For-Profit College Reform: How Democratic Power Lobbyists Helped Water It Down

Part of the Series

Solutions

Last week, Charles Smith wrote in this column about the problems and pitfalls of for-profit colleges -including how their business plans took advantage of students and reaped billions of dollars in federal student loans, only to leave many students with heavy debt and often unusable degrees. In 2010, the Obama administration set out to get control of this industry, but found that some of their closest Democratic associates were hired to stop or at least water down some of the hard-hitting reforms. Other close colleagues actually had monetary investments in this industry and the administration was deluged with calls and meetings to curb the reforms. We will look at these political allies of President Obama this week. Next week, we will discuss the efforts by the Republican Party that make sure the for-profits colleges’ profits stayed high and deeply connected to the federally sponsored student loan program.

A December 2010 article in The New York Times laid out concerns that the Obama administration had with some of the practices of for-profit colleges and what rules they wanted to adopt to curb predatory practices:

The administration has already adopted several new rules that will give the Department of Education more authority over for-profit universities. But the most crucial rule, the “gainful employment” provision, is still awaiting approval and the industry is pushing back hard.

Under the provision, the education department would examine for-profit colleges and nonprofit trade programs to see how much debt their students accumulated in paying for schooling and whether the jobs they secured after graduation allowed them to repay their loans. Programs that had particularly high debt ratios combined with very low repayment rates could become ineligible for student aid.

The department calculated earlier in 2010 that about 5 percent of the programs covered under the proposed rule would be forced to shut down …

But high dropout rates at some of these colleges, difficulty in transferring credits, higher tuition bills than at public colleges and skepticism from some employers about the value of the degrees are all creating unease among some in Congress.

The industry fought back with many familiar Democrats who had gone to work as lobbyists or had investments in the for-profit college industry. Two of them, Anita Dunn and Jamie Rubin, have close ties to the industry. Dunn began to work for President Obama very early in his campaign and eventually became the White House communications director. Her husband, Robert Bauer, is not only the White House counsel, but is also the personal counsel to President Obama. Dunn left the White House to join a communications firm called SKDKnickerbocker and was representing the Kaplan company, owned by The Washington Post – the Post is heavily invested in the for-profit college industry with their troubled Kaplan University. Kaplan, which is mostly an online college, is being investigated for student recruitment abuses and especially for making misstatements to prospective students.

Jamie Rubin, the son of President Clinton’s former Secretary of the Treasury Robert Rubin, is a major fundraiser for the current Obama campaign, mainly through bundling many campaign contributions. He is also a senior partner in a private equity firm called BC Partners. One of the companies that BC Partners has investing in is ATI, a for-profit trade school college, which has been investigated by the State of Texas for abuse. He has also been meeting with administration officials to soften the new rules for for-profit colleges.

So, how did these well placed Democrats and others connected to the administration do in softening reforms on this very troubled industry?

On May 27, 2012, President Obama issued Executive Order 13607, entitled “Establishing Principles of Excellence for Educational Institutions Serving Service Members, Veterans, Spouses and Other Family Members.”.The order directs the Veterans Administration (VA) and the Department of Defense to develop standards for the education of veterans receiving government support. While this is a step forward, it is not a large step. A key part of the order directs compliance with the regulations issued by the Department of Education (34 C.F.R. 668.71-668.75, 668.14 and 600.9). A review of these integrity rules which the administration negotiated with an array of educational institutions, including for-profit colleges and their lobbyists, contain many loopholes which apply to all for-profit college activities, not just those recruiting veterans. Some are:

• Institutions must meet the “legally authorized” standard by July 1, 2011. The institution may request a one year extension and if necessary, a second one-year extension.
• States must have a process for evaluating complaints, accreditation issues etc, for a school to be authorized to receive Title IV funds. According to a study of the Rules by Florida State College, at Jacksonville “few institutions in eleven states will need to apply. The state has few if any regulations regarding distance education. The state may specifically exempt some types of public or private institutions.”
• Regulations define credit hour as an institutionally established equivalency that reasonably approximates not less than either; “one hour of classroom or direct faculty instruction and a minimum of two hours of out of class student work each week for approximately fifteen weeks or one semester or trimester hour of credit, or ten to twelve weeks for one quarter hour of credit, or the equivalent amount of work over and different amount of time”; or “an equivalent amount of work, established by the institution for other academic activities including laboratory work, internships, practica, studio work and other academic work leading to the award of credit hours.” Note the institution is in control of defining credit hours. It appears they only have to be consistent.
• While the new regulations prohibit a larger set of misrepresentations, a “misleading statement” is given a looser definition. A misleading statement is defined as including any statement that has the likelihood or tendency to deceive or confuse. A statement is any communication made in writing, visually, orally, or through other means. Statements by students through social media outlets or statements made by some entities with agreements for services. This appears to be another broad loophole.
• Gainful Employment rules were watered down to apply only to Non-credit Postsecondary Adult Vocational (PSAV) certificate programs of less than one year in length, Advanced Technical Diplomas (ATD) college credit programs of less than 30 credit hours in length, Advanced Technical Certificate (ATC) credit programs of less than 30 credit hours in length and College Credit Certificate (CCC) programs of less than 30 credit hours in length. The rules themselves seem more concerned with reporting requirements than actual results. Some parts of the rules will not have an impact until 2015. The department dropped a proposed rule that would have required schools seeking to start new programs to obtain prior approval in order to be eligible for federal aid; instead, schools will be required to notify the department, which can then seek more information if it has concerns. This was a major victory for the for-profits.

