DeVos Dystopia: What Trashing For-Profit College Rules Means for Students

Education Secretary Betsy DeVos testifies before the Senate Appropriations Committee on Capitol Hill June 6, 2017, in Washington, DC. Under Trump and DeVos, the landscape has shifted dramatically for the US’s predatory for-profit colleges. (Photo: Win McNamee / Getty Images)

Now that the former head of the scam Trump University is the President of the United States, the landscape has shifted dramatically for America’s predatory for-profit colleges — the ones that have been systematically ruining students’ lives through a toxic mix of deceptive recruiting, sky-high tuition, low spending on instruction, and weak job placement.

These bad colleges seem ready for a resurgence, and a resumption of their abusive ways. If they succeed in that, the people who will suffer most are those whom candidate Trump most emphatically insisted he would help as president: the forgotten man and woman, the people living in what he still calls “inner cities,” and our military troops and veterans.

President Trump in office has pursued little besides his passive-aggressive tweet agenda, and the GOP Congress has failed to pass much legislation. But Trump’s cabinet heads are having a dramatic impact; they’ve pushed ahead with the agenda of the Koch brothers, big banks, and other special interests: dismantling a wide range of rules that protect workers, consumers, and the environment.

For her part, Trump’s Secretary of Education, Betsy DeVos, has, just for starters, now blocked the key Obama-era rules created to hold predatory colleges accountable for engaging in waste, fraud, and abuse with taxpayer dollars.

Last Thursday, speaking to the corporate front group the American Legislative Exchange Council, which has had many for-profit colleges as members, DeVos ratcheted up her previously polite criticism of the Obama gainful employment and borrower defense rules, sneering at them as “textbook overreach… solely to advance their administration-wide war on every type of organization they didn’t like.” DeVos made false claims about the Obama measures along the way.

There are honest, effective schools, and many great teachers, in the career education field. The point of these Obama rules is to channel federal aid and students to those schools, rather than to the dishonest, low-quality ones. The gainful employment rule would penalize career education programs that, year after year, leave graduates owing more in student loans than their income would allow them to repay. The borrower defense rule would: provide students defrauded or abused by their schools a process for having their federal loans cancelled, as the law already requires; prohibit schools from denying injured students the right to sue them; and place stronger requirements on financially irresponsible schools to put some cash aside in the event of collapse. Both rules, once implemented, should save taxpayers a lot of money, while helping students make better choices for their futures.

But the for-profit college industry has consistently rejected these reforms, and now they have friends on the inside. According to multiple Department career staff members, Robert Eitel, who previously worked for the predatory college companies Bridgepoint Education and Career Education Corp., and now is senior counsel to DeVos, is calling the shots on key issues related to for-profit colleges. A number of senior career Department officials who were dedicated to protecting against for-profit abuses have resigned or are planning their departures, after having been cut out of decision-making and seen their important work undone. The top two officials of the Student Aid Enforcement Unit, established last year to root out violations of laws and regulations, have both left the Department.

DeVos’s Department also has stalled the process of approving current claims by students who say they were defrauded by schools approved by the Department for federal aid and thus should have their federal loans cancelled. It barely agreed to process the applications that already had been granted under the Obama administration.

UPDATE 07-26-17 4:45 pm: AP: Student-loan forgiveness has halted under Trump

Meanwhile, in March the Pentagon weakened its own efforts to hold colleges accountable for deceptive recruiting of US troops. Ongoing work at the Justice Department, Federal Trade Commission, and Securities and Exchange Commission to crack down on for-profit college fraud could potentially be imperiled as well, as Trump appointees tighten control.

What does this critical reversal of policy by the Trump administration, against the interests of veterans, single mothers and others seeking career training, and in favor of wealthy operators of predatory schools not unlike the awful Trump University, mean in the real world?

We’re starting the see what it means. Bad behavior in the industry never stopped, but it was modulating in the face of stronger government enforcement, as well as media investigations, as some of the really bad programs and schools got caught misbehaving and/or shut down, and other schools, fearing they were next, toned down the abuses a bit. But now, as Trump lawyer Marc Kasowitz might say, it’s on.

