This article is adapted from David Halperin’s new e-book, Stealing America’s Future: How For-Profit Colleges Scam Taxpayers and Ruin Students’ Lives, available at Amazon.
Many of America’s for-profit colleges have proven themselves a bad deal for the students lured by their enticing promises—as well as for US taxpayers, who subsidize these institutions with ten of billions annually in federal student aid.
More than half of the students who enroll in for-profit colleges—many of them veterans, single mothers and other low- and middle-income people aiming for jobs like medical technician, diesel mechanic or software coder—drop out within about four months. Many of these colleges have been caught using deceptive advertising and misleading prospective students about program costs and job placement rates. Although the for-profits promise that their programs are affordable, the real cost can be nearly double that of Harvard or Stanford. But the quality of the programs are often weak, so even students who manage to graduate often struggle to find jobs beyond the Office Depot shifts they previously held. The US Department of Education recently reported that 72 percent of the for-profit college programs it analyzed produced graduates who, on average, earned less than high school dropouts.
Today, 13 percent of all college students attend for-profit colleges, on campuses and online—but these institutions account for 47 percent of student loan defaults. For-profit schools are driving a national student debt crisis that has reached $1.2 trillion in borrowing. They absorb a quarter of all federal student aid—more than $30 billion annually—diverting sums from better, more affordable programs at nonprofit and public colleges. Many for-profit college companies, including most of the biggest ones, get almost 90 percent of their revenue from taxpayers.
So why does Washington keep the money flowing?
It’s not that politicians are unaware of the problem. One person who clearly understands the human and financial costs of the for-profit college industry is President Obama. Speaking at Fort Stewart, Georgia, in April 2012, the president told the soldiers that some schools are “trying to swindle and hoodwink” them, because they only “care about the cash.” Speaking off the cuff last year, Obama warned that some for-profit colleges were failing to provide the certification that students thought they would get. In the end, he said, the students “can’t find a job. They default…. Their credit is ruined, and the for-profit institution is making out like a bandit.” And, he noted, when students default on their federally backed loans, “the taxpayer ends up holding the bag.”
On March 14, the administration released its much-anticipated draft “gainful employment” rule, aimed at ending taxpayer support for career college programs that consistently leave students with insurmountable debt.
This rule would have a real impact: it would eventually cut off federal student grants and loans to the very worst career education programs, whose students consistently earn far too little to pay down their college loans, or whose students have very high rates of loan defaults.
But advocates believe that the standards in the proposed rule are too weak; they would leave standing many programs that harm a high percentage of their students. The rule, they argue, doesn’t do enough to ensure that federal aid goes only to programs that actually help students prepare for careers. But it isn’t soft enough to satisfy APSCU, the trade association representing for-profit colleges, which denounced the rule as the flawed product of a “sham” process. The administration gave the public until May 27 to comment before issuing a final rule.
APSCU and other lobbyists for the for-profit college industry are now out in full force, hoping to extract from the gainful employment rule its remaining teeth. Supporters of stronger standards to protect students from industry predation—among them the NAACP, the Consumers Union, Iraq and Afghanistan Veterans of America, the Service Employees International Union and others (including, full disclosure, myself)—will push back, but they have far fewer financial resources for the battle. This is a crucial round in a long fight, one in which the industry has already displayed a willingness to spend tens of millions to manipulate the machinery of modern influence-peddling—and with a remarkable degree of success.
Because most of this lobbying money is financed by taxpayers, this is a story of how Washington itself created a monster—one so big that it can work its will on the political system even when the facts cry out for reform and accountability.
An Industry Buys Friends
Back in 2009, the Obama administration began its efforts to issue a rule that would finally implement a 1965 law stipulating that federal money go only to those career education programs that actually prepare students for “gainful employment.” Despite ample evidence of their decades of abuses with taxpayer dollars, the for-profit colleges did not accept reforms. Instead, they hired the most well-connected establishment figures to claim they had done nothing wrong, that they were the victims of rabid ideologues opposed to profit-making ventures, and of cynical Wall Street short-sellers betting on their demise.
Among the army of lobbyists and consultants retained by the industry were Republicans like former Senate majority leader Trent Lott of Mississippi and Sally Stroup, a top education official in the Bush administration. But the industry focused its hiring on prominent Democrats, especially former members of Congress and government officials who had left public service for more lucrative opportunities in lobbying and consulting, like former Senator John Breaux (La.), former congressmen Richard Gephardt (Mo.), Toby Moffett (Conn.) and Al Wynn (Md.); Penny Lee, a former aide to Senate majority leader Harry Reid (Nev.); and former Clinton White House lawyer Lanny Davis.
