For-profit schools lobby to avoid proposed federal aid rule

By Nick Anderson
Washington Post Staff Writer
Friday, October 22, 2010; 12:12 AM

Companies that run colleges and trade schools for profit are mounting a full-tilt, high-dollar campaign against an Obama administration effort to tighten rules for their access to federal aid.

The industry has staged a Capitol Hill rally, run advertisements in national newspapers, hired big-name lobbyists and coordinated thousands of comments on the proposed regulation in an effort to derail or dilute it. This month, industry executives are beginning a round of private meetings with senior Education Department officials to argue their case.

At stake is a lucrative source of funding for a sector of higher education that serves about one of every 10 postsecondary students and has more than doubled its market share in the past decade. Stocks of for-profit colleges have fallen sharply in recent months amid warnings about how the proposed rules could shake up the schools.

The proposal, to be aired in public hearings at department headquarters in early November, would be the most significant new regulation for the fast-growing industry since the early 1990s. Administration officials say it addresses their concern that students from for-profit schools often end up with unmanageable debt and weak job prospects. Industry leaders respond that their schools offer older and low-income students an opportunity to get ahead in life.

'Their livelihood'

For-profit schools receive about $1 of every $4 spent on federal Pell grants for students in financial need. That totaled more than $7 billion in the last school year - up from nearly $1 billion a decade earlier. For some for-profit schools, federal grants and loans account for most of their revenue.

"It's their livelihood," said Mark Kantrowitz, a college-finance analyst with the Web site FinAid. The Obama proposal "has the potential to severely impact the industry in terms of what programs they can offer, what their revenues are going to be, what their profits are going to be." But he said the government has "a good argument" for seeking to rein in student debt.

For-profit schools offer degrees and certificates, often through online courses, in fields including health care, the law, cosmetology and the culinary arts. The Washington Post Co. operates for-profit schools through its subsidiary Kaplan and owns more than 8 percent of stock in Corinthian Colleges, another for-profit company, based in Santa Ana, Calif.

The largest provider of for-profit higher education, Apollo Group, which is based in Phoenix and has 470,000 students, forecast last week that enrollment of new students at its University of Phoenix would decline. The company said it was taking steps that would affect enrollment at a time of "ongoing regulatory and other scrutiny" and media reports that have "portrayed the sector in an unflattering light." Industry stocks, which have sagged for much of the year, fell sharply after the statement.

Under scrutiny

Much of the decline came after the Government Accountability Office reported in August that an undercover investigation found that some recruiters of for-profit colleges encouraged fraud or engaged in deceptive marketing practices.

This week, the Florida attorney general's office disclosed that it is conducting a civil investigation of for-profit schools in connection with alleged misrepresentations about financial aid and other matters. (One of the companies under investigation is Kaplan Higher Education, and a spokeswoman said this week that the company had not been contacted by the authorities but would cooperate fully.)

The closer scrutiny follows the Education Department's push to clamp down on what it said in July is "wasteful spending on educational programs of little or no value that also lead to high indebtedness for students."

Federal data show that 11.6 percent of student borrowers from for-profit schools default on their loans within two years of beginning repayment, compared with 6 percent from public colleges and 4 percent from private, nonprofit schools. Some experts note, however, that default rates are often high at nonprofit schools with many low-income students.

Those affected

Under the "gainful employment" rule, programs at for-profit schools and non-degree vocational programs at public and nonprofit schools would be held accountable for how much debt their graduates accumulate relative to annual income and for whether former students are repaying the principal on their loans. Programs that fall short of standards could face enrollment limits or lose eligibility for federal aid. Analysts say a cutoff of aid would effectively kill the programs.

The proposal would affect the for-profit sector more than others because its students tend to amass more debt.

Groups that represent public and private nonprofit schools, which in some ways compete with for-profit colleges, have quietly relayed concerns to the administration about elements of the proposal - including worries about the potential for excessive paperwork - but also have expressed general support.