Predatory Triumphalism

A few weeks ago, after a federal judge ordered a minor adjustment in the gainful employment rule appeals process for a small number of cosmetology schools, for-profit college industry lawyer Keith Zakarin of the firm Duane Morris celebrated on LinkedIn with some Trumpian triumphalism, referring to Obama administration Education officials as “vicious haters” and to industry critics as “anti-sector jihadis,” and mourning “the executions of Marinello and ITT” — two for-profit colleges that each were caught engaging in particularly egregious deceptions against students and taxpayers and were eventually cut off from future taxpayer aid (not denied the right to exist). Poor, poor Marinello Schools of Beauty and ITT Tech (which at its peak was getting $1.1 billion a year from US taxpayers) — and their poor wealthy executives who have thus far escaped accountability for their companies’ fraudulent behavior.

As if to join Zakarin’s angry celebration, the DeVos Department of Education used the court’s small tweak of the gainful employment rule, which the judge expressly wrote “avoids upending the entire GE regulatory scheme,” as a false excuse to put the regulation on hold pending a years-long repeat of the entire regulatory process. DeVos’s decision to block the gainful employment and borrower defense rules before completing new rule-making is, in fact, illegal, as was made plain in lawsuits filed by the attorneys general of 18 states and the District of Columbia, and by two former New England Institute of Art students who are represented by Public Citizen and the legal clinic of Harvard Law School.

But the for-profit college industry is gearing up, with a slew of law firms, including Skadden and Venable, as well as Duane Morris, in court fighting to undermine Obama era actions. The industry also has expanded its lobbying efforts, with the latest disclosure forms filed with Congress this month showing big for-profit colleges and their trade association CECU continuing to spend hundreds of thousands of dollars to buy the lobbying teams we recently described.

Meanwhile, the for-profits are working to revitalize their businesses, many of which declined sharply in the wake of the Obama oversight efforts and growing public awareness of school abuses.

A New Gold Rush?

Three weeks after Trump’s election day win, Michael Clifford, a long-time investor in for-profit college businesses, posted on his website and LinkedIn a manifesto. It wasn’t vengeful like Zakarin’s — Clifford projects strong optimism and genuine concern for students — but it was no less emphatic. It was titled, “EDUCATION INVESTOR UPDATE ALERT: IT IS A NEW DAY!”

Clifford began: “My phone is ringing with investors who are slowly waking up to the facts: A radically new government is about to change everything about Education K thru 20 in America on January 20, 2017…time to move forward.” He praised Trump as someone who “has spent 50-years overcoming obstacles: unions, environmentalists, IRS, SEC, regulators, international governments, tort lawyers, media bias, financial ups & downs, strikes…but always winning for that which he was passionate…and he is passionate about Education.”

Clifford continued, “We are now entering a new EPOCH of OPPORTUNITY for education, institutions, entrepreneurs, corporate training, human resource leaders, teachers, techies, marketers, administrative leaders…AND INVESTORS WHO LOVE TO DO WELL FINANCIALLY WHILE DOING GOOD FOR PEOPLE.” He praised DeVos, whom Trump had just named as choice for education secretary as “a breath of fresh air…. Her family is the best example in American history of ‘Compassionate Capitalism.'”

Clifford asserted that the Trump/DeVos era made conditions ripe for new “Public/Private Partnerships,” where investors could put private capital into non-profit institutions as well as into for-profit schools. He wrote that it was “a time for investors to make more money from the education sector than ever before.” He offered his investment group as a partner: “We bring the Money, Management & Marketing… Our group is available to review all opportunities for Investors, For-Profit & Non-Profit Schools who desire to ethically exploit this new: EPOCH OF OPPORTUNITY.”

This was the same Michael Clifford who said in 2015, “I do not believe there’s any future in for-profit education anymore.”

I spoke with Clifford last week; we mostly focused on the advent of new ventures where non-profit entities take over the operations of for-profit schools. Some of his comments are below.

Although as far back as her January confirmation hearing DeVos’s comments cast doubt on whether she would live with the Obama rules, her precise course wasn’t clear for a while, and, in fact, Justice Department lawyers in court continued to defend, against multiple industry lawsuits, the Obama rules and decisions.