Former Pennsylvania governor Ed Rendell (D) was among the leaders, along with former New Jersey governor Tom Kean (R), former MacArthur Foundation president Jonathan Fanton, and Harvard professor Sara Lawrence-Lightfoot, recruited by a new industry-created group, the Lanny Davis-directed Coalition for Educational Success, to create and monitor a code of conduct for career colleges. That panel proved to be nothing more than a public relations stunt when it ultimately just disappeared.
Kaplan, one of the largest for-profit colleges and owned by the Washington Post Company, hired Anita Dunn, who had been Obama’s campaign and White House communications director. Having helped get Obama elected, Dunn then worked to undermine his effort to hold for-profit colleges accountable.
This overwhelming force led Senator Dick Durbin (D-Ill.) to say the for-profits “own every lobbyist in town.”
The for-profits plastered the airwaves with misleading advertisements claiming that the Obama reforms would destroy student options. They also engaged in dirty tricks. Someone sent letters from nonexistent people to various Washington advocacy groups attacking the motives of the organization that I ran at the time, Campus Progress (part of the Center for American Progress), for seeking to reform this industry; the letters suggested that we were taking money from Wall Street investors who were betting against for-profit college stocks. (In fact, we had no connection to these short-sellers.) They also pressed friendly Republicans on Capitol Hill to demand ethics investigations of Obama officials for alleged collusion with these same short-sellers. And they repeatedly published op-eds by prominent people—Kean, former Senator Bob Kerrey (D-Neb.), Democratic consultant Al From and others—supporting industry arguments without disclosing the authors’ financial ties to the industry.
Other paid endorsers came from outside of politics. The biggest for-profit college, the University of Phoenix, hired Suze Orman—who calls herself “undeniably America’s most recognized expert on personal finance”—to teach an online personal finance course and promote the school at a Capitol Hill event, even though attending an expensive for-profit college is one of the worst financial decisions a person can make, and the University of Phoenix, now under investigation by the attorneys general of Florida and Massachusetts, leaves many students worse off than when they started.
Meanwhile, another for-profit giant, DeVry, paid an undisclosed sum to be an “Official Education Provider” of the US Olympic Committee. About 80 percent of DeVry’s revenue is from federal tax dollars, so you’re paying for that. DeVry schools report a sky-high 24 percent student loan default rate, higher than their 22 percent graduation rate. In February 2014, DeVry disclosed that the Federal Trade Commission, which investigates deceptive business practices, had requested company documents regarding advertising and marketing.
For their lavish conventions, the for-profits’ trade association APSCU retains some of America’s biggest names to be keynote speakers. In 2011, the event featured Colin Powell, formerly secretary of state and, before that, chairman of the Joint Chiefs of Staff. Powell has embraced an industry whose members, according to Holly Petraeus of the Consumer Financial Protection Bureau, see our troops as “dollar signs in uniform.” Powell chairs the advisory board of Leeds Equity Partners, an investment company that owns a big stake in the second-largest for-profit college, Education Management Corp. The Justice Department has sued EDMC, which operates the Art Institutes, Brown Mackie College and Argosy University, for violating federal recruiting rules, and the company is now also under investigation by a group of twelve state attorneys general for deceptive practices.
For 2012, at the APSCU convention in Las Vegas, the keynote speakers were former President George W. Bush and K-12 school reformer Michelle Rhee. After I and others criticized Rhee for agreeing to speak when her whole education message is about accountability, she pledged to deliver tough words to the industry. But when she got there, Rhee soft-pedaled her critiques and told the group that some of them were “doing incredible work.”
In 2013, APSCU announced as its keynote Adm. Mike Mullen, the recently retired chairman of the Joint Chiefs. I published an article asking why Mullen would lend his credibility to these companies. For reasons unknown, Mullen ended up not appearing, but APSCU found a willing replacement: Gen. Wesley Clark.
* * *
During the first round of fighting over gainful employment in 2010 and 2011, my organization Campus Progress helped build a coalition of veterans, student, civil rights, consumer, education and labor groups to support reforms. But our coalition was badly outgunned by the for-profit college lobby.
If we asked for a sit-down with congressional staffers, we would notice at the next table in the Capitol a for-profit college lobbyist meeting with actual members of Congress. If we asked to meet with White House staff, we learned later that the for-profit colleges had dozens of such meetings.
