test.

Presumably the fact that the regulations would catch Harvard Medical School et al are the main reason that, as Davis notes, they don’t apply to Harvard Medical School et al. Lurching  for the finish line, Davis says:

The third explanation appears a classic example of ideology trumping facts: the instinctive negative reaction of many liberals to the word “profit” when associated with providing education. This seems uncomfortably similar to opposition by most liberals to private “charter” schools within urban public school districts…

That makes perfect sense, except for the fact that charter schools are public, not private, and don’t make any profits. Otherwise, a wonderful analogy.

Generally when Exxon / Mobil or the American Federation of Teachers or whomever want to publish opinion pieces expressing their views in journalistic publications, they pay for space that is clearly demarcated as such. Why does the Huffington Post allow lobbyist shills to use its space this way?

From: http://www.quickanded.com/2010/10/what-do-for-profit-colleges-and-the-worlds-worst-dictators-have-in-common.html

Over the summer, negative stories about the for-profit education industry were not hard to find. A government study showing misleading sales tactics, congressional hearings that painted a negative image of the industry, and stricter industry regulations proposed by the Department of Education all fed into the anti-for-profit education story being pushed by short sellers.

Throughout the summer, the industry was rather quiet–rarely defending itself. We believe most companies and various industry groups were in a holding pattern, waiting for the DoE’s official proposal on gainful employment before firing back and defending themselves fully. As the public comment period came to an end in September, the industry finally started its counterattack. After taking their time to digest the gainful employment proposal, education companies, industry groups, and other interested parties sent a barrage of comments to the DoE, explaining their concerns with the proposal. Given the vast number of public comments–estimated to be over 100,000 in number–the DoE recently delayed the publishing of its final gainful employment regulation until early next year (Nov. 1 was the original deadline). It will also hold various meetings and public hearings in the near future to further discuss the issue.

While the delay could be construed as an increase in the likelihood that the DoE will once again soften the regulation, we caution investors that it could be nothing more than the DoE needing extra time to sift through the large number of public comments. We continue to believe this policy is not the best way to address the issues surrounding education. However, given the DoE’s hard-line stance toward regulating for-profit schools, we question the DoE’s willingness to make further concessions, even if they are in the best interest of the public. That said, a change to the proposal is not out of the question.

In our opinion, the current proposal fails to look at traditional, not-for-profit schools, which undermines the issue that student debt loads and a tough employment market are problems that affect all students and not just for-profit ones. Additionally, the rules create many unintended consequences, potentially harming quality schools as opposed to just impacting the bad actors, which is the intent of the regulation. Also, the regulation seems abruptly put together as it uses different data than what will actually be used when the regulation is implemented. This means that the DoE’s current impact analysis could be significantly different than the actual results.

After reading through various comments from the companies as well as industry groups, we believe they have made a good case for why the regulation, as proposed, is bad policy. The Association of Private Sector Colleges and Universities, or APSCU (formerly the Career College Association), even argued that the DoE doesn’t have the legal authority to institute the rules in the proposed regulation. The APSCU argues that Congress already addressed student debt levels and institutional default rates in the Higher Education Act and it has not given the DoE authority to override or augment the current requirements. The APSCU also points out that the regulation violates due process because it does not allow institutions access to the data used in its calculations. We have heard other industry insiders question the legality of the regulation. While it would be in everyone’s interest to resolve this issue without a legal fight, if the regulation goes through as proposed, we would not be surprised to see legal challenges.

Congress could preempt any legal challenges by passing new laws. However, we don’t think there is the political support to make that happen. The Republican Party is cautious of over-regulation, and they could potentially gain additional congressional seats in the upcoming elections. Additionally, many Democrats oppose the regulation as they fear it could limit educational access for minorities and lower-income students.

So what does all of this mean for investors? We believe the majority of any regulatory impact is already factored into most of the education companies’ stock prices, creating investment opportunities within the space. In our opinion, many stock prices reflect an overestimation of the impact and also imply a near 100% probability that the regulation goes through as currently proposed. One prominent short seller openly admitted that he would not be short this industry without the regulation. Given the political and legal headwinds facing the regulation as well as pricing that already reflects a dire scenario, we question why anyone would still be short many of these stocks.

One example of where the market appears to be overestimating regulatory impact is Apollo’s (APOL) stock price. The company’s $50 stock price implies an almost 50% hit to its earnings. The company even recently traded as low as $39 before the industry started to fully defend itself. This approximate 50% earnings drop was first promulgated by a short seller before the most recent gainful employment proposal was issued. However, when an updated proposal was issued, it created two additional ways to remain eligible for financial aid access. Additionally, Apollo scored relatively well (a 44% repayment rate versus a 45% threshold for full eligibility) on one of the DoE’s preliminary tests. Despite the fact that the likelihood of a sever earnings impact has decreased significantly, it appears the market is still factoring in a 100% probability of a massive hit to earnings. Also keep in mind that the 50% hit to earnings was an estimate that we believed was overly bearish even under the initial, more stringent regulatory proposal.

