INVESTIGATING HOW MONEY CORRUPTS DEMOCRACY
It took the Obama administration just a few months after taking office in 2009 to start looking into the looming scandal of for-profit higher education: Businesses, of both the strip mall and the Wall Street variety, were using deceptive and predatory practices to lure veterans and low-income students into poor quality college programs, in order to cash billions in federal grant and loan checks. But it took that administration almost eight years to take steps — through regulations and enforcement actions — to address the problem seriously.
Then, before reforms could be sustained, our country in 2016 made the awful mistake of choosing as its new president a career con man whose scams included his own predatory, unaccredited real estate school, Trump University. Trump hired education secretary Betsy DeVos, who declared it was the students, not the for-profit college executives, who were the con artists. DeVos hired a gang of former predatory school executives to gut the enforcement effort and reduce the Obama regulations to rubble.
As a candidate, Joe Biden promised to end aid to for-profit schools that are not delivering for students. But so far his administration is not keeping that promise, and blatant scam operations remain in the federal aid program. This day, more Americans will be tricked by predatory companies into enrolling in overpriced college programs that will ruin their financial futures.
The Education Department’s Tradition of Coddling Schools
For all its radical, corrupt excesses, the Trump-DeVos team for the most part simply restored the Department of Education to where it had long been: largely deferential to colleges, even dishonest ones. The Department’s staff, political appointees and career officials alike, because of ingrained fear of antagonizing powerful institutions and politicians, caution from overly nervous lawyers, (and, sometimes, interest in eventually getting jobs with these well-paying employers), have usually treated the schools as if they are presumptively entitled to federal student aid forever.
Thus, at the Department of Education, decisions about whether to end federal aid to a college that was caught lying and cheating have gotten buried in endless concern about fairness and due process for the school, without due regard for the ongoing harms to students and taxpayers of allowing continued federal aid. Even long-time dynamic advocates for students, now in the Biden administration, start to talk this way once ensconced at the Department.
In reality, schools eligible for federal student aid are government contractors, and as to each school, the government should be asking, through regulations and enforcement: Is this a good investment or a bad investment? Does this school help students, or hurt them? If the answer is hurt, the school should be kicked out of the federal aid program.
It was therefore encouraging when, in 2020, Joe Biden promised to flip the script, asserting that his new administration would “require for-profits to first prove their value to the U.S. Department of Education before gaining eligibility for federal aid.” Biden’s pick for vice president, Kamala Harris, had pursued a landmark lawsuit against one of the worst school operations in the industry, Corinthian Colleges, when she was California’s attorney general.
Accountability Rules, Delayed
Despite those promising signs, eighteen months into the Biden administration, the record of creating accountability for predatory schools is underwhelming.
The administration convened public negotiating sessions on new accountability rules, including reviving the gainful employment rule, an Obama-era measure, cancelled by DeVos, that would penalize for-profit and career training programs whose graduates earn too little money. At the sessions, the Biden administration put forth strong proposals to protect students. But faced with litigation, brought by advocates for students, seeking to void the DeVos rule in the meantime, the administration refused to reinstate the Obama version of the gainful employment rule, saying it would proceed instead with its own version. And now the administration, apparently due to staffing shortages, has delayed the process of issuing its new rule. It’s been pushed back to 2024, and any penalties wouldn’t kick in until 2027.
The for-profit college industry cheered that decision, because they know a gainful employment rule that is strong enough to meaningfully protect students could force them to improve or shut down many of their programs, and also because the Biden delay means the rule may never come into effect, since by then the whole measure could be killed again by a Republican Congress or president.
The ongoing assault on consumer and environmental regulations by the Supreme Court’s right wing majority may prevent any meaningful rules from going into effect anyway, but the Biden team has an obligation to push ahead.
(The traditional, non-profit sectors of higher education have been of little help in this rule-making process; their representatives generally opposed the Biden version of the gainful employment rule during the negotiating sessions, preferring to prioritize avoiding regulatory challenges over standing up for at-risk students.)