Avy Stein, an owner of the for-profit Education Corporation of America, went to a charity auction and bought himself lunch with Senator Tom Harkin (D-Ia.), the lead Democrat on education issues and by then a strong critic of the for-profits. Harkin told The New York Times that Stein took the opportunity to threaten to “make life rough for me” if Harkin kept up his attacks. (Stein denied this.)
For-profit colleges also used donations to gain the allegiance of some major nonprofit groups that should have been on the side of students. Marc Morial, head of the National Urban League, wrote an op-ed in The Washington Post opposing the gainful employment rule. The group later accepted $1 million gift from Corinthian Colleges, one of the worst-performing schools, and Morial joined Corinthian’s board of directors, whose members generally receive $60,000 per year in cash plus $90,000 in deferred stock.
The venerable liberal group Americans for Democratic Action inexplicably opposed the gainful employment rule, and the ethics watchdog group Citizens for Responsibility and Ethics in Washington joined with some Republicans in calling for investigations of the links between reform advocates and Wall Street short-sellers. Claims that the administration was being manipulated by short-sellers were also made, in op-eds, by consultants paid by University of Phoenix head John Sperling. But no evidence was ever produced of improper ties to any short-sellers.
Another nonprofit leader who seemed to take a sympathetic position toward the for-profits, sometimes causing concern among his own members, was Michael Dakduk, executive director of the Student Veterans of America. Then, in late 2013, Dakduk took a new job: Vice President of Military and Veterans Affairs at APSCU. An official with a major national veterans organization told me, “I don’t know what they’re paying him. It’s not enough to sell his soul.”
For-profit colleges have also sponsored policy events held by media outlets. Officials at The Chronicle of Higher Education admitted to me that they had allowed Career Education Corp. not only to sponsor the Chronicle’s Washington, DC, event on student loan defaults but also to select all the speakers, despite CEC’s own terrible record on these defaults. Education expert Barmak Nassirian likened it to “a conference about preventing lung cancer, with the tobacco companies…presented as credible interlocutors.”
The University of Phoenix is the sponsor of NBC’s annual Education Nation conference; an executive told me she was disinvited from speaking in 2013 after she criticized the school. The University of Phoenix was also the sponsor of a 2013 MSNBC Al Sharpton special, Advancing the Dream, and Sharpton’s MSNBC show recently featured a segment that seemed like an infomercial for the school. The company’s business channel, CNBC, sometimes presents for-profit college executives and analysts as guests in discussions where the fraud investigations go unmentioned, and the focus is on enrollments and share prices.
An Industry Buys Congress
Of course, the for-profit colleges have also spent heavily buying friendships with the folks who count the most: members of Congress.
The industry invests in campaign contributions to public servants like John Kline (R-Minn.), chair of the House Education and the Workforce Committee. Kline raised $138,350 in the second quarter of 2013 from the for-profit college industry—almost 25 percent of the money he raised in that period. At the same time, he advanced a bill that would block the gainful employment rule and gut federal standards so that for-profit college “boiler room” operations could more easily engage in coercive recruiting.
Another enabler of predatory colleges is Representative Virginia Foxx (R-NC), chair of the House Subcommittee on Higher Education and Workforce Training. Speaking to a group of nonprofit colleges in 2013, Foxx invoked the Holocaust in arguing against the administration’s regulation. Two of Foxx’s three top donors in the 2012 election cycle were the political action committee of APSCU and Bridgepoint Education, a for-profit college company that Senator Harkin has called “a scam, an absolute scam.”
The industry’s financial ties to Republicans are rock-solid. Many for-profit college executives backed Mitt Romney’s presidential campaign. EDMC chair Todd Nelson and his wife contributed at least $88,000 to Romney and the GOP in the 2012 cycle. Romney strongly endorsed the industry in 2012 and has financial ties to for-profit colleges Vatterott and Full Sail University. In the 2013-14 electoral cycle, the top five recipients of the industry’s campaign cash in the House include Kline, Foxx, Rep. Vern Buchanan (Fla.), the subject of several ethics investigations, and House Speaker John Boehner.
In 2012, I obtained a draft memo from inside APSCU showing that the group’s strategy for passage of key bills in Congress was “directed by” the “House Republican leadership.” The document also suggested that APSCU closely integrated its efforts to get favorable votes in Congress with its political strategy of donating to Senate and House candidates: a troubling illustration of how the industry has used its financial muscle to avoid accountability.