Instead of a 50% hit to earnings, we believe a more likely scenario for the higher-quality education names is a slight dip in their enrollment followed by decreased growth opportunities. A recent study from an independent, nonpartisan think tank that favors the regulation, Education Sector, supports our opinion. Education Sector concluded that only 6% of programs at the 14 publicly traded education companies would be ineligible and 21% would fall into the restricted category. Restricted programs would face enrollment caps, limiting growth but not necessarily causing an enrollment decline. The remaining programs would fall in one of two categories: fully eligible, or requiring a debt warning. Programs in either of these categories should see no material impact on their growth prospects. We even believe that providing incoming students with aggregate debt levels is a good thing for all programs, not-for-profit and for-profit alike.

To put this impact into perspective, let us compare the potential impact from this analysis to our original growth estimates before any regulation. Our original growth estimate for the industry was 10% compounded annually over the next few years. Assuming Education Sector’s estimates hold, our new growth estimate drops to 1.3%. This scenario of limited to almost no growth is a far cry from the massive earnings losses that are baked into many education companies’ stock prices.

Here is how the math works. If we assumed a 100 student population index, our estimate for the following year with 10% growth would be 110 students. However, given 6% of programs would be ineligible, that index would decrease to 94 students. An additional 21 students would be in programs that could not grow. But the remaining 73 students would be in programs that can continue to grow at our original 10% estimate. Growing these 73 students by 10%, and adding back the 21 students that are still in restricted programs, results in 101.3 student index.

We are cautious to give too much weight to the exactness of the impact analysis that studies like Education Sector’s provide. As is the case with the DoE’s impact analysis, the use of estimations and substitute data sources (like using the Bureau of Labor and Statistics versus the Social Security Administration to estimate student earnings) make any calculation just an approximation. However, we believe it gives a good ballpark figure as it relates to the potential impact.

A common theme in Education Sector’s study echoes what we have been saying. Higher-quality education companies will likely see a more limited impact than others in the industry. In fact, this study suggests that Apollo, Strayer (STRA), Grand Canyon (LOPE), DeVry (DV), Capella (CPLA), and Bridgepoint (BPI) will have no programs that fall into the ineligible category. So while the exercise above gives an indication of the industry impact, these schools should experience a milder decline in growth. This study even indicates that Apollo will only see 10% of its programs in the restricted category. Therefore, a 50% decrease in earnings potential is a vast overestimation, in our opinion.

Finally, it is important to remember that this impact analysis is by no means 100% accurate. One of the key flaws in this proposal is that it lacks the detail and data needed to fully analyze the impact. Additionally, the downside industry scenario described above is only likely if the regulation goes through as proposed, which is still a big if. Given the market’s overreaction and the excessive fear surrounding increased regulation, not to mention the potential for a favorable change in the proposal, we believe there are numerous investment opportunities in the industry. However, we would advise investors to stick with the higher-quality names as the eventual impact should be less detrimental to their operations compared with the rest of the industry.

Disclosure: Morningstar licenses its indexes to certain ETF and ETN providers, including Barclays Global Investors (BGI), First Trust, and ELEMENTS, for use in exchange-traded funds and notes. These ETFs and ETNs are not sponsored, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs or ETNs that are based on Morningstar indexes.

From: http://seekingalpha.com/article/228028-the-for-profit-education-industry-fights-back

Hi, my name is Amy and I am a misfit. I’ve always been an outsider. I was different than the other kids in school, different than the other employees I’ve ever worked with, am different than the other moms at the PTA; I’ve always been “different”. Honestly I like it. I like that I see the world in ways that others do not or can’t; I like that my perspective is sometimes strange or colorful, that my understanding is often skewed from the norm. I am a misfit. Too, I was the kid that sat in the high school principal’s office anywhere from two to four days a week, labeled as the one who either “did it or knew who did it”, so I was always the first to be questioned. Looking back as an adult on my teen years, I was bored at school. I was brighter than most of my teachers and vocal about it, which of course they didn’t appreciate; leading to my principal telling me that he was going to put my name on his office door because I spent more time in his office than he did. Of course that was when I showed up, I missed some fifty odd days my senior year. I didn’t want to be there and they didn’t really want me there. Hi, my name is Amy and I am a misfit and trouble maker.