Progress on Loan Cancellation
While new rules are now disturbingly delayed, one area where the Biden administration has made laudable progress recently is in cancelling a large volume of federal loans for students who were defrauded and abused by their schools. The Obama administration took steps in this direction, bringing to life a long-standing provision of law that had almost never been used. But Betsy DeVos brought the process to a halt, summarily rejecting some claims and simply failing to respond to many others, in an audacious abuse of power.
The Biden team on its own granted broad relief to some of the borrowers who attended a few notoriously predatory schools: Corinthian, Globe University, DeVry University, ITT Tech, Westwood College, Marinello Schools of Beauty. And then, last week, to settle major litigation brought by borrowers, the Department agreed to cancel $6 billion in loan obligations of some 264,000 borrowers who attended several dozen institutions, most of which have faced law enforcement or accreditor action for bad behavior. The schools on the list are many of the industry’s worst offenders, including demised operations like Globe, ITT, Independence University, Kaplan College, and campuses of the Art Institutes.
I haven’t quite been able to learn how the schools on the list were selected, and why some other schools with law enforcement problems, student complaints, and other evidence of predatory practices were omitted. (Notable career schools not on the list include American Military University and Full Sail University, both of which have powerful allies in Washington.)
But in a court filing supporting the proposed settlement agreement, which is now awaiting approval by a judge, the government and the lawyers for the students explain that the schools on the list have “strong indicia regarding substantial misconduct… whether credibly alleged or in some instances proven, and [a] high rate of class members with applications” to the Department for loan relief.
The for-profit college industry expressed Scrooge-like displeasure with the government cancelling some of the debt of these generally low-income students. Jason Altmire, the former Democratic congressman who heads the industry lobby group CECU issued a press release claiming that the Department action was taken “in its haste to respond to outside political pressure,” resulting in approval of “wide swaths of claims without regard to individual merit.”
The industry is worried about the stigma of its members being on the new list (which includes Keiser University, run by CECU’s long-dominant figure Arthur Keiser) and also about the possibility of the Department taking a step that the law envisions, but has never been used: seeking recoupment from a school for the tuition payments that taxpayers purchased with the now-forgiven loans.
The displeasure of an industry that regularly pushes for conditions that allow its worst actors to thrive is a sign the administration is on the right track on debt cancellation. The steps are a major victory for broke borrowers who have struggled for a measure of justice and to be free from crushing student loan debt, and a powerful achievement by the Biden team. (UPDATE 07-01-22: A new Biden administration proposed rule governing borrower claims, to replace the anti-student rule issued by DeVos, cleared Office of Management Budget review yesterday and could be released any day — another important step.)
Lack of Action on Enforcement
If for-profit colleges are unhappy about being called out as likely abusers on a list relating to past claims, the schools on the list have to be happy that the Department nevertheless is keeping them in business, allowing them to enroll new students and cash their federal aid checks. Predatory schools have long told prospective students, as part of their sales pitch, that their eligibility for federal aid is a seal of approval from the Department of Education.
Schools on the Department’s new list of confirmed or possible miscreants who are still receiving millions, tens of millions, or hundreds of millions, annually in federal aid include: American Intercontinental University and Colorado Technical University, both operated by Perdoceo; Ashford University, operated by Zovio and now hiding out under the name University of Arizona Global Campus; the University of Phoenix; DeVry; Purdue University Global, run by Graham Holdings and formerly called Kaplan University; Florida Career College, operated by IEC; Grand Canyon University; and Walden University.
It makes no sense, as the Department of Education is at last providing serious debt relief to some scammed students, for it to continue sending billions in federal aid to the same predatory schools, for it to create another generation of victims, who will rightly demand debt cancellation down the road.
Yet the Biden Department of Education, even though it has beefed up its enforcement capacity by hiring experienced and committed officials and investigators, has not in eighteen months taken action to cut off federal aid to any significant career college institution, with the single exception of predatory Independence University — and even there the Department only moved to slow federal aid after a Colorado state court had found multiple violations of consumer protection laws and the school’s accreditor withdrew its approval, which, once finalized, would itself trigger a loss of federal aid.
