Every year, thousands of American students are manipulated by for-profit colleges and left with crushing debt and no meaningful education or credentials. One iteration of this manipulation, though unintentional, is when a for-profit college goes bankrupt—and they frequently do—pulling their enrollees down with them. What can policymakers do to prevent these catastrophes?
Just such a catastrophe happened earlier this month, when Argosy University, the Art Institute, and South University closed dozens of their campuses across the country and left over 25,000 students scrambling to find ways to complete their degrees. The schools were originally part of the for-profit Education Management Corporation (EDMC) network. Under financial distress, EDMC sold the schools to nonprofit Dream Center Education Holdings in 2017. The U.S. Department of Education, under Secretary Betsy DeVos, approved the deal, despite its earlier rejection by regional school accreditors. In late February, the level of mismanagement became clear as Argosy students complained they had not yet received their federal loan funds. The department then cut the schools off from accessing federal student loans. As of the closures, millions of dollars are still missing, and students are facing both financial and academic ruin.
The complicated nature of the Dream Center case has heightened scrutiny on the DeVos administration’s deregulation agenda. And policymakers are now making good on that scrutiny: today, Senators Maggie Hassan (D-NH) and Dick Durbin (D-IL) introduced legislation that will protect students and taxpayers from facing another Argosy or Art Institute debacle.
The PROTECT Students Act proposes sweeping measures to add key student protections to the existing accountability framework for colleges and universities, with a necessary focus on for-profit colleges.
Hassan and Durbin’s bill, known as the Preventing Risky Operations from Threatening the Education and Career Trajectories (PROTECT) of Students Act of 2019, proposes a bold step toward ensuring that student protections are at the forefront of any new higher education legislation, and chiefly in any comprehensive renewal of the Higher Education Act. The PROTECT Students Act proposes sweeping measures to add key student protections to the existing accountability framework for colleges and universities, with a necessary focus on for-profit colleges.
How the PROTECT Students Act Will Add Important New Protections
Bolster Regulations on the Usage of Federal Funds
The PROTECT Students Act will require institutions who receive federal funds to use them responsibly. It stipulates that institutions will not be allowed to use revenue from federal student aid on certain recruiting and marketing activities, ideally sending those dollars towards educating students instead. There are many indicators as to why this increased regulation is necessary, in particular the fact that college spending on advertising has spiked in recent years, and especially by online colleges, which are most often—but not always—for-profit. A growing body of research shows that colleges that spend the most on advertising may be spending the least on student instruction. The act also strengthens the current ban on incentive compensation, a practice where college employees are paid a commission for recruiting students. Incentive compensation in student recruiting is known to encourage predatory marketing and fraudulent behaviors.
Create a Dedicated Oversight Committee
The act will establish a For-Profit Education Oversight Coordination Committee that will bring together multiple federal agencies to monitor the for-profit industry. This Oversight Committee will provide a link between federal agencies, state attorneys general, and state approval agencies, thus making more effective the higher education triad. The triad model of accountability, which in theory involves a collaboration among federal, state, and accreditation agencies to ensure quality in higher education institutions, was established in the original Higher Education Act in 1965. However, as this structure exists now, quality assurance and accountability to students and taxpayers are at considerable risk. Cases like the Argosy–Art Institute–Dream Center scandal have shown how wide the gaps are in the current accountability framework. That framework was designed without for-profit colleges in mind, and it is time to reconsider it in light of the current college landscape. The Oversight Committee will help make sure that predatory institutions (and any institutions failing to meet their obligations to students) do not fall through the regulatory cracks.
Ensure Integrity in For-Profit-to-Nonprofit Conversions
In the event that a for-profit institution chooses to convert to nonprofit status, the PROTECT Students Act provides safeguards to ensure integrity in the financial and governance structures of those colleges. The necessity of this provision has become abundantly clear, given that questionable arrangements appear to be a growing trend. The case of Grand Canyon University provides a perfect example: the university reorganized itself in 2016 when its publicly traded parent company created a nonprofit entity of the same name. The two entities remain linked by a common CEO and a contract where the for-profit receives a majority of the nonprofit’s revenue. A primary mechanism of any nonprofit’s financial structure should be the prevention of any single individual gaining financially from an organization’s operations. The conversions provision of the PROTECT Students Act ensures that if a school opts to run itself under, and reap the rewards of, nonprofit status, that it must actually set up legitimate governance.
How the PROTECT Students Act Will Strengthen Existing Protections
The Higher Education Act does provide accountability mechanisms for the for-profit sector; however, those protections need to be buttressed if they’re to be effective. The PROTECT Students Act would do so in the following ways.
Close the GI Bill Loophole and Restore the 85/15 Rule
In 1992, Congress amended the Higher Education Act to include what is known as the 85/15 rule. This rule stipulated at least 15 percent of a for-profit instituiton’s revenues come from sources other than federal student aid. The rule was eventually amended to the current 90/10 rule. The idea behind the rule is to impose a market test on for-profit colleges: if revenues come from places other than a third party payer, i.e. student loan and grant aid—from employers or self-paying students, for example—then the programs are proving minimally valuable. Unfortunately, the current rule does not include veterans’ education benefits in its definition of federal aid, making student veterans a prime target for proprietary colleges to extract revenue in their drives to meet the test. The PROTECT Students Act closes this loophole, and, furthermore, brings the ratio back to the stricter 85/15.
Codify the Gainful Employment Rule
The Obama-era Gainful Employment rule requires programs at all for-profits, as well as at some nonprofit and public institutions, to ensure their graduates meet certain debt-to-earnings ratios as a test for keeping access to federal financial aid programs. The rule has been instrumental in closing programs that were obviously driving students into unmanagement debt. The DeVos administration has signaled its desire to ax the rule, despite evidence of its utility in protecting taxpayer dollars. Putting the Gainful Employment rule in statute will shield students from harm by shoring up such protections and preventing department administration’s like DeVos’s from eliminating them.
Enforce Repayments for Fraud
Finally, the act will put in statute a consumer protection provision designed to provide relief to students in the event that a school misrepresents itself or engages in fraudulent behavior during the recruitment, enrollment, or education processes. The Borrower Defense to Repayment regulation, which established a process specifically for student loan borrowers, would be codified by the act and protected from the kinds of rewrites that the DeVos administration has been attempting for the past several years. The act also establishes an enforcement unit in the Office of Federal Student Aid that will investigate misconduct, borrower defense, and campus crime claims. This unit will be a remedy to the current backlog of over 200,000 unanswered borrower complaints and claims.
By moving common-sense regulations into law and taking new steps to curb predatory behavior by for-profit colleges, the aptly named PROTECT Students Act is a bold and long-needed proposition for defending both students and taxpayers.