By Spiros Protopsaltis
If what’s past is prologue, then it appears that we are seeing the beginning of yet another boom cycle for for-profit colleges at the cost of students and taxpayers. While the recently unveiled House Republican higher education bill would also reopen the floodgates to fraud, waste and abuse, the Department of Education recently held hearings as part of the Trump administration’s campaign to dismantle two key regulations designed to ensure that unscrupulous colleges don’t prey on students and the federal student aid system. This campaign aims to reverse Obama administration efforts to guard against very poorly performing career college programs and misleading business practices that the for-profit sector challenged vehemently on Capitol Hill and in the courts. It’s a disturbing example of the weakening bipartisan commitment to accountability in this sector.
The need for effective oversight of for-profit colleges is well documented and longstanding. Abuse in this sector and efforts to curtail it have a 70-year history – both Presidents Truman and Eisenhower took action to crack down on for-profit colleges that were defrauding returning veterans trying to use the GI Bill to get ahead. The administrations of Richard Nixon, Gerald Ford and George H.W. Bush also strengthened oversight, especially through the rewrite of the federal law in 1992 after a bipartisan Congressional investigation, but later administrations weakened it, setting the stage for rapid growth in for-profit enrollment in the late 1990s and 2000s, peaking during the Great Recession.
This growth was soon followed by mounting evidence of misconduct. Numerous investigations by federal and state agencies and an alarming number of lawsuits, fines, and settlements sounded the alarm. In several high-profile cases, for-profit schools abruptly closed after evidence of shady practices came to light, leaving students buried in debt with worthless or no degrees and taxpayers holding the bag. Moreover, many for-profit programs provided little value to students, charging a hefty price for low-quality programs, leading to unmanageable debt students were unable to repay.
In response, the last administration crafted two rules — known as “borrower defense” and “gainful employment” — to prevent all colleges and universities from defrauding students and to hold career college programs accountable if they fail to prepare students for careers that would enable them to repay their loans. This past summer, however, the Trump administration announced that it would delay and rewrite (or gut) both rules.
Last month the Department of Education kicked off its deregulation push by holding public hearings on borrower defense, which establishes a debt relief process for students who are victims of fraud and holds schools financially accountable for their actions. Based on a 1993 law that lets the Secretary of Education cancel the loans of borrowers who were misled or mistreated by their school, the Obama administration’s original rule provided little detail about how to submit claims, offered no mechanism to protect taxpayers against dodgy schools, and was rarely used. Following an influx of claims after the 2015 collapse of Corinthian Colleges, a large chain of low-performing for-profit schools with shady business practices, the rule proved inadequate and the Obama administration revised it last fall to ensure a fair, borrower-friendly process to hold schools accountable for misbehavior, while allowing schools an avenue for disputing claims.
The latest hearings focused on gainful employment, a 2014 rule that would make the lowest-performing career college programs ineligible for federal student aid, such as loans and Pell Grants. The law requires career college programs to prepare students for “gainful employment in a recognized occupation,” but this had never been defined prior to this rule. In light of dismal student outcomes, the rule seeks to ensure that such programs prepare students to earn enough to pay back their debt. If a program’s graduates have debt payments that exceed certain thresholds relative to their income — and the program’s poor outcomes continue for several years — the programs are cut off from federal student aid.
Career college programs also must disclose important consumer information and provide student warnings about under-performing programs. Implementation of the rule began in 2015 and, early evidence shows, many institutions took steps to close or improve under-performing programs. The first debt-to-earnings data were released in January and showed that for-profits accounted for 98 percent of the failing programs. But this rule, too, is on the Trump administration’s hit list.
This latest attack on accountability is deeply unfortunate. For decades — dating back to the late 1940s, in fact — the two parties worked together to boost accountability for predatory schools, driven by the goal of safeguarding students and taxpayer investments. The 1952 Korean War GI Bill, for example, prohibited for-profit schools from receiving GI Bill funds if more than 85 percent of their students were veterans, which immediately helped curb sham schools that had been targeting returning World War II veterans because of their access to federal student assistance.
Both the Nixon and Ford administrations took regulatory and enforcement measures to rein in predatory schools. And in the early 1990s, President George H.W. Bush and Congress enacted a similar 85 percent threshold in the higher education law as well as other key measures to crack down on low-quality schools whose students defaulted on their loans at an exorbitant rate. But deregulation followed, beginning in the mid-1990s, which fueled the rapid growth of the for-profit sector — and led to mounting signs of improper behavior and poor student outcomes. The clear lesson of the historical ebb and flow of oversight is that, left unchecked, unscrupulous schools prey on students and the federal student aid system.
The Trump administration’s attack on these critical rules would derail meaningful reforms and refuel the growth of a sector that’s repeatedly provided students with a poor-quality education and utilized unseemly business practices in order to benefit its bottom line. The administration should proceed with extreme caution to avoid repeating costly mistakes of the past.