But for-profit college lobbyists have not limited their friendships to Republicans. Also in that top five was Representative Rob Andrews (D-NJ), the second-ranking Democrat on the House Education Committee. Andrews and Representative Alcee Hastings (D-Fla.) have been the two Democrats most active in opposing Obama on for-profit college issues. They have also been steady recipients of for-profit college money, with Hastings getting at least $54,500 and Andrews at least $78,547 between 2009 and 2013. (Andrews recently announced that he would resign; the House Ethics Committee was investigating whether he used campaign funds for personal travel.) For-profit college barons such as Avy Stein, Jeffrey Leeds, John Sperling, Arthur Benjamin and Ernesto Perez have been major donors to congressional Democrats.
The industry’s power is even stronger at the local level. In Florida, Minnesota, New York and other states, for-profits have a big presence. As a number of congressional staffers have told me, many members of Congress find that for-profit college owners are among their most loyal, active donors and organizers of fundraising efforts.
The money may have contributed to the House of Representatives passing a bill in February 2011, by a vote of 289 to 136, to approve an amendment to block the gainful employment rule. Every single House Republican voted for the amendment to undermine President Obama’s initiative, as did 58 House Democrats, including their leader, Nancy Pelosi, a friend of the University of Phoenix’s John Sperling. (The Senate did not approve a similar measure, and the bill never became law.)
The Washington Post’s Kaplan
Perhaps the most effective lobbyist for the for-profit colleges in 2010-11 was Donald Graham, CEO of the Washington Post Company, which obtained 55 percent of its revenues from its Kaplan education subsidiary, which was, in turn, dominated by the Kaplan for-profit college. Meeting with Obama administration officials and members of Congress, Graham insisted the proposed rule would deny low-income students educational opportunities.
For Washington leaders, Graham was a pillar of the community, someone who attended the same social functions—someone they could trust. And intended or not, Graham’s entreaties may have seemed to come with an implied threat: Cross me and risk my paper’s wrath.
While Graham’s august presence led many fancy Washingtonians to believe that Kaplan was, amid a sea of shady for-profit college operators, “one of the good ones,” the record showed otherwise.
Kaplan, which receives about 90 percent of its revenue from federal aid, has been under investigation by at least four state attorneys general. According to Senator Harkin’s investigation of the industry, 68 percent of Kaplan students drop out, and 28 percent default on their loans within three years of graduating or dropping out. In 2012, Kaplan’s branch in Charlotte, NC, surrendered its state license to run a dental assistant program after students asserted that officials told them, falsely, that the program would earn them appropriate credentials for the jobs they sought. Meanwhile, Kaplan’s previous CEO, Jonathan Grayer, received a $76 million compensation package when he left in 2008.
Graham’s company also owns a stake—recently reduced to 5.3 percent—in Corinthian Colleges, which has an even worse record. Last fall, California’s attorney general, Kamala Harris, sued Corinthian, charging the company, which operates Everest, Heald and WyoTech colleges, with false and predatory advertising, intentional misrepresentations to recruits, and securities fraud. The Justice Department, Consumer Financial Protection Bureau, Securities and Exchange Commission, and a dozen more state attorneys general are investigating Corinthian. Two-thirds of Corinthian’s associate degree students drop out; three-quarters of former students can’t pay down their loans; and 36 percent default within three years—the highest rate of all publicly traded colleges.
The controversy over these colleges drained some prestige from the long-respected Washington Post Company, whose presiding Graham family built the paper into an investigative juggernaut during the Watergate era. In 2013, the company sold The Washington Post to Amazon CEO Jeff Bezos but changed its name (to Graham Holdings) and kept Kaplan.
The Gutting of Gainful Employment
When it came to lobbying against accountability, one more powerful force was in the mix: large financial institutions. The companies making the most money off student loans have included America’s biggest banks: Citi, Wells Fargo, Bank of America and JPMorgan Chase, along with the number one student loan company, Sallie Mae. These companies earn big profits in the lucrative private, nonfederal student loan market, with particularly strong revenues from for-profit colleges, who are eager to share in the benefits. Some banks have an even more direct interest: Goldman Sachs owns 43 percent of EDMC, while Wells Fargo has a 19 percent stake in Corinthian.
In the face of all the lobbying, the Obama administration in June 2011 issued a gainful employment rule that was heavily watered down from what it had initially proposed. The focus, appropriately, was on cutting off federal aid to programs whose students didn’t earn enough to pay back their loans. But the standards required were extremely low. Cass Sunstein, the White House official who oversaw rulemaking, insisted the industry’s “haranguing had zero effect.” But it was hard to understand how a serious effort to address such a serious problem had produced such a weak outcome.
