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In Victory for Corporatized Education, Federal Court Strikes Down Regulation of For-Profit Colleges

The assumption behind the rules and regulations promulgated by the Department of Education (DOE), headed by Arne Duncan, were that the

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On Saturday, June 30, 2012, Federal Judge Rudolph Contreras of the Federal District Court, released a judicial judgment regarding the “gainful employment” regulations that were to go into effect Sunday, July 1, 2012, in an effort to govern for-profit colleges and universities.

The assumption behind the rules and regulations promulgated by the Department of Education (DOE), headed by Arne Duncan, were that the “gainful-employment portion of the regulations” (GER) would prevent for-profit colleges – which siphon off up to 90 percent and sometimes more of their revenues from federal student loans and Title IV funds – from leaving students struggling with huge debt loads and questionable credentials that do little to help them in landing jobs when they graduate.

Education as a Human Right and Human Good or Education for Sale?

That official underlying educational assumption that has now become cemented into our corporate culture is that students go to school to “earn” and not to “learn.” In fact, learning is now structured as little more than an instrumentalist project, promoting the idea that any education under modern state capitalism must be relevant to work only.

The DOE’s “gainful employment regulations” were designed to regulate the “exchange value” aspect of education, the buying and selling of commodified college degrees to be cashed in at the casino cage of the failing “free” market economy for low-paid, precarious wage labor. Education as a liberatory activity designed to encourage a contemplative life is of little interest to the DOE, nor to the commercialized culture within which it finds itself.

Among the many problems with this perspective is that it boils education down to a sickening roux of preparation for future economic activity that not only reduces education to nothing more than a mere commodity to be bought and sold, but also tethers education to failing capitalist economies, which are now owned and operated by multinational corporations in partnership with neoliberal governments.

The Court’s Decision With Respect to the Gainful Employment Rule

Leaving the philosophical, moral and ethical aspects of critical education and authentic learning aside, it is important to understand the history of the gainful employment regulations.

The controversy began in 2009 to address concerns and arguments that students graduating from for-profit colleges were not being prepared for jobs when they graduated and were, furthermore, leaving school with onerous debt they might never be able to repay. In 2009, the DOE seized on the moment and began drafting new regulations with the enounced goal of disqualifying for-profit schools with higher-than-average default rates on student loans from getting their hands on more federal monies.

The Obama administration first hosted a “study committee” to deal with the issue, but the commission was unable to reach consensus on what to do about the concerns and arguments from for-profit representatives and their lobbyists. As a result, the Obama administration imposed the new gainful employment regulations in 2010.

What the Gainful Employment Regulations Were Designed to Do

The DOE’s “gainful employment regulations” initially established a three-pronged test for for-profit colleges and universities that would determine their eligibility to receive public taxpayer subsidies – which is how they make upward to 90 percent or more of their revenues. These colleges notoriously privatize profits and socialize costs, an activity sometimes referred to as socialism for the rich.

Unfortunately, throughout the battle that ensued between the for-profit colleges and the DOE, the regulations were ultimately so watered down that to comply with the new gainful employment regulations, all the for-profit colleges had to do was pass “one prong” of the three-pronged test within three years to continue feeding from the public trough with impunity. So, the DOE initially set up a three-pronged test for the for-profits, but then, under pressure from the industry, they capitulated, agreeing that any for-profit college or university would only have to pass one of the three prongs to qualify for funds.

One prong of the test stated that at least 35 percent of graduates from the for-profit colleges had to be paying back their student loans in order for a for-profit to continue to receive federal funds. Another prong put in place a regulation specifying that typical for-profit graduates’ estimated annual loan repayments must not exceed 12 percent of the graduate’s earnings. Finally, the third prong established that when repayments on student debt do not exceed 12 percent of the graduates’ earnings, then they must also not exceed 30 percent of discretionary income.

The for-profit college and university sector went ballistic when they learned of the proposed DOE rules in 2009 and immediately went on a corporate wilding spree, spending millions and millions of lobbying dollars to assure that the “gainful employment act” would never pass.