These 968 pages of regulations fall short of the expressed goals of the Obama administration of reining in the abuses found in the for-profit college sector. How did this result come to pass? Besides using the power connections of Dunn and Rubin, the for-profit institutions activated a large lobbying effort aimed at the administration. Former Democratic members of Congress, such as Dick Gephardt, former House majority leader, and John Breaux, the former Louisiana senator, contributed to the lobbying effort. Connected lobbyists such as Tony Podesta, whose brother, John, ran Mr. Obama’s transition team, also participated in the effort. Finally, prominent Democratic fundraisers such as Donald E. Graham, chief executive of The Washington Post Company, which owns Kaplan and John Sperling, founder of the University of Phoenix and a longtime friend of the House minority leader, Nancy Pelosi, worked their friends on the Hill. (The New York Times presented an excellent summary of these activities in a December 2011 article.)

Inside Higher Education reported in October 2010, when this lobbying blitzkrieg was reaching maximum intensity, how the Association of Private Sector Colleges and Universities (APSCU), the main lobbying organization for for-profit institutions, used the Podesta Group to get their point home to Democrats:

For the third quarter, APSCU paid $100,000 for federal lobbying to the Podesta Group, the same firm that played a key role in persuading several minority groups to speak out in opposition to the gainful employment regulations. By contrast, during the first quarter, APSCU spent $50,000 with Podesta. As the year has progressed, the association has spent more each quarter – from $160,000 during the first three months of the year to $450,000 in July, August and September….

Other for-profit lobbying showed:

• Career Education Corp., which runs American InterContinental University, Colorado Technical University and Sanford-Brown, spent $170,000 on federal lobbying services from Podesta Group.
• Corinthian Colleges has kept its lobbying spending pretty constant so far this year, with the company itself and firms Akerman Senterfitt and Gephardt Group Government Affairs together reporting $300,000 during the first and third quarters, and $310,000 during the second.
• Education Management Corporation – parent of Argosy University and the Art Institutes discussed in our first article – invested heavily in lobbying against the regulations. Five firms reported a total of $220,000 in third-quarter lobbying income from the company. Education Management is also one of a handful of publicly traded companies, along with ITT Educational Services, that have joined the Coalition for Educational Success, an advocacy group that emerged during the third quarter and counts as its spokesman Lanny J. Davis, who served as White House counsel to Bill Clinton. Four lobbying firms – including Davis’ – reported earning a total of $120,000 for federal lobbying during the third quarter.

Lanny Davis wrote a piece in The Huffington Post in October of 2010, which rather succinctly stated the position of the for-profits which had hired him:

As I wrote on September 23 in this space, here, the Department of Education’s (DOE) attempt to put more stringent regulations on for-profit colleges is an example of good intentions gone awry. Rather than expanding college opportunities and fighting fraud, the proposed new “gainful employment” (“GE”) rules would instead limit college access especially for minority students, raise taxpayer costs and create new obstacles for employers eager to hire qualified workers.

Playing the help-minority-students card, Davis wants to talk about “facts” in challenging any regulations that would limit his clients. Yet, the DOE study, examined in detail in our first article, showed that the facts about for-profits demonstrate a dismal record of educational success by their students and especially minority students left with massive debt and often no degree or certificate that can get them a job.

Democratic politicians are not always just responding to the lobbying of their former colleagues. Some have developed relationships with specific for-profit companies operating in their states and districts. For example, Alcee Hastings (D-Florida) has been a strong supporter of for-profit colleges, especially FastTrain College in Florida. On May 16, 2012, the FBI raided the college, reportedly based upon allegations of deceptive and otherwise questionable sales and marketing practices. This is similar to the practices we can observe in much of the for-profit college industry.

David Halperin has done excellent reporting on this issue at the Republic Report. He reported:

FastTrain CEO Amor has donated $5,000 to Hastings’ campaign in this election cycle. Hastings has received this cycle at least $35,000 in donations from for-profit college companies and officials, including Apollo (owner of University of Phoenix), DeVry, Keiser, Bridgepoint, Education Management Corp., Full Sail University, Corinthian and the trade association APSCU. (FastTrain is an APSCU member.)

Hastings was the commencement speaker at the first FastTrain graduation and the school gives a leadership award in his name.

The trade association, Association of Private Sector Colleges and Universities (APSCU), also relies on political connections to perform its services to the for-profit college industry. Virginia Democratic Party Chairman Brian Moran – brother of Rep. Jim Moran (D-Virginia) – is the executive vice president for government relations and general counsel of the APSCU. APSCU was successful in convincing the DOE and Congress to water down proposed regulations in the 90/10 rule and the Gainful Employment (GE) rule (discussed last week.) This is obviously an intra party issue when the chairman of a state Democratic Party lobbies to stop Obama administration initiatives.

One would usually suspect that the Republican Party with its fervor for all for-profit industries and is loathing for any government regulation would be front and center in softening any reforms attempted by the Obama administration. And, as we will discuss in next week’s column, they have lived up to their reputation and heavily lobbied and engaged in influence peddling to thwart any meaningful reforms. However, the Democrats, some who were intimately close to the Obama administration and the president himself, also participated in this Republican type of rejection of rules that were designed to prevent this lucrative industry from defrauding and misleading desperate students and veterans who were trying to enhance their ability to find jobs in this poor economy as well as to protect the federal student loan program from abuse. This type of lobbying by the Democrats will continue until they are exposed and shamed for influence peddling and making money on what is usually a Republican philosophy of no reforms or regulations.