White House officials may have seen their 2011 rule as the toughest measure they could make stick. A truly meaningful rule—one that actually provided reasonable protection to students—might have eliminated aid to the majority of programs at big for-profit colleges, leading to major disruptions for students and staff, and triggering a public relations campaign by the industry portraying the Obama administration as reckless. In short, such a tough measure could have been painted as another Obamacare, as a massive government overreach. Some Hill Democrats also warned that its opponents in Congress could enact a late-night amendment to overturn the gainful employment rule, thereby humiliating the administration.
But the Obama administration need not have been cowed by such threats. With big for-profit colleges getting 80 to 90 percent of their revenues from federal aid, their sector is not a free market effort; it’s a government program. And the question facing the administration was (and is): Should this program have rules that permit rampant waste, fraud and abuse, or should it have rules that motivate colleges to compete by actually helping students train for careers?
Data released by the Department of Education in 2012 showed that even the weakened 2011 regulation could have had some bite: 65 percent of the programs examined failed at least one of the three minimal tests aimed at protecting students, and 5 percent—at colleges including Kaplan, EDMC, Career Education Corp. and Corinthian—failed all three tests. Persistent flunking could have eventually removed such programs from eligibility for federal aid and thus put them out of business altogether.
In fact, the rules appeared to be pressuring some for-profit colleges to moderate their bad behavior—by shutting down some of their worst programs, curbing ever-escalating tuition charges, and offering students trial periods before finally depositing their government checks.
But the industry didn’t want to do those things. So APSCU hired some of the most expensive lawyers in Washington to persuade a federal judge to throw out the regulation. Judge Rudolph Contreras ruled in June 2012 that the administration had the authority, and clear justification, to issue the rule, but he found that the administration had failed to adequately explain its reasoning.
Instead of giving up, the Obama administration, to its credit, responded with a new round of rulemaking, and it seemed headed last fall toward a much stronger rule. So the industry ramped up its lobbying once again, sending dozens of its CEOs (including Donald Graham) and lobbyists to the White House to complain. The for-profits also enlisted Thomas Donohue, powerful head of the US Chamber of Commerce, who pledged “to do everything we can to change or stop the rule as it is currently written.” APSCU kept up its bombast, charging that public negotiators chosen for the rulemaking were “opposed to the very existence of our institutions.”
Two of the industry’s best-paid friends, Representatives Hastings and Andrews, tried to enlist fellow Democrats to urge the administration not to issue any gainful employment rule. Despite some signs that members of Congress are now worried about being seen carrying water for the for-profit colleges, many continue doing their bidding behind the scenes. Their pressure on the administration’s efforts may have weakened the draft rule that was issued last month and may end up making the final rule even less effective.
There’s a word for this state of affairs: corruption.
There doesn’t have to be an explicit quid pro quo. The congressional recipients of the money support the interests of the donors; it’s understood. Why else would free-market, small-government Republicans oppose efforts to hold accountable companies that receive most of their revenue from US taxpayers? Why else would Democrats oppose protecting hard-working low-income and middle-class Americans from frauds committed by predatory corporations?
And it is a perpetual cycle of corruption, because it’s federal money that allows for-profit colleges to buy federal influence.
Fortunately, the Department of Education rules, while extremely important, aren’t the only means of curbing predatory colleges. Many big for-profit college companies—including the University of Phoenix, EDMC, ITT Tech, Kaplan, Corinthian, Career Education Corp., DeVry, and Bridgepoint—are now under investigation by federal or state law enforcement agencies for deceiving and abusing students: telling falsehoods about the cost of their education or the jobs and salaries they can expect to get; or using relentless, coercive “boiler room” tactics to keep enrolling new recruits; or engaging in related misconduct. (New York State Attorney General Eric Schneiderman’s $40 million lawsuit against the unaccredited Donald Trump University makes comparable allegations, but no federal money is involved.)
These law enforcement investigations are less susceptible to political interference, although it’s possible that the industry’s high-priced lawyers and political connections could derail even some of these efforts.
Eventually, the predatory for-profit colleges may be forced to curb their egregious behavior as more of it comes to light. Enrollments and share prices have plummeted in recent years as the public has gotten wise. But their aggressive advertising and recruiting continues, and thousands more students will sign up this week for programs that will wreck their futures.
As a newly elected president, Barack Obama pledged to take on the special interests. He has also launched initiatives to ensure that more Americans can successfully train, at affordable prices, for real careers. And he has specifically promised to protect veterans and other students from predatory practices by career colleges. All of these goals will be undermined, and additional hundreds of billions in taxpayer dollars will be wasted, and the lives of countless more students will be ruined, unless his administration issues a strong gainful employment rule.
But whether the president will act decisively remains to be seen.