The administration estimates that 5 percent of about 53,000 programs nationwide would be found ineligible and that about three-fourths of those cut off would be from the for-profit sector. Industry executives predict greater fallout and say many students would be displaced.

"It's contrary to the president's goal of getting more people more education," said John R. McKernan Jr., chairman of Education Management, based in Pittsburgh, which enrolls more than 136,000 students through Argosy University, the Art Institutes and other schools. He called the proposal an overreach.

"No court is going to uphold that kind of unilateral change by an executive agency without congressional involvement," McKernan said. "We've expressed that view to Congress and the White House."

Heavy hitters

Education Management arranged for Lanny Davis, who was special counsel to President Bill Clinton during campaign-finance controversies in the 1990s, to become a spokesman for an industry group called the Coalition for Educational Success.

Another industry group, the Association of Private Sector Colleges and Universities, brought several hundred students and hundreds of others associated with for-profit colleges to the Capitol on Sept. 29 to protest the proposed rule. "My education, my job, my choice," they said. Some companies are joining such coordinated efforts. Others appear to be working the issue mainly on their own.

Corinthian, with about 110,000 students in the Everest, Wyotech and Heald schools, hired former House Democratic leader Richard A. Gephardt (Mo.) as a lobbyist. The Post Co., with about 112,000 students, retained Steve Elmendorf, a former Gephardt aide, as a lobbyist and Anita Dunn, a former communications director in the Obama White House, as an adviser.

In some ways, hiring prominent Democrats is an obvious move for the industry because it could help the companies make contact with key players at both ends of Pennsylvania Avenue. Leading Senate Democrats such as Tom Harkin (Iowa) and Richard J. Durbin (Ill.) have sharply criticized the industry, but some House Democrats are allies of for-profit schools.

Congressional Republicans support the industry and could be in a stronger position to influence federal policy if they gain seats in the fall elections. The proposal does not require congressional approval but could face legal challenges.

Records analyzed by the Center for Responsive Politics show the industry spent more than $3 million from January through September on lobbying. Corinthian spent $570,000, the records show, Apollo $490,000 and The Post Co. $420,000.

Donald E. Graham, chairman and chief executive of The Post Co., is pressing his views personally with lawmakers and the administration. A federal official said this week that Graham is expected to meet soon with Education Secretary Arne Duncan.

"Out of completely good intentions, the administration has come up with a regulation that will have very bad consequences," Graham said in an interview. "It aimed at people it deems to be bad actors, but it scored a direct hit on schools that serve low-income students. This can't be what the Obama administration wants."

Graham, who called the issue of "vital importance" to a key part of the company, said it is the first time he has lobbied directly on any federal matter in a dozen years.

Administration backers

Also backing the administration is a coalition of student and consumer advocates. These groups acknowledge that the industry has more lobbying firepower.

"We're outgunned by orders of magnitude here," said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admission Officers, based in Washington. "But we have the facts and the interests of the taxpayers of this country and the interests of working people" on our side, he said. "What we're fighting are predatory marketing machines that have seized on this line of work as the easiest path to riches."

The proposal drew an avalanche of comments, many of them organized by industry officials. The total number of submissions, more than 91,000, was a record for the department. That played a role in the department's decision last month to delay its timetable for action.

Previously, officials had aimed to wrap up a regulation by Nov. 1. Now the department plans public hearings on Nov. 4 and 5 before it takes action, probably in early 2011. The proposal would take effect in summer 2012.

Separately, the administration plans to issue financial aid rules this month that among other things would require more disclosure of graduation and job-placement rates and reinforce a federal law that prohibits schools from paying recruiters solely on how many students they enroll.

On gainful employment, Duncan has said a regulation will go forward, but he has signaled flexibility on details.

"None of this is set in stone," Duncan told reporters in September. "I'm not wedded to anything. We want to get it right."

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