The Department has in its possession substantial evidence of deceptive practices, predatory abuses, and legal violations by operations including Perdoceo, Zovio, and IEC. I know that in part because I’m aware that many of the company whistleblowers who have spoken with me for articles about those institutions also have spoken with federal investigators, and their accounts are powerful indictments of these companies. I’m hopeful the Department is moving promptly to act on this evidence. Yet thus far it has not.
Many of the worst offending institutions are, because of past problems or transitional arrangements, on provisional or temporary Program Participation Agreement that give the Department more leeway to impose sanctions or terminate aid. And all schools eligible for federal aid are subject to removal from the program if they engage in substantial misrepresentations to students and other violations of the rules.
In addition, many bad actor for-profit schools have been thinly capitalized, as demonstrated when they shut down suddenly, leave students literally locked out, and declare bankruptcy. The Department has authority to require significant letters of credit to ensure taxpayers aren’t left holding the bag. It also has the power to delay federal aid payments to misbehaving schools through a tool called Heightened Cash Management.
Again, schools are entitled to due process. But that must be weighed against the ongoing harms they pose to students and taxpayers.
The Federal Trade Commission and Consumer Financial Protection Bureau each have pursued significant law enforcement actions against predatory schools in the past, and current officials at each agency have warned schools against abusing students. But the financial settlements these agencies have obtained from schools in the past haven’t been large enough to convince the industry to end its predatory ways. It is the Department of Education that has the real power in this sphere — the power to cut off aid, which would effectively put most predatory schools out of business. Until the Department takes some serious action, there is no strong deterrence against predatory behavior.
Personal Responsibility for Executives
The Biden administration has further weakened deterrence by indicating it will not make a priority of holding executives of predatory schools financially responsible.
The Department of Education has taken the position that it cannot seek to hold college executives personally accountable for loan cancellation recoupment unless they signed a school’s Program Participation Agreement. Worse, the Department has issued a statement that was apparently aimed at increasing accountability but creates an unwarranted expectation that entities do not need to sign these program agreements unless they own 50 percent or more of a school.
The Department has made a few important moves to hold executives accountable. This year, it asked tough questions of the new president of the University of Phoenix about his prior tenure running predatory Westwood College, an inquiry that led the executive, George Burnett, to resign from Phoenix. And last year it acted to suspend Eric Juhlin, the CEO of Independence University’s parent company, from federal contracting as that school was collapsing.
In suspending Juhlin, the Department cited violations of law found against him and the school by a Colorado court. But the provision of law the Department cited is, in fact, broader, permitting an agency to suspend a contractor not only for established legal violations but also for other “adequate evidence” of “irregularities which seriously reflect on the propriety of further Federal Government dealings” with the contractor. The Department could use its suspension power to crack down on additional executives and prevent the taxpayer-funded recidivism that is now so prevalent in the career college space.
Delayed Action on an Accreditor
The Biden administration also has inexplicably, for more than a year delayed a final decision on the fate of an accrediting agency, ACICS, that was charged with serving as a quality-ensuring gatekeeper for Department of Education student aid, but instead mostly ignored predatory abuses at Corinthian, ITT, and other bad schools. The Obama administration acted to drop ACICS as a recognized accreditor but, of course, Betsy DeVos reversed that decision. A federal advisory panel last year overwhelming recommended that ACICS be dropped again, and a Department official agreed, but a final appeal, in the hands of the Department’s number two official, has vanished into the Bermuda Triangle, meaning ACICS-approved schools are still getting taxpayer dollars and enrolling students.
When I texted this week with a long-time career college industry executive, who agrees his industry needs to reform and stop ripping off students, I suggested that predatory institutions must be pleased with the lack of firm action so far by the administration. The executive responded, “Well, they are laughing.”
It’s time for the Biden administration to show predatory colleges that it is serious.
Republic Report is dedicated to rooting out the corruption that is so corrosive to American values. We investigate and uncover the buying and selling of politicians and of institutions entrusted with upholding the public interest. We expose how big money distorts major policy decisions – harming our economy and our people.
INVESTIGATING HOW MONEY CORRUPTS DEMOCRACY