It is ironic that I’ve worked in education for the past 12 years. Something that I once fled from is now my passion in life. My joy comes from seeing students and graduates succeed, seeing them fulfill their dreams and reach their highest potential. I worked in the public college sector for over six years and guess what? My name is Amy and I am a misfit and trouble maker. I didn’t fit in. I tried, I really did. I bought the suits and tied scarves around my neck, found the perfect briefcase, smoozed the right people and worked myself into an anxiety ridden, panic attacked life. But my trouble maker self didn’t care about the suits or the scarves, she cared about the students and their needs, their goals and I was vocal about it. I took action. I took risks. And at one point in time was told to “slow down because I was making other employees look bad”.

?.

My trouble-making misfit self thought it was about the student and service to the public I represented (it still does); however my perspective was clearly different than that of my leadership who just wanted to maintain the status quo. So after six years of fighting the good fight, I headed out to find my island, which perhaps I might “fit in” on. The old adage about fitting a square into a hole meant for a circle is true. I was the square with ideas too big for their little circle.

For the past five years and 28 days I’ve worked in the private sector (for-profit) at a small private university. I am still a misfit of sorts and occasionally a trouble maker; but they (I’ll say loosely) like it. Sometimes when I think I am going to get yelled at, I get smiled at; sometimes it is a stern voice with half a crooked smile. The people working in the private sector have an entrepreneurial spirit, they are pioneers and not stuck in the “that’s the way we’ve always done it” mud. Ingenuity and creativeness is welcomed and rewarded; all squares are welcomed. We work with business and industry to make sure what we do is pertinent, we hold students accountable yet create an environment where they can flourish and we treat everyone like they are members of an extended family that crosses every imagined boundary. In the world of top ten universities, state funded schools and 100 year old institutions of higher learning the private sector schools are misfits. We like who we are and our graduates are proud of their alma mater, but the rest of the world doesn’t quite know what to think of us and looking from the outside in, can’t understand our passion or drive. The proposed Gainful Employment regulation before the DOE has further labeled us as misfits and trouble-makers when it couldn’t be further from the truth. Just because our financial/tax structure isn’t like everyone else (our colleges actually pay taxes too) does not lessen our passion to educate and mission to provide the workforce with trained workers for the present and future. In fact my university is family held and that family environment extends into our students lives and way past graduation.

When I look in the mirror I see our students. For the past five years I have worked a full time and a part time job, raised three kids as a single mom and have gone to school full time earning a BSBA and an MBA. This is not my sob story but it is a reflection of who our students are. Single parents, working adults, underserved populations, high school misfits, those who are afraid of college, people who have failed at other institutions and people who hit the age of 30 and realized that in order to build a brighter future you have to get off your @$$ and create the change you want to see in your life. Those who have never thought that they would ever be “college material”, never had anyone believe in them, or anyone to encourage them. Those that took that bold first step to enroll into college to build a future. Now I am not labeling our students and alumni as “misfits” but in many cases they are unique and different in comparison to the traditional college student at the traditional university.

I am angry. Not that anyone that can do anything about it cares, but I am angry. This gainful employment regulation is discrimination at its finest and it affects some of the people I care about most, the students and graduates I’ve watched flourish over the past five years and see great potential in for next millennium. It is going to further limit opportunities for sections of the population that already have limited opportunities. As a teacher and administrator I have supported students through cancer and illness, homelessness, abusive relationships, deaths, deployments to Iraq and Afghanistan and twists and turns that I could never imagine my life taking and many have made it through to the other side and declared “I am the first college graduate in my family”, they have set the bar for the people around them and reached that first rung in their career ladder story. With this gainful employment proposal we would not have had the opportunity to support many of them because our paths would have not crossed if the federal government told them they could not have the monetary support to support an education for a career they envision themselves in at the college of their choice.

The Gainful Employment proposal compares ratios of new graduate’s income to their school debt to see if the employment obtained is “gainful” within a certain time period. My thoughts about this are that no one starts their career where they want to see themselves. There is no magic job wand that makes dreams come true, it comes with hard work, networking and leveraging opportunities; education is the foundation. I’ll never forget the day a grad called to tell me that she had landed a job and had more than doubled her salary. My first thought was “WOW” doubled your salary that is incredible. After talking to her I found out that she is in Tennessee where the minimum wage at the time was $5.85 an hour and indeed landing a job at $12 and hour was more than doubling her salary; a door opened by her education and a huge success for her. She has since has found further success and has gone well beyond that first rung of her career ladder. I have to ask, “Would she have passed the gainful test?” That would depend on who you asked; the graduate would say yes. She would say that education changed her life.