But on June 14 DeVos announced her “regulatory reset” plan to put the gainful employment and borrower defense rules aside and begin a brand new rule-making process to address these subjects all over again. Now, DeVos’s course was clear, and her compassion in the “Compassionate Capitalism” that Michael Clifford promised seemed squarely directed at rich for-profit college owners, rather than struggling students. Perhaps it was time for Clifford’s vision of a new EPOCH to come alive. We’re about to find out.

Earlier this month, an industry insider forwarded me an email from a long-time industry executive with the subject line “Midwest School investment oportunity” [sic]. According to the message, a client of the executive “is planning to launch a new campus in the Midwest in the near future…. They have most of their ducks in a row, including most of the regulatory approvals. They plan to start their first class in the fall, but they need a cash infusion… They are looking to raise $250,000 to stop gap operation until the FSA [federal student aid] starts to flow in late November 2017.”

When I contacted him, the executive who sent the email declined to identify the school, and told me he did not see much of an acceleration of deal-making in the for-profit college industry. This could, indeed, be a minor blip. But, given how many for-profit colleges have shut down in recent years in the face of bad performance, bad publicity, law enforcement probes, and regulatory action, it was striking to read about a new operation with taxpayer dollars getting ready “to flow.” Another industry executive who saw the email messaged me, “Here we go!”

Deceptive Marketing

Toward the end of the Obama administration, the FTC began making moves to fight abuses in for-profit college lead generation — the process of using online advertising and telemarketing to recruit new students. The FTC held an October 2015 public meeting that addressed the issues, and taking its first action, reached an April 2016 settlement with Orlando-based Expand, Inc., and its owner, for alleged deceptive practices. The company was claiming to visitors to its websites that it was “pre-screening” job applicants, when in fact it was gathering personal information and selling it to for-profit college recruiters.

Whether such FTC investigations will continue under Trump’s new FCC chair, Ajit Pai, I cannot say, but many deceptive lead generation operations, including some I discussed on a panel at the October 2015 FTC meeting, are still going strong. These include army.com, which might look to many observers, including veterans, like an official US Army site, but whose “Affordable Education” tool without fail tells prospective students that their best option is for-profit Grantham University. Others that steer US service members and vets to for-profit college programs that pay for placement include GIJobs.com and Military.com.

Conversations with multiple people in the industry, and other reporting, reveal that some college admissions staff continue to engage in the kind of deceptive and coercive recruiting that was documented in previous government and media investigations: providing prospective students with false information about job placement rates and starting salaries, misleading them about the transferability of credits to other schools, pushing students into programs for which they’re not qualified or are too weak to help them succeed, coaching students to lie about their status and maximize their federal financial aid, falsifying high school diplomas or GEDs so students can enroll, and exploiting a recruit’s personal pain and shame to pressure them into signing up.

I discussed these concerns at length Tuesday with Greg Gragg, CEO of Blue Chair, LLC, and Gragg Advertising, and a prominent figure in for-profit college lead generation and admissions consulting. He told me, “I don’t see rampant admissions fraud and abuse in the for-profit education industry. The majority of the schools we work with engage in compliant admissions practices and work hard to ensure that they remain compliant.”

Conversion Therapy

After public revelations of for-profit college abuses tarnished the industry’s reputation, including among prospective students, and in order to avoid compliance with federal rules, such as the 90-10 rule and gainful employment, that create special obligations for for-profit schools, a significant number of for-profits in recent years moved to convert to become non-profits. Unfortunately, some switched their legal status without changing their predatory ways — deceptive recruiting, under-spending on education — and some did so through troubling deals that allowed the owner of the for-profit to keep making big money off the operation.

Last August, however, the Obama administration took a dramatic and laudable step: It rejected the application of the converted chain CollegeAmerica/ Stevens-Henager to be treated as a non-profit, concluding that despite the conversion, the chain was operating to benefit its prior for-profit owner, Carl Barney. That decision, which Barney’s operation is contesting in court, imperiled the efforts of other for-profits that had undertaken similar conversions.

Among the handful of colleges whose conversions await Department of Education review is Tampa-based Ultimate Medical Academy, a mostly online school, receiving some $150 million annually in taxpayer aid, whose leadership has included several of Trump’s former top lieutenants at Trump University.