Donald Graham, CEO of Kaplan University, the main source of revenue for the failing Washington Post, spent more than $4.5 million on lobbying during the first three months of 2011 alone ((12) Lewis, N., (April 27, 2011) “For-Profit Colleges, Allies Spend $4.5 Million Lobbying Against Gainful Employment,” Youthtoday).

The game is so rigged, that the for-profits like Kaplan can’t lose. If their influence peddling fails, they give the bill for the costs to the taxpayers. If their influence peddling is successful, they give the bill for the costs to the taxpayers via access to federal student loan monies.

APSCU Files a Lawsuit Looking to Overturn the Gainful Employment Regulations

The Association of Private Sector Colleges and Universities (APSCU), a private “union” made up of for-profit colleges and universities numbering more than 1,500 member institutions, filed a lawsuit in the federal District Court in Washington, DC, on July 11, 2011, that sought to block portions of the DOE’s October 29, 2010, final regulations, codified as 75 Fed. Reg. 66,832.

The APSCU claimed that portions of the gainful employment act imposed unlawful and unfair limitations on access to higher education. Their argument, seemingly clothed in empathy and concern for students, belied their true aim – which was to rid themselves of any pesky regulations issued by any government agencies so they could continue preying on students and boosting their own stock prices.

Judge Contreras ruled that the 35 percent of alumni debt repayment clause of the three-prong test had no basis in fact and as such, could not be codified into law. In his judgment, issued Saturday, the 30th of June, he stated in part:

“No expert study or industry standard suggested that the rate selected by the department would appropriately measure whether a particular program adequately prepared its students. Instead, the department simply explained that the chosen rate would identify the worst-performing quarter of programs. Why the bottom quarter? Because failing fewer programs would suggest that the test was not ‘meaningful’ while failing more would make for too large a subset of programs that could potentially lose eligibility.”

What the court said was reported best in Forbes online, which heralded the decision as a victory for the APSCU:

“The judge said a test that would have eliminated the bottom 25 percent of schools from student-loan eligibility was ‘arbitrary and capricious’ because it wasn’t based on any economic studies suggesting students from those schools had a harder time finding jobs.”

As an attorney, it is easy for me to see why the judge ruled as he did. The sheer vagueness, ambiguity and capriciousness in arriving at the 35 percent figure were glaringly apparent. Evidently, the attorneys for the DOE forgot a cardinal rule when writing regulations: every term must be spelled out, and criteria for how one arrives at conclusions to come up with numbers such as 35 percent must be well thought out in advance in anticipation of the need to advance rational arguments in defense of the position for the court. By failing to define how the DOE arrived at the 35 percent figure, the DOE fell right into the trap of ill-definition that haunts most first year law students.

Writing for Republic Report, reporter David Halperin disagreed with my and Forbes magazine’s analysis. He does not see the judge’s ruling as a victory for the for-profit college and university sector; nor does he see it as a loss to the current and potential students that might wander into the halls of the for-profits. Writing after the decision, Halperin stated:

“The decision came in a lawsuit brought by APSCU, the largest trade association of for-profit colleges and no doubt the wealthy for-profit education companies that dominate APSCU are excited. But if government officials act appropriately and citizens speak up and get engaged, this ruling won’t be more than a minor setback in the effort to protect students and taxpayers from the abusive, predatory practices of many for-profit schools.”

Halperin goes even further, arguing:

“I think it’s fair to say that the third prong was based on common sense. If two-thirds of a program’s former students – graduates and dropouts combined – can’t pay back their loans, that suggests that the program isn’t providing sufficient training to help students build careers.”

The third prong he is referring to is that portion of the regulation struck down by the court that stated that 35 percent of graduates from for-profit colleges must be paying back their student loans in order for the college or university to maintain eligibility for federal monies.