My other issue with the GE proposal is that they are picking on only one sector of education. I am not going to into the statistics; there are a million blogs and reports you can gather those from. But rather I’ll tell you a story that proves my point. I was at a job fair when a man walked up the table and said, “I went to college and it didn’t do me any good”. So I asked him, “What degree did you earn? His reply was “General Education Associate Degree”. I will not name the school, but I ask you, how many of you have ever seen a job posting looking for someone with an associate degree in general education? This man’s state funded alma mater did him a great disservice in having him spend his money and time on a degree that is so non-specific that it led to no outcome whatsoever. On the other hand for-profit college’s educations teach specific skills that lead to specific careers in specific industries. Why isn’t the public sector, non-profits being held to the same standards? Why are we even entertaining this proposal that not only discriminates against a sector of education that does lead to employment but more importantly several demographic pools of citizens?

Hi, my name is Amy and I am a misfit and trouble maker who works for misfits who employ misfits who service unique learners on our little island that changes lives. I am angry. I am a career college graduate. I am a mom. I am a volunteer. I am a teacher. I am a voter. I am a supporter. I am blogger. I am an occasional troublemaker. I work in an industry that isn’t perfect but also isn’t bad. I am asking you, whoever you are, to oppose the gainful employment proposal. Write to your congress member and ask them to oppose it and ask them to approach it in a different way, a way that is fair and equal. The regulation needs to be postponed, rethought and then reapplied to the entire higher education industry.

I close with a quote from a fellow “trouble maker” and possible misfit, Dr. Martin Luther King, Jr. “Faith is taking the first step even when you don’t see the whole staircase.” Whether we are talking about the staircase of life, the career ladder or stepping foot into a college classroom for the first time, faith in ourselves, a higher power, another person is what guides us. Right now my faith is on roughly 7000 students that my private sector, family owned university serves and I simply ask that gainful employment be revisited so that we can continue fostering success stories. The futures of future college graduates depend on it.

In your service,

Amy

From: http://herzingonline.wordpress.com/2010/09/23/private-sector-education-and-gainful-employment-welcome-to-the-island-of-misfits/

  • Posted by Robert W Tucker , President at InterEd, Inc. on September 13, 2010 at 12:15pm EDT
  • Not everyone who wrote to the Department objecting to the proposed rules has skin in the game.

    http://www.intered.com/storage/deptofed/InterEdTuckerLetter-to-Duncan_090810.pdf

    On balance, my work will be unaffected by the outcome. I wrote my response because the proposed regulations are blatantly hypocritical and unfair, and riddled with logical and empirical errors, half-truths, and at least one lie. Perhaps worst, is the fact that the proposed rules would not accomplish their stated goals. They would work against these goals via a myriad of “unintended” consequences. Sometimes I wonder if there is anything left but politics and special interests in the federal process,and if our leaders are even capable of objective, dispassionate thought. I encourage everyone involved at senior levels of higher education to read the proposed rules.

    A few of more than a dozen key points:

    1. The Administration’s reasons for proposing this narrow application of rules to 12% of the market and not the other 88% are: (a) that for-profits cost the taxpayer more and (b) have higher loan values and default rates. Both claims are empirically false. Not grey areas . . . they are false. First, economists vary in their assumptions and therefore their findings when determining taxpayer costs of institutional types but the absolute range is from zero to $4,500 for for-profits with less than $2,000 being based on the most sound models, and $10,500 to $16,500 for publics. Second, examining the feds own loan database for loan payback and default for public colleges serving higher proportions of lower income, first-generation students, turn in higher loan values and lower payback percentages.

    2. The rules, as proposed, are based on intentionally distorted empirical foundations. The largest proportion of variance in the variables of interest (default, etc.) are accounted for by loan value and debt/income ratios. From a different perspective, these same variances are accounted for by student and family demographics (e.g., University of Phoenix programs offered to established, working business people have among the lowest default rates in the nation; on the other hand, their programs designed to serve the underclass have high drop out and default rates. (I have no interest in defending UOP. They are not a client. I mention them because I know their default rates in detail.)

    Common sense right? I guess not because the schools to be regulated by these proposed rules: (a) will not be permitted any visibility into how much their students borrow, (b) will not be permitted to determine whether their students can reasonably be expected to be able to pay back what they borrow, and (c) will not be permitted to have any influence whatsoever on the amount borrowed. These schools will be held accountable for behavior over which they will be denied any control or visibility. Does that sound fair to anyone?