Those decisions are now in DeVos’s hands. And now, some other big predatory chains are making a run at their own non-profit conversions, hoping DeVos will approve.

Graham Holdings has announced that its Kaplan University will be acquired by Indiana’s Purdue University, in a troubling deal that would allow Graham Holdings to to keep running the schools and getting paid. The company chairman, Donald Graham, may be holding his breath, hoping the vengeful Donald Trump won’t find out about a March 2016 email in which Graham disparaged Trump’s business skills; Kaplan has been getting more than $800 million a year from taxpayers in student aid.

The faltering Education Management Corporation (EDMC) chain, which Attorney General Loretta Lynch in 2015 labelled a sham “recruitment mill,” and which has faced numerous law enforcement probes, has announced its own troubling deal to have its schools acquired by the faith-oriented, Los Angeles-based non-profit Dream Center.

The idea of public-private partnerships in higher education is something Michael Clifford has been pushing for some time, including in last November’s manifesto. He told me, “I am thrilled that an idea I published five years ago many people are now taking seriously.”

Clifford says, however, that he has nothing to do with the Dream-EDMC takeover deal.

On the other hand, he certainly has connections to the players involved.

Clifford recently left the Dream Center board of directors, but on his website homepage he still highlights the organization as “Our family’s charity of choice.” The Dream Center has announced that its operation of the EDMC schools will be managed by Dream Center Education Holdings, LLC, under its new CEO Brent Richardson, the former CEO of for-profit Grand Canyon University. The Najafi Companies, one of the new owners of the for-profit giant University of Phoenix, are financing the acquisition, with additional funding from the Richardson Family Trust, meaning Brent Richardson’s family. Michael Clifford engineered the transformation of Grand Canyon University in the previous decade from a non-profit Christian college to a for-profit and then a publicly-traded company. (Grand Canyon has a better record than many of the big chains in the past decade, but that school and other schools in which Clifford has invested have in the past run into some compliance issues; in 2010 Grand Canyon paid $5.2 million to settle a federal whistleblower lawsuit in which a former employee alleged that the school unlawfully paid sales commissions to recruiters.)

What Clifford told me regarding the EDMC deal was this: “The Dream Center people have a high level of integrity; they pour their hearts out to the poor.”

Clifford also praised the Kaplan-Purdue takeover deal as “transparent and forthright,” although I then apprised him of information suggesting that isn’t exactly true: at the time of the deal’s announcement, GOP allies of Purdue’s president, former Indiana governor Mitch Daniels, enacted legislative provisions that would shield the new school from Indiana’s open records, open meeting, and budget accountability laws, and Purdue has for months failed to fulfill an open government law request to release the attachments to the troubling Purdue-Kaplan operating agreement, including a referenced “policy guide” for the new school. (I might also have mentioned Daniels’ false and defamatory attack on former Deputy Under Secretary of Education Robert Shireman, a critic of the deal and a long-time friend and colleague and sometime client if mine.)

Clifford had called me last summer, as for-profit ITT Tech was collapsing under the weight of law enforcement investigations and bad publicity about its predatory practices, and asked me what I thought of the idea of a non-profit group taking over ITT’s schools.

I asked Clifford then, and again last week, why nonprofits like the Dream Center or Education Credit Management Corporation, which acquired many of the campuses of Corinthian Colleges, or a state school like Purdue, were so determined to take over what seemed to me to be toxic assets, for-profit chains with troubling records, reams of bad publicity, trails of law enforcement investigations, and cadres of employees trained via a predatory playbook. Why not, if they wanted to enter the career education space, start fresh? His answer: It would take 25 years to build up the kind of networks of campuses and programs these deals offered.

Clifford told me that he knew of four or five other non-profit groups now thinking about taking over for-profit college operations.

Accrediting Accreditors

In December, Obama’s Education Secretary John King issued a landmark decision, ending the Department’s recognition of the accrediting organization Accrediting Council for Independent Colleges and Schools (ACICS), which had been asleep at the switch for years while many of its for-profit college members, such as Corinthian Colleges, ITT Tech, Kaplan, EDMC, Career Education Corporation, Westwood, Globe, FastTrain, and Daymar, engaged in blatant abuses.

