Pinsky and lawmakers from several other states are proposing measures to counteract the Trump administration’s rollback of federal regulations aimed at for-profit schools. Even if the legislation is successful, an existing interstate agreement could limit its effectiveness. But in the face of federal inertia, state lawmakers say they must do more to protect constituents from unscrupulous schools.
“There are too many stories, too many experiences of people being promised things, not getting it and being left with large debt,” said Pinsky, who chairs the Maryland Senate’s Education, Health and Environmental Affairs Committee. “Returns on investment shouldn’t drive education.”
Policymakers in Maryland, Maine, Oregon, Washington, New York and California have introduced legislation this year to strengthen regulation of for-profit colleges operating within their borders. Many of the bills are a direct response to the Trump administration’s dismantling of Obama-era rules aimed at the sector. Industry leaders denounced the regulatory regimen as biased and shortsighted, while advocacy groups said it guarded against predatory institutions taking advantage of vulnerable, low-income students.
“All around the country, there are legislators that are concerned that in the absence of adequate federal oversight, they need to take this issue into their own hands and make sure we do not have yet another dramatic expansion of predatory for-profit education,” said Robert Shireman, a senior fellow at the Century Foundation, a think tank that advised lawmakers on some of this year’s proposals.
Steve Gunderson, president of the industry advocacy group Career Education Colleges and Universities, argues that some of the state bills in play this year would put career schools with good track records out of business.
Legislatures in Maine, Oregon and New York, for instance, are considering bills that would require for-profit colleges to spend at least 50 percent of their budget on instructing students, rather than marketing. Career colleges in New York say there is no way they can meet that requirement, Gunderson said.
“This isn’t about bad actors anymore,” Gunderson said. “This is about eliminating a sector.”
States share oversight of for-profit colleges with accrediting agencies and the federal government. Within that regulatory triad, states hold tremendous power. They decide whether institutions can operate within their borders, an authority that looms large in the enforcement of consumer protection laws.
In different states’ legislative sessions, bills would address long-standing concerns, such as limiting the amount of taxpayer dollars the schools receive. As it stands, the federal government bars for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid funding.
New York Gov. Andrew M. Cuomo (D) and lawmakers in California and Oregon want to lower the limit to 80 percent, while Pinsky and Del. Shelly L. Hettleman (D-Baltimore County) are proposing an 85 percent cap for schools in Maryland with more than $10 million in revenue.
The Maryland bill would be a return to the federal cap implemented in 1992. Back then, the government figured a for-profit school with high-quality programs should have no trouble deriving at least 15 percent of its revenue from students willing to put up their own money. For-profit school lobbyists fought the rule, which was relaxed six years later as the cap was raised to 90 percent, and military education benefits were exempted.
That exemption led to aggressive recruitment of veterans. A 2012 Senate investigation found evidence of for-profit schools deploying teams at veterans hospitals and wounded warrior centers to enroll students. Although state and federal lawmakers have decried those practices, attempts to close the loophole or lower the funding threshold have failed.
In Maryland, the General Assembly last month stripped out the provision in Pinsky’s bill that would have capped student aid funding at 85 percent of revenue and closed the GI Bill benefits loophole. But lawmakers advanced the portion of the legislation requiring for-profit colleges to disclose the percentage of students employed after graduation and their average salaries.
“I suspect that some states are going to pass a version of the 85/15 rule, and that might give more ammunition next year to come back and say, ‘Look, they did it and the world hasn’t fallen apart,’ ” said Marceline White, executive director of the Maryland Consumer Rights Coalition, an advocacy group that backed the bill.
White is optimistic that another piece of legislation introduced by Pinsky and Hettleman could make Maryland the first state to address emerging concerns about for-profit colleges becoming nonprofit institutions to evade regulations. The bill passed unanimously in both chambers last month.
Lawmakers in Maryland and California want to ensure that any college claiming to be nonprofit is not operating to the benefit of a for-profit entity. Their bills would increase scrutiny of deals such as the ill-fated 2017 acquisition of Argosy University, South University and Art Institutes campuses by Dream Center Education Holdings.
The Los Angeles organization struggled for two years to transform the flagging for-profit colleges into thriving nonprofit schools, before closing 22 Argosy locations last month. From the outset, Dream Center said it would use revenue from the schools to pay for expansion of its other projects, much to the chagrin of student advocates who said the money should be used only to support the colleges.
“By establishing state-level processes for review and approval of conversions of colleges, it adds a check into the process,” said Shireman, a former deputy undersecretary at the Education Department under President Barack Obama. “In the Argosy situation, it either would have been stopped because of the conflicts and lack of clarity about who would be running the school, or there would have had to be some changes in the way they were managing it.”
Shireman notes that state consumer protection laws have a history of influencing federal regulations. Consider the Maxine Waters School Reform and Student Protection Act of 1989, which set a threshold for minimum job placement and graduation rates for career schools in California.
The statute, championed by Rep. Waters (D) when she served in the California State Assembly, was allowed to expire in 2007 but served as a precursor to the federal gainful employment rule. That Obama-era policy sought to withhold federal student aid from vocational programs with consistently high ratios of student debt to earnings.
Education Secretary Betsy DeVos nixed the policy in August and subsequently announced plans to have all colleges disclose student outcomes but without the threat of the department taking punitive action.
Now, California and Washington legislators want to create a state-level version of the gainful employment rule, with California using many of the same standards set by Waters’s 1989 bill.
“When we learned that Trump and DeVos were going to roll back the gainful employment rule, that focused our attention,” said California Assemblyman David Chiu (D), who introduced legislation that would have brought to his state the Obama administration policy that DeVos canceled. “The goal is to put students first, not shareholders.”
Chiu notes that 266 programs in California, most of them at for-profit colleges, had a high share of graduates whose student loan payments either hovered around or far exceeded 8 percent of their total earnings, according to 2017 federal data. Those programs would not have earned a passing grade under the gainful employment statute. Chiu’s bill would prevent for-profit colleges from enrolling students in programs with failing grades.
California is in a unique position to pass for-profit legislation with teeth. It is the only state that is not a member of the State Authorization Reciprocity Agreement, a compact that makes it easier for colleges to offer online education across the country. The agreement establishes a common regulatory framework that advocacy groups say undermines state authority to regulate for-profit colleges with a significant presence online.
Maryland is a party to the reciprocity agreement, which could limit the scope of the for-profit college legislation in the state. Although online for-profit schools that enroll Maryland students may be exempt, the five for-profit colleges with physical locations in the state would be subject to the rules.