    Statistics are widely available showing the growing trend of students borrowing as a substitute for saving and working, even taking out maximum student loans to purchase cars and homes. Under the proposed rules, the schools will be held accountable for these excesses but will not be permitted to learn of them until they receive their after the fact default notice from the feds. And, what is the fed’s position this growing loan problem? One need only look at the fed websites to see that they are encouraging students to borrow as much as they “need” and to consolidate loans. At the same time, the proposed rules count consolidations as defaults against the schools. (There is more detail to this but the main point stands.)

    3. The Administration appears to believe that the at-risk students taken away from the “expensive” for-profits will be well served by other choices. “What they mean by this is tax-supported public institutions where the total cost is north of tuition plus $10-16K (~$20K). The Administration seems ignorant of the fact that public institutions across the nation have turned in double-digit tuition increases, some as high as 17%, with hidden fee increases reported as high as 54%. In the meantime, they are closing doors on programs, reducing enrollments, and turning record numbers of applicants away. These are the schools these the Administration would have the displaced underclass students attend. The truth is that these public institutions do not want and will not admit many of these students. Let them eat cake, I guess.

    Much attention has been given to the culinary industry as an example of programs for which students of for-profit schools do not meet reasonable gainful employment tests and that the public institutions could just as easily educate. Today, 59% of the culinary bachelors degrees are delivered by for-profits. No knowledgeable person could suggest that the public 4-year institutions could pick up this load when, at present, they provide only 11% of these degrees. Take a look at what the National restaurant Association said in their plea to the Department to look at the facts. They depend on the for-profits for an educated workforce and they are worried. See: http://www.intered.com/storage/deptofed/NRA_Gainful_Employment_Comments.pdf

    4. The Department has ignored technical shortcomings in the proposed rules, noting they can be worked out later. To suggest this is either disingenuous or naive. The department of education has a near perfect record of creating rules that it does not and cannot enforce. Who — in reality, based on track record — will work out the bugs in this approach and enforce the final versions? How will that work take place and why would we think it will take place since the history of this kind of detailed follow-up is an embarrassment to the Department?Additionally, every single abuse of the student loan system that has been uncovered to date – whether in for-profits, independents, or publics – is covered under existing law. Law that has not been adequately enforced. This and most federal departments follows a standard practice of proposing new rules to address problems created by failing to enforce current rules. Then there is the fact that each administration wants to leave its stamp on every major industry.

    5. There are more than 900 for-profits colleges and universities. Some serve only the underclass. Some offer only advanced degrees to senior professionals. All but a small handful are not publicly traded. They are small companies closely tied to their communities, employers, and the professions they serve. These 900 schools have little more in common than any 900 schools selected at random from the IPEDS database.

    The proposed rules are clearly designed to slow the growth of the large publicly traded for-profits without regard for the fact that they don’t fit hundreds of schools and will close the doors of dozens of small schools that are serving students no one else wants or will admit.

    To anyone working in a public institution who might be enjoying the suffering of your for-profit colleagues, I would advise you to put principle of equity and rationality over immediate self-interest. The feds have plans to come after you next and you will have lost your opportunity to stop this paternalism, unreasonable for 17-21 year olds, notwithstanding the fact the 40% of college students are working adults and something in the area of 75% of the for-profits’ students are working adults.

In recent months, a number of media outlets have launched bazooka on bumblebee smack-downs of the for-profit education industry. PBS’s Frontline recently aired College, Inc., and Bloomberg BusinessWeek has reported on the for-profit industry’s recruitment of the homeless.

But with only about 7% of all students attending for-profit colleges, are they really worthy of all the bad press?

Relax: I come to bury the for-profit colleges, not to praise them. As I’ve written before, I don’t believe that anyone should attend a for-profit college for undergraduate education. Even if they have the best of intentions (and most don’t), they’re at a significant competitive disadvantage to their non-profit peers: they have to pay taxes, don’t benefit from rich endowments and donations, and generally don’t own millions of dollars worth of real estate free and clear: their cost of capital is far, far higher than non-profits. These obstacles make it nearly impossible for for-profits to compete with non-profits on a value basis — even before you take into account the profits they pay out to shareholders. That they are able to compete as well as they do is actually a testament to just how poorly-run non-profit colleges are.

The issue here — and the reason I’m getting sick of all the for-profit trashing — is that for-profit institutions hardly have a monopoly on exploiting undergraduates to fund projects that don’t benefit them. The University of Phoenix charges inflated fees to fund dividends and executive bonuses. The University of Florida charges inflated fees to pay basketball coach Bill Donovan $3.3 million per year and MIT spends $200,000 per bed on a vanity project dorm. Colleges across the country dole out massive salaries to high-profile faculty who conduct their own research and teach few classes.