King’s decision, thus far, has been upheld in court, and, even though ACICS has just hired a new president and is seeking to stay in business, it appears, from the latest Department docket, published Tuesday, that ACICS and its for-profit college allies have not managed to get the accreditor a shot at reinstatement, at least not yet. That means ACICS-accredited schools that want to get get federal aid need to get serious immediately about finding new accreditors.

One hopes those other accreditors will feel pressure to demand strong accountability from these ACICS refugee schools, lest they themselves face heavier scrutiny from the Department; that was the kind of chain reaction King’s decision might have created, to the benefit of educational quality and, ultimately, student success.

Indeed, such new pressure on accreditors to demand quality may have helped convince the accreditor Middle States Council on Higher Education, two weeks ago, to reject, at least for now, EDMC’s plan to sell its Pennsylvania-based schools to the Dream Center, citing “insufficient information and evidence” to justify the takeover.

But DeVos’s stance on other regulatory issues puts the Department’s prior commitment in doubt, and ACICS could still try to get her to short-circuit the process and put it back in business.

Last month’s meeting of the Department’s outside advisory panel on accreditation raised further questions. The panel is now somehow chaired by Arthur Keiser, whose own conversion of his for-profit college to a non-profit that rewards him handsomely has raised serious concerns. The panel recommended, without much discussion, the renewal of an accreditor called the Distance Education Accrediting Commission, whose members include: (1) Ashworth College, which in 2015 was the subject of the FTC’s first case in many years against a for-profit college — to settle Commission charges that it misrepresented to students regarding the usefulness of its programs and credits, Ashworth agreed to undertake reforms and accept an $11 million judgment that was “suspended based on the institution’s inability to pay”; (2) Penn Foster, an online school (owned by private equity firm Vistria), which in 2015 agreed to pay $73,000 to settle claims by the Oregon attorney general that it misled a student about transferability of credits and about its accreditation; and (3) Grantham University, the beneficiary of the deceptive Army.com website I discussed above.

Resistance

During the Obama years, as for-profit colleges dug in, fighting fiercely against any and all accountability measures, an alliance of advocates for students — especially in government and in non-profits, buoyed by inspiring activism by former for-profit college students themselves — worked to investigate the facts, advance enforcement and reforms, and build public support for accountability. That work and that coalition-building is proving valuable now.

In addition to the state attorneys general fighting in court to protect the Obama-era rules, a member of the California legislature has introduced legislation to make the gainful employment rule standards part of California state law, which could force schools operating in California to comply with the mandates in the federal rule.

Iowa state regulators won a decision in state court this month to end Ashford University’s eligibility for GI Bill student aid for its online programs across the country. Promptly after that decision, Curtis Coy, the deputy under secretary for economic opportunity at the US Department of Veterans Affairs, sent a clear message to student veterans letting them know that G.I. Bill funding for Ashford was now done. “However,” Coy wrote, “you are free to pursue your education goals at another approved school or training facility.”

Ashford is owned by Bridgepoint Education which, until earlier this year, was the employer of that key DeVos adviser, Robert Eitel.

Members of Congress, including Senators Dick Durbin (D-IL), Patty Murray (D-WA), and Elizabeth Warren (D-MA), and Representatives Maxine Waters (D-CA) and Mark Takano (D-CA), have been stalwart fighters for students and against predatory colleges, and are objecting strongly now to DeVos’s rollbacks. The Consumer Financial Protection Bureau, still run (for now) by Obama appointee Richard Cordray, a dedicated public servant committed to the public interest, continues its work to protect student borrowers.

And non-profit groups are more determined than ever to advance policies that curb deceptive and abusive practices, policies that help steer federal aid to career education programs that help students, and away from programs that hurt them. Most notable right now is the strong advocacy of America’s veterans and service member organizations, 33 of which joined together to express opposition to DeVos’s delay of the gainful employment and borrower defense rules. These groups are working to defeat the plan by DeVos and her lieutenants to turn their backs on hard-working Americans.

This article originally appeared on Republic Report.