The unsettling fact is that students from all kinds of colleges and universities are finding that, with or without credentials, there are virtually no jobs awaiting them when they graduate college and, consequently, they are defaulting in record numbers on their loans. The amount of student loan debt is not even serviceable by most students, let alone payable (The Bureau of Labor recently reported that only 54.3 percent of adults 18-24 are employed, making it the lowest level of employment since the government began tracking data in 1948.) There is no hard evidence for the assumption that the problem of escalating student loan defaults is limited to for-profit colleges and universities exclusively, though admittedly their defaults are high. The problem is that there is simply no work.

Joey Reynoso, student vice president at California Riverside City College, one of the 112 junior or what were once called “community colleges” in the state, perhaps said it best:

“Every day I sit in my math classroom, there’s something on the wall either telling me to join the Marines or go to the University of Phoenix.”

Reynoso understands what Halperin misses. With decades of decimation of public higher education through fiscal starving, there simply are more students than classes and the money to pay for them. This means that more and more students are finding not only that there is no affordable and accessible public education, but also that there is virtually no civil life.

As a society, we should be assuring that public money goes to public colleges and universities, not for for-profit education, Wall Street traders and hedge fund operators. We also must avoid picking up the costs of litigation against these for-profit behemoths that use our public money to satisfy the avaricious interests of their owners or investors.

I have a great deal of respect for the work of Halperin and can empathize with him in his attempt to put lipstick on a pig at a time when students are experiencing Dickensian lives of nightmarish proportions; however, this ruling by the DC court must be contextualized, for it falls on the heels of two other important recent rulings by the Supreme Court which further engrain corporate control and dominance over basic human utilities like education – enshrining corporate money as speech and defining what constitutes a “tax” for corporate health care purposes. Knowing that the for-profit union, APSCU, will spend literally millions and millions of taxpayer monies to influence the courts and the coin-operated politicians aligned so closely with them, this ruling cannot be seen as anything but a victory for the APSCU and its members. It is another loss for students.

As proof for my contention that the federal court decision was a victory for the for-profits, I offer the following: Shares in DeVry, Apollo Group and Corinthian Colleges, all down in recent months, jumped on the news.

Devoid of a clear criterion to define terms and set regulations on for-profit college practices, how can a lawyer in court make a plausible argument to do so? It is doubtful the DOE will get another whack at the ball – and if they do, it seems implausible that they could come up with a criterion to support any numeric criteria that would satisfy the DC court. Even if they accomplished the impossible, you can be sure the for-profit colleges and universities in the form of APSCU would be saddled up with your tax money poised to defeat them.

I also agree to some extent with Halperin’s statement that:

“The whole public debate has brought media scrutiny and helped educate citizens about the predatory practices of the for-profit college industry. For-profit colleges were able to reap enormous profits in a decade when the Bush Administration turned a blind eye to evidence of extensive waste, fraud and abuse with federal money.”

This is certainly partially true. But let’s not forget about ordinary citizens parasitically preyed upon by these colleges, students who created web sites to fight Kaplan and other predatory colleges; nor should we dismiss the work of that circulated petitions against Kaplan University; then, there is the Government Accountability Office that investigated the for-profit colleges along with many reporters who dug into the issue for years – exposing criminal fraud. There are the courageous whistleblowers and state attorneys general, who have forced citizen awareness of the depth of the crimes of many of these for-profit colleges by “trickling news up” at a time when the corporate press failed to show any interest in the issue, mostly due to the revenues it receives from the for-profits that pay to leave their graffiti on every venue possible.

Other than the disclosure provisions of the gainful employment regulations which the judge left in place, i.e. that for-profit colleges and universities must disclose their graduation rates, their placements rates and their students’ median debt load (basically a “warning label” on an educational product) to students, the DC court decision is one that would be expected as all of life becomes more and more privatized and corporatized. Now, there is nothing in the way of the for-profit colleges to get their hands on government funds at accelerated rates, even though “gainful employment” remains virtually nonexistent in America, and government funds continue to pay for the mushrooming defaults that have forced many students into suicide.