And what of the claim that for-profits are shamelessly taking money from students who are unlikely to graduate and benefit from higher education. Bad news: non-profits do the exact same thing. As education expert Marty Nemko has reported, “[A]mong college freshmen who graduated in the bottom 40 percent of their high school class, 76 of 100 won’t earn a diploma, even if given 8 1/2 years. Yet colleges admit and take the money from hundreds of thousands of such students each year!”

There’s certainly a distinction between for-profits and non-profits — but it hardly seems like one that the non-profits can use to claim some sort of moral high ground. It’s time for the media to lay off the greedy capitalists who are exploiting 7% of college students and take a long, hard look at the greedy bureaucracies that are exploiting the other 93%.

Follow Zac Bissonnette on Twitter: www.twitter.com/zacbissonnette

On Saturday, The Hill published an article that discussed how Senate Democrats and for-profit educators were sparring over the Department of Education’s proposed gainful employment restriction. The article noted:

‘High student loan debt coupled with low repayment rates signal a questionable investment for students and taxpayers,’ the Democrats wrote Thursday in a letter to Education Secretary Arne Duncan. ‘We encourage swift implementation of the gainful employment regulation and would be concerned with any efforts to weaken the proposal.’

In their haste to see the Department of Education implement the gainful employment rule, some Democrats have overlooked an important point –the gainful employment rule will harm the very people who most deserve increased access to higher education.  Students at for-profit schools are disproportionately low-income and minority students who come from working class families.  These hardworking students from non-traditional backgrounds are often not privileged with the same means, support systems or opportunity as their peers who attend traditional colleges and universities.  That may explain why “for-profit colleges make up roughly 10 percent of college students but 44 percent of student loan defaults.”

Those who have argued for the gainful employment rule have consistently failed to look at the statistics within the context of the type of students’ attending for-profit higher education.  Many of those engaged in this debate have ignored that these students enrolled in the for-profit sector come from at-risk backgrounds where the non-traditional approaches and flexible schedules of for-profit education make graduation a possibility.  These students deserve our support, especially in this recession.

Without for-profit schools, many low-income and minority students would not have an option in higher education.  Access to higher education remains an issue that rule-makers and their supporters should take into account before they cut off support for thousands of students.

Larry Penley Ph.D

http://larrypenley.com/2010/09/14/jousting-over-higher-ed/

The Liberal Paradox

Suppose that a conservative Republican Administration, in the middle of high unemployment and an economic slowdown, proposed new regulations that would most hurt lower income people and minority groups and the for-profit colleges and universities that serve them? Can you imagine the cries of outrage from liberal critics, condemning “hard-hearted” Republicans targeting the most vulnerable young people in our society?

Yet that is exactly what the Department of Education’s proposed “gainful employment” regulations would likely do. They are almost exclusively aimed at “for profit” private colleges, which are predominantly comprised of lower income and minority students. Let’s be careful about characterizing, as some liberals have done, those schools catering to such vulnerable at-risk students with “open admission” policies as “bad actors” whereas the more selective elitist Harvards and Stanfords with less student loan defaults are deemed “good actors.”

This has the uncomfortable look and feel of disparate class and racial treatment – which should make liberals very uncomfortable.

So how to explain the paradox that, in fact, these proposed regulations are being proposed by a progressive Democratic Administration and its strongest proponents are liberal members of congress?

There appear to be three explanations – each one less meritorious than the other.

The first is a simple misunderstanding of the facts. For example, liberals supporting these proposed regulations rightly complain about marketing and other abuses. But the fact is, such abuses occur at non-profits and public institutions as well as at for-profits and, in any event, the gainful employment regulation doesn’t even address the issue of these abuses (although liberal commentators and editorial writers continue to conflate the two issues).

Moreover, those liberals who cite the excess “cost” of student loan defaults among the lower income and minority students ignore two inconvenient, indisputable facts: first, billions of dollars of taxpayer subsidies that go to non-profits and public colleges are not available to for-profits; and for-profits cost taxpayers substantially less per-student each year than non-profits and public colleges, when the approximately $1 billion of taxes/year paid by for-profits are taken into account.

Second, this is a classic example of overly broad regulations confirming the law of unintended consequences.

How overly broad? According to the Department of Education’s own data released last month, its proposed “gainful employment” regulations are so poorly crafted that if applied to non-profits too (which they currently are not), Harvard Medical School, D.C.’s famous minority school, Howard University, and 93 of 100 Historic Black Colleges in the U.S. would all fail the so called loan repayment test. But, supporters of the regulation say, failing just one-of-two tests won’t result in loss of student federal loan eligibility. However, just recently, Iowa Democratic Senator Tom Harkin, one of the strongest proponents of this proposed regulation, suggested that failure of the loan repayment test alone should be enough to bar student loans to those who need them the most.

