On March 12, TCF senior fellow Robert Shireman testified before the Committee on Appropriations Subcommittee on Labor, Health and Human Services, Education, and Related Agencies at the U.S. House of Representatives. In that testimony, the text of which is provided below, Shireman outlines the history of predatory practices by for-profit higher education institutions, the current tactics being used by these bad actors, and federal government’s responsibility in enforcing the Higher Education Act and preventing the abuse of students and taxpayers.
Thank you for the opportunity to testify today. I am Robert Shireman, the director of higher education excellence and a senior fellow at The Century Foundation (TCF). TCF is a progressive, nonpartisan think tank that seeks to foster opportunity, reduce inequality, and promote security at home and abroad. Our education program addresses issues of school diversity, college affordability, consumer protection, and accountability.
The U.S. experience with federal funding of for-profit colleges is not a pretty one. The industry inevitably seeks to take down the guardrails intended to protect student and taxpayer interests, resulting in mass harms to veterans and low-income students alike. Rampant abuses emerged with the first GI Bill after World War II, in the 1970s, in the 1980s, and in the 2000s (chronicled by David Whitman on TCF’s website). Just like their predecessors before them, the for-profit lobbyists today say those bad days are over; the industry has learned from its “mistakes;” gainful employment advocates “should declare victory and go home” because it had successfully eliminated the worst programs. “We are never going back to where we were.”
Scandal, Regulate, Forget, Repeat
The same promises were made before—and oversight was relaxed in ways that led to new scandals. It is as if lawmakers and regulators think that because it’s dry under the umbrella, the umbrella can be ditched. In 1971, with a new GI Bill for Vietnam veterans, the nation’s chief of veterans affairs testified that the “areas of abuse detected in the earlier World War II program were eliminated.” Two years later, the manipulative recruiting tactics had returned. The Ford administration implemented reforms: schools with more than 60 percent borrowers were put on watch, programs with fewer than 15 percent non-federal students needed special approval. The secretary of health, education, and welfare later declared these reforms successful.
These protections did not survive later lobbying by for-profit schools, however. Abuses returned. In 1988, William Bennett, the education secretary, called the situation “an outrage perpetrated not only on the American taxpayer but, most tragically, upon some of the most disadvantaged, and most vulnerable members of society.” He complained that students at for-profit schools “are left without an education and with no job, and the taxpayer ends up holding the bag for a kid who gets cheated.” Reforms were adopted by Congress in 1992; more than 1,200 schools closed.
The late 1990s saw naive proclamations that the abuses would never return. In 1997, the head of the For-Profit College Association, in advocating for relaxing rules that Congress had adopted five years before, said, “We’ve seen a fire across the prairie, and that fire has had a purifying effect. . . . As our sector has weathered the storms of recent years, a stronger group of schools is emerging to carry, at a high level of credibility, the mantle of training and career development.” The next year, Congress weakened the 85–15 rule that had been adopted in 1992, and made it easier for schools to show lower loan default rates to maintain eligibility for federal aid.
Declaring that abuses in the student aid programs were “no longer possible today,” President George W. Bush’s secretary of education adopted regulations in 2002 creating loopholes in the ban on commission-paid recruiting at schools using federal aid. In June 2004, the for-profit college executive chosen to speak on behalf of the for-profit college industry was David Moore, CEO of Corinthian Colleges. He testified that there was no longer danger from for-profit colleges because the “fraud and abuse perpetrated by certain for-profit institutions” had been “effectively addressed.” One month later, the president of ITT Tech resigned in the face of a federal probe of predatory recruitment practices. Two months later, a probe of the University of Phoenix revealed sales tactics that ranged “from illegal to unethical to aggressive.”
Wanting to believe the industry’s proclamations, Congress in 2006 adopted a budget bill that included a whopper provision opening the door to rapid, unchecked growth in federal funding of online education programs, a favorite vehicle of for-profit schools.
“Bad Actors” Are a Product of Their Incentives and Oversight, Not Their Intentions
This is the part of the testimony where some will expect me to say that these people are all crooks and should go to jail, because the natural response to these scandals is to assume that evil people simply had wormed their way into a school and implemented devious strategies meant to defraud students and taxpayers. The solution, from this perspective, is to do a better job of scanning for, and ejecting, “bad actors” in the industry.
But that isn’t what happens. Predatory schools usually don’t start out predatory. Instead, they launch with a plan to do good by doing well, following market indicators—like the number of new customers and the stock value—that in many industries lead to a quality product at a fair price. But in education, these simplistic and narrow indicators of business success are not adequate, particularly when the customer is a third party—the government—that is not able to check the value for the money.
In education, these simplistic and narrow indicators of business success are not adequate, particularly when the customer is a third party—the government—that is not able to check the value for the money.
Without trustees or public governance, the for-profit navigation systems cause the schools to trample students’ interests. All the while, they remain in denial about bad outcomes because of the self-image associated with their intention to earn a profit by offering a quality education at a market price.
The Ruse of “Equal Treatment” for Unequal Actors Fosters More Abuse
Last week I noticed a Tweet from a perennial defender of for-profit colleges that asserted that “all schools from all sectors” should be held to the “same accountability standards.” The Betsy DeVos version of this particular deception is to dismiss the differences between the sectors as “simply…tax status.”
Equal regulatory treatment sounds like a no-brainer. But actually, it’s brainless: the very definitions of each sector are about their accountability, the way that each is regulated. Public and nonprofit entities must comply with an array of laws meant to protect the public interest. No such restrictions apply to for-profit entities.
|Regulatory Differences Define Whether an Entity Is Public, Nonprofit, or For-Profit
|Who is responsible for governing the institutions, including setting tuition rates and budgets?
||Elected and appointed state officials
|What are they allowed to spend money on?
||Education or another public purpose
||Education or a charitable purpose
||Anything, including distributions of profit for owners
|Can top-level decision-makers personally profit from the operations of the institution?
|Do colleges have access to equity markets to invest and expand?
|Is there a financial backstop if something goes wrong and the college is bankrupt?
|Source: The Century Foundation
In writing the Higher Education Act, Congress believed that it mattered, in terms of how closely the schools needed to be overseen, whether those in control of a school are allowed to siphon off money for themselves.
The different legal treatment of the sectors is as distinct as night and day. Let’s say the CEO of an institution replaces the full-time faculty with low-paid adjuncts, cutting costs by several million dollars, and then distributes the spoils to his fellow board members. If it is a public institution, the perpetrators go to jail. If it is a for-profit institution, the CEO is a hero to the investors. In writing the Higher Education Act, Congress believed that it mattered, in terms of how closely the schools needed to be overseen, whether those in control of a school are allowed to siphon off money for themselves. That is a no-brainer.