You Can’t Regulate a Criminal Activity

Back in September 2010, Truthout published “Neoliberalism and the For-Profit, Predatory Educational Industry: You Can’t Regulate a Criminal Enterprise.” In that article, I argued that the for-profit sector of the economy that constitutes 10 percent of US colleges and at the same time are responsible for half of all default rates, cannot be regulated. I claimed then, as I do now, that these schools operate like criminal enterprises that prey on low-income, mostly minority, students who cannot get into public institutions for myriad reasons.

It is important to reiterate the reasoning once again for Halperin rightly alludes to the Bush years when for-profits were given the green light to steal. As I wrote back in 2010:

“Beginning in the Bush years, or actually before, the neoliberal state worked diligently to provide the material conditions allowing the enormous growth of education for profit. In doing so, it has now created its own Frankenstein of debt and default that picks the pockets of ordinary taxpayers. The for-profit industry, armed with billions of dollars and working off the disaster economics that has left the public sector unable to keep libraries open, let alone provide a decent opportunity for students to gain universal access to education uses lobbyists and private firms to fight Washington tooth and nail against any proposed regulations. But this is hardly the point. For the regulations promise to leave intact a criminal enterprise that is not just a collection of bad apples, but a rotten barrel of despair, financial ruin for students and the source of costs that will be thrown on the backs of ordinary Americans as students find there is no “gainful” employment under the economic policies of austerity. What all this means is that taxpayers may be on the hook for close to one trillion dollars or more.”

Unfortunately, this all turned out to be true. The ruling by Judge Contreras of the Federal District Court will now assure rising rates of debt and default.


Navigating the world of higher education under the neoliberal regime has become nearly impossible for students and especially low-income working students. State colleges and community colleges, stalwart public educational institutions that for decades have provided affordable conduits to student careers and an educated citizenry have been decimated by budget cuts, social policies designed to minimize education. State and local support for community colleges on a per-student basis declined by 8 percent in 2009, down significantly from a decade earlier, according to DOE statistics compiled by the Delta Project, a nonprofit research group that studies higher education spending. This has created the material conditions for private takeover of the educational means of production.

In the eyes of those who support the growth and expansion of public education, sub-prime for-profit colleges are the inevitable outgrowth of a hustler society, one that simultaneously rewards those with “degrees and diplomas’, while eliminating support for public institutions and more importantly for public education.

Michele Siqueiros, executive director of the Campaign for College Opportunity, a state of California higher education advocacy group put it this way:

“The reality is that there is huge demand and we’ve not supported our public colleges and universities to meet this growth in demand. Students are in dire need of making sure that colleges can offer courses at a time that’s feasible for them and colleges that give them a very clear prescription for particular career pathway. Many of these for-profit colleges and universities advertise just that.

In testimony on Capitol Hill and in media interviews, the for-profit colleges and universities have emphasized in their public relations that their schools welcome the least advantaged, hardest-to-educate students: people from low-income households, minorities, veterans and first-generation college students. They actually say they are providing needy students a favor.

While for-profit colleges do indeed enroll more low-income and minority students than other institutions, this is due to the decimation of the public commons and, specifically, opportunities for enrollment and completion at state colleges and universities for low-income and minority students that Siqueiros spoke to. For-profit colleges and universities welcome the least advantaged due to the fact they are the most exploitable and economically vulnerable. Think about it: Remember a time when private colleges were assumed to be for the “rich”? Now, they have largely morphed into schools for the poor, deracinated, marginalized and disadvantaged.

If America, like most industrialized nations, had no-cost universal access to public institutions of higher learning for all students, there would be no need for private colleges that cater to the poor and disenfranchised. But this will involve more than a court battle. It will necessitate that an informed and active citizenry force the Department of Justice, the state attorneys general and the Security and Exchange Commission to begin to do their job of prosecuting those persons and organizations responsible for breaking US law. Until this happens, there will be nothing but more and more lawyer fees, lobbying costs, court cases and student suicides. All items the for-profit schools look at as “the cost of doing business.”


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