This is why numerous members of the Congressional Black Caucus have strongly weighed in against these proposed regulations and more and more representatives from minority and blue collar communities are waking up and opposing the proposed regulation.

The third explanation appears a classic example of ideology trumping facts: the instinctive negative reaction of many liberals to the word “profit” when associated with providing education. This seems uncomfortably similar to opposition by most liberals to private “charter” schools within urban public school districts, opposition that seemed increasingly paradoxical as more and more inner city parents supported having the choice of charter schools for their children.

The fact is, it is precisely the profit motive that causes for-profits to offer more flexible, consumer-responsive schedules and courses, such as night classes, online courses, and new curricula that are directly responsive to recent changes in the job market.

Clearly Secretary Duncan needs to put an amber light on the “Gainful Employment Regulation” as it is presently written. As Harry C. Alford, President and CEO of the National Black Chamber of Commerce wrote recently, “student debt is a national problem, one that must be addressed, but imposing regulations on schools that are effectively educating students is unnecessary.”

If any regulation is necessary, then Mr. Duncan owes it to the most vulnerable students who will be disproportionately hurt by the current version to use a scalpel, not a hatchet, and to address the issue of excessive student debt at all higher education institutions – not just at for-profits, but at non-profits and public universities as well.

# # # # #

Lanny J. Davis, a Washington D.C. attorney and former Special Counsel to President Bill Clinton in 1996-98, serves as a paid “Special Advisor” to the Coalition for Educational Success, a group composed of several companies that own and operate for-profit higher educational colleges in the U.S.

The president of an online school watches the government’s unfolding campaign against schools that seek profits, and is aghast.

By Richard Bishirjian

July 30, 2010

Editor’s note: Richard Bishirjian is president of Yorktown University, an Internet-based school whose undergraduate programs are rooted in the liberal arts and whose graduate programs focus on business and government.

The Obama administration, working with congressional Democrats, has rolled out a concerted effort to change American postsecondary education.  As with health care and finance, the administration has a consistent method: Focus on a felt need, find a scapegoat, and use the full force of coercive state power to effect radical change.

Today’s scapegoats are the proprietary higher education companies. In addition to offering online education, some of those firms are starting to purchase near-bankrupt nonprofit colleges and convert them into platforms for Internet-based courses. If they are allowed to proceed in that, American higher education will become more diverse, less expensive, and more consumer-oriented.  But the Obama administration apparently believes that profits are resources better distributed by government agencies than by the marketplace.

The U.S. Department of Education has begun a multi-pronged attack on for-profit schools.  One offensive consists of proposed regulations. The “gainful employment” rule, for example, would cut off proprietary colleges from access to federal tuition assistance unless they can show that their graduates earn enough to pay off student loans. Another thrust is to prevent accrediting agencies from allowing for-profit investors to purchase traditional schools (even when those schools are failing financially). We are already seeing a response to that pressure from the Higher Learning Commission of the North Central Association of Colleges and Schools.

Yorktown University, which I head, has followed these unfolding developments with acute interest. We are accredited by the Distance Education and Training  Council (DETC), a national accreditor. We hope to obtain regional accreditation as well, so that our students can transfer the credits they earn at Yorktown to regionally accredited institutions; these schools will not accept transfer of credits from schools that have “only” national accreditation.

In April, I attended a seminar conducted by the Higher Learning Commission. This was the second such seminar I have attended in order to prepare Yorktown for applying for regional accreditation.

Until recently, the Higher Learning Commission was a trendsetter, the only regional accrediting association willing to accredit institutions that teach mostly or entirely over the Internet; until 2008, no excessive barriers to accreditation were placed on Internet-based applicants. A few months before the election of President Obama, however, Sylvia Manning became president of HLC, and the policy changed.

At the April 2010 seminar I attended, Karen L. Solinski, vice president for legal and government affairs, informed the seminar that not only must all accredited institutions be incorporated in one of the states in the region but they must have a state license in each state in which they have a “substantial presence.”

During the break I asked Ms. Solinski to specify what constitutes “presence” in a state. In good lawyer-like fashion she asked me, “Do you have representatives in any states?” I said “no.” Her raised eyebrows suggested that I did, and I thought, well, we do have instructors who reside in and instruct our students from states other than Colorado, where Yorktown University is incorporated.

