As an antidote to Betsy DeVos, U.S. Secretary of Education, unleashing predatory for-profit colleges on the country’s students, New York Governor Andrew Cuomo this week announced a bold plan to bolster state oversight so that New Yorkers are not lured to enroll with false promises, leading to large debts and no job or degree. Part of the broad “Justice Agenda” theme of Governor Cuomo’s State of the State Address, the plan would establish New York as a leader in implementing innovative and meaningful accountability metrics to improve the quality and value of New York’s for-profit colleges.
The Century Foundation has been among many advocacy, education, consumer protection, and fair lending groups calling on states to protect students from predatory for-profit colleges. In 2018, TCF released a landmark study, showing extremely poor performance at many of New York’s for-profit colleges. Recent testimony, jointly submitted by The Century Foundation and Empire Justice Center, recognized for-profit colleges as a primary driver of student loan defaults across the state. As highlighted in the governor’s proposal, “[t]he challenge of student debt is disproportionately high at for-profit colleges, where schools can be more influenced by profit motives than the best interests of their students.” Although for-profit schools enrolled only 4 percent of students in New York, these schools accounted for 41 percent of student loan defaults five years after students had left school.
Because federal protections are being delayed and reversed, “eliminating critical protections for students from unscrupulous business practices,” according to a brief released with the governor’s address, Governor Cuomo “is proposing to fill the gap created by the absence of federal regulations by taking action to hold for-profit and proprietary schools accountable.”
Here are several ways that these proposals would demand quality from, and rein in abuses by, for-profit colleges in New York:
Insisting That For-Profit Colleges Demonstrate Their Value
Even though they claim to be preparing students for jobs, predatory for-profit colleges avoid scrutiny from employers by getting nearly all of their revenue from taxpayers. While claiming to serve the poor, the schools are actually cynically preying on the poor, charging inflated prices: for-profit schools charge 75 percent more when they gain access to federal financial aid. Leading into the last recession, the University of Phoenix bluntly told its investors that it charges students whatever amount they can borrow from the federal government.
Current federal policy includes a so-called 90–10 rule, which conditions federal aid eligibility on a for-profit college’s ability to show that it can raise a scant 10 percent of funding from sources besides U.S. Department of Education subsidies. Cuomo’s approach takes this concept a step further by requiring that no more than 80 percent of a school’s funding come from federal grants, federal loans, or from New York State’s general Tuition Assistance Program (TAP). By enacting this policy, New York would become the first state to improve upon the federal 90–10 rule.
Ensuring That For-Profit Schools Prioritize Teaching over Advertising
Students and taxpayers expect tuition dollars to be spent educating students, but for-profit colleges often set tuition as high as they can, while spending very little on student instruction. While some New York for-profit colleges spend the majority of their revenue on student instruction, most do not. On average, four-year degree-granting for-profit schools in New York charged students $23,762 in tuition costs while spending only $8,500 on student instruction.
On average, four-year degree-granting for-profit schools in New York charged students $23,762 in tuition costs while spending only $8,500 on student instruction.
Where are the tuition dollars going at for-profit schools? A 2012 U.S. Senate investigation found that for-profit colleges allocate 23 percent of revenue dollars to marketing and recruitment while spending just 17 percent of revenue on instruction. Governor Cuomo’s proposal would ensure that schools that receive state money to educate students actually spend at least 50 percent of revenue on student instruction. This approach builds upon data that schools must already report to the U.S. Department of Education.
Shining a Spotlight on Executive Pay and Bonuses
The salaries of nonprofit and public university presidents are often viewed as scandalous. But the CEO of ITT Tech, the now-defunct for-profit chain, earned nine times the salary of the president of Harvard University while relying 100 percent on federal aid programs for revenue. Governor Cuomo’s plan would make New York the first state in the nation to require that for-profit colleges disclose salary incentives and bonuses for leadership, whether the company is publicly traded or privately held.
Safeguarding Accreditation from Financial Conflicts of Interest
Students view accreditation as a sign of quality for higher education institutions. But Betsy DeVos is empowering corrupt accreditors who helped colleges rip off students while proposing changes that would further weaken accreditation as a consumer protection measure. Governor Cuomo’s proposal recognizes that New York cannot rely on DeVos’s review of accrediting agencies. Rather, the state can take an active role in ensuring the integrity of the accreditors who act as gatekeepers for federal and state financial aid.
Leaders of nonprofit and public colleges are ultimately accountable to the public interest, so their service on the boards of accrediting agencies is consistent with that public trust role. Executives of for-profit colleges, however, have a fiduciary duty to investors, whose interests are not aligned with the public: stock prices rise when schools enroll more students, charge students more, and spend on educating them. Governor Cuomo’s plan would phase out the conflicts of interest that occur when for-profit college board members also serve as the gatekeepers for the state’s grant programs.
Protecting Students’ Right to Bring Predatory Schools to Justice
For-profit colleges are the focus of 99 percent of students complaints about predatory and deceptive practices in higher education. It’s no wonder why these schools would try to block students’ right to sue them over unscrupulous practices. Now, after dragging her heels on implementation, DeVos has proposed rolling back a federal rule that protects students’ right to bring legal claims against rip-off schools. Governor Cuomo’s proposal would protect students’ right to seek justice—a fitting goal for a “Justice Agenda.”
Governor Cuomo’s proposal would protect students’ right to seek justice—a fitting goal for a “Justice Agenda.”
In all, Governor Cuomo’s “For Profit Accountability Act” proposes significant steps to demand quality and value from for-profit schools at a time when President Trump and Betsy DeVos are inviting further abuses from this sector.