She then asked, “Do you have proctors in states?” I replied, “Yes, but surely you aren’t saying that the use of a proctor triggers a state licensing requirement?”  She said that it would. Proctors supervise the exams taken by students in online courses. Solinksi seemed to be saying that merely having a student taking an exam, and thus having a proctor monitor it, whatever the state, would require the university to have a license in that state. In addition to the cost of multiple state licenses, each state has its own regulations. Some states require annual fees, others require a hefty surety bond, and Virginia even taxes authorized shares of stock companies.  Keeping track of them would be costly, time-consuming, and difficult.

During a break, I asked Solinski, “Do you mean that HLC intends to enforce state licensing regulations?” She said, “Yes.” This means that HLC, a private organization, is taking on the responsibility of enforcing regulations promulgated by the state. Not only is this inappropriate but it is probably unconstitutional.

I called to Solinski’s attention a Federal Trade Commission finding that it is a restraint of trade for states to require out-of-state optometrists to be licensed if they sell contact lenses in the state. The example seemed to be exactly parallel. To my comment, Ms. Solinski replied, “Education is a special responsibility of the states.” Okay, education has historically been responsible for education (the U.S. Constitution doesn’t mention education), but regulating private companies from other states is not a recognized state responsibility, whether the companies are in education or not.

During this seminar I was sitting at a table along with two representatives of an institution also accredited by DETC. They were shocked by this exchange.  I explained to them that the inspector general of the Department of Education had informed the Higher Learning Commission last December that its charter could be revoked. According to InsideHigherEd.com, HLC had endangered its status “because it granted accreditation to a for-profit university despite a single flaw that the inspector general deemed to be serious.”

Apparently, HLC has decided that by promoting and emphasizing state licensing, it is making clear that it will no longer accredit solely Internet-based distance-learning institutions.  That may save it from censure or revocation of its charter by the Department of Education.

But it will also harm numerous institutions, both profit-making and non-profit. There are two methods of attaining regional accreditation:  earn it or buy it. In June, the Higher Learning Commission denied the application for change of ownership to two proprietary companies that were seeking to purchase regionally accredited institutions, Dana College in Nebraska and Rochester College in Michigan.

The message is coming through loud and clear that the Department of Education simply doesn’t want for-profit institutions to exist.  On April 28, Robert Shireman, deputy undersecretary of education, gave a speech emphasizing the large amount of federal aid that is channeled to the for-profits.

And on June 30, U.S. Senator Dick Durbin (D-Il) gave a speech to the National Press Club in which he stated that purchasing colleges for their accreditation should be banned, and he outlined a comprehensive plan for reining in proprietary education companies.

Sen. Durbin referred to testimony by Wall Street arbitrager, Steve Eisman, that proprietary education companies are analogous to mortgage companies that created the subprime credit crisis. Since then, it has become known that short-sellers, a group to which Eisman belongs, have been working with Durbin—and probably others, including the Department of Education—to discredit for-profits in order to reap the rewards of declining share prices.

Durbin then outlined a broad plan to attack for-profits, by the following steps:

  • Denying access to federal grants and loans to schools that have defaults of 30 percent over three years or 40 percent in one year
  • Restricting “institutions that receive federal student aid from paying their admissions recruiters on the basis of enrollment numbers”
  • Instituting “new regulations that would require for-profit colleges to disclose job placement rates”
  • Relating student loans to “gainful employment.”  If degree programs do not lead to good jobs that enable student to repay student loans, then the institutions offering those degree programs will lose access to federal tuition assistance programs (this regulation has been proposed).
  • Lowering the 90-percent threshold that allows schools to receive up to 90 percent of their income through federal programs
  • Restricting the use of federal financial aid dollars that can be used for  “slick advertising,” such as “billboards, television commercials, and advertisements on the sides of buses”
  • Controlling how much these institutions lend to their own students
  • Stopping the practice of buying accredited institutions.

Sen. Durbin’s assault raises severe constitutional questions. Restricting normal advertising violates the First Amendment of the U.S. Constitution. Requiring state licensing of companies not domiciled in that state violates the commerce clause of the Constitution. And singling out for-profit education for using Title IV funds without including non-profit colleges violates the due process clause.

On these constitutional grounds alone, the Obama administration attack on for-profit education should be rejected.

But other consequences are equally objectionable. By deterring the purchase of accreditation, for example, the administration will challenge the ability of marginal nonprofit institutions—including institutions with large minority populations—to survive. And whether the for-profits can survive this assault is an unanswered question. My worst fear is that for profit education delivered via the Internet will experience the fate of the nuclear power industry after Three Mile Island.

The adage that “federal money brings federal control” is proving to be true. It confirms the suspicion of some that President Lyndon Johnson knew that if he could control the financing of higher education he could control the content of higher education. That control is now in federal hands.