For-Profit Colleges Are Bankrolling Romney to Keep Student Loan Money Flowing

Part of the Series

Solutions

On April 23, 2012, The Des Moines Register reported that the average debt for an Iowa college graduate in 2011 was nearly $30,000. However, “(a)t University of Phoenix in Des Moines, it was about $50,000.” This coincides with the data compiled national by the Department of Education discussed in our last article.

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The Register continues on to demonstrate what students receive for that high debt. “At one congressional hearing, a career services adviser from a for-profit school talked about being pressured to call former students and persuade them to sign forms stating they were using the skills learned in school at their current jobs. One ‘game art and design’ student was paid $8.90 an hour working in the video game department at Toys R Us. He had incurred $100,000 in student loan debt getting his degree.”

In November 2010, the General Accounting Office (GAO) issued a report based upon an investigation by undercover agents at for-profit institutions. The GAO sums up its findings in this manner:

Undercover tests at 15 for-profit colleges found that four colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO’s undercover applicants. Four undercover applicants were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid – for example, one admissions representative told an applicant to fraudulently remove $250,000 in savings. Other college representatives exaggerated undercover applicants’ potential salary after graduation and failed to provide clear information about the college’s program duration, costs, or graduation rate despite federal regulations requiring them to do so. For example, staff commonly told GAO’s applicants they would attend classes for 12 months a year, but stated the annual cost of attendance for 9 months of classes, misleading applicants about the total cost of tuition. Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options.

How is this state of affairs allowed to continue? Since the for-profit business model is based upon federal student loan money, the schools engage in lobbying, campaign contributions, and other efforts to influence the government to keep the money flowing. The Education Management Corporation (EDMC), parent company of several for-profit educational institutions, has a government affairs department with a long web site page. They state, “The EDMC government affairs team works on a variety of issues to promote a policy environment that helps EDMC students and the institutions they attend thrive.” As we have seen in our earlier reports, the owners of the institutions are thriving much better than the students. The issues on which these institutions lobby are those which would adversely affect their cash flow. Some of their positions (from the EDMC web site) are:

• EDMC encourages Congress to replace the Gainful Employment and 90/10 Rules, and other laws and regulations applicable only to proprietary colleges and universities, with meaningful measurements of student success applicable to all of higher education.
• Changing federal law to count GI Bill aid along with Title IV aid under the 90/10 Rule would force high-quality proprietary institutions to shift away from providing access to the military student population. Rather than being a “loophole,” the current treatment of GI Bill aid under the 90/10 Rule allows much needed access for our country’s military to the colleges and universities of their choice. (Under current law the money provided to active military members and veterans through the tuition assistance program and the GI Bill do count toward the 10 percent, as if it were private money.)
• EDMC does not support changes to the Pell program that would create different standards for students attending proprietary colleges and universities, which would limit access to higher education for low-income students.

The lobbying goals of EDMC are to eliminate the minor restriction that 10 percent of their revenue must come from other than government sources, and that their students should graduate with a reasonable debt/wages ratio. They want unrestricted access to GI Bill money and the ability to use their recruiting techniques to place veterans in the same position as their low-income students: high debt and low pay. Finally, they want unfettered access to Pell Grant money.

The Apollo Group, which owns the University of Phoenix, along with other institutions, noted in its annual report another issue for the company. Revenue in the first quarter of 2012 was down from last year and enrollment only increased by 1 percent. What caused this downturn? Apollo group explains it in this manner:

Although University of Phoenix New Degreed Enrollment increased 1.0 percent in the second quarter of fiscal year 2012 compared to the second quarter of fiscal year 2011, we believe it has been impacted by changes in marketing content and channels to better identify potential students more likely to succeed at University of Phoenix, by changes in economic conditions and, in particular, an improving U.S. labor market, as well as by a continuing robust competitive environment.

An improving economy and labor market are bad for business at the University of Phoenix.

What do they do about this? Apollo Group has formed its own political action committee (PAC), the Apollo Group Inc. Political Organization for Legislative Leadership. Their financial details report for 2008 (the latest report available) showed receipts of $213,259. They made disbursements of $177,750, all in the form of donations to other committees, which are shielded from disclosure.

The principles of Apollo Group have ample reason to contribute to this PAC. The president of the University of Phoenix had total compensation in 2011 of $2,035,470. It is interesting that this number is found on a web site which lists chief financial officer pay. Most of the University of Phoenix principles have financial backgrounds, having worked for Price Waterhouse Cooper (Joseph L D’Amico, president Apollo Group, Inc.; and Charles B. Edelstein, director, co-chief executive officer Apollo Group, Inc.); Deloitte & Touche (Stephen J. Giusto, president Apollo Educational Services); and Credit Suisse (Gregory W. Cappelli, director, co-chief executive officer Apollo Group, Inc., and chairman, Apollo Global, Inc.; and Charles B. Edelstein, director, co-chief executive officer Apollo Group, Inc.).

Beyond the president of the University of Phoenix, there is little educational background at Apollo Group. They are basically a financial institution aimed at channeling federal student grants and loans to their stockholders and managers.

One of their favorite members of Congress is Virginia Foxx (R-North Carolina), who serves on the Education and the Workforce Committee along with the powerful Rules Committee. Among her major contributors were Bridgepoint Education and Keiser University, both for-profits. Apollo Group and the Association of Private Sector Colleges/Universities (a for-profit lobbying group) helped make education her second-largest donor category. For this, they received her sponsorship of the bill H.R.2117: To prohibit the Department of Education from overreaching into academic affairs and program eligibility under title IV of the Higher Education Act of 1965. This bill would prohibit the secretary of education from issuing any rule defining the term “Credit hour.” Who will this prohibition help? The for-profits, which play fast and loose with what counts as a credit hour at their institution, especially for purposes of keeping students eligible for more federal loan money.

Foxx is well known for stating on the G. Gordon Liddy radio show:

I went through school, I worked my way through, it took me seven years, I never borrowed a dime of money. He [her husband] borrowed a little bit because we both were totally on our own when we went to college, totally…. I have very little tolerance for people who tell me that they graduate with $200,000 of debt or even $80,000 of debt because there’s no reason for that.

Of course, that was in 1968 when an education at her alma mater the University of North Carolina at Chapel Hill cost in constant dollars approximately $46,100 for seven years (even less expensive if she had done it in the standard four years). That same education now would cost more than $140,000. So, the Congresswoman received a low-cost public education and would like to deny that opportunity to today’s students in favor of much higher cost and lower value for-profit education, provided by her campaign donors. Foxx just cannot understand why students are incurring these substantial loans these days. She is also quite glad to take the money from her for-profit education donors, which originate in those student loans.

Foxx is also fighting the Obama administration’s removal of lending institutions from some student loan programs. This policy has removed the middleman, administrative costs and profits from the program, freeing up more funds for actual loans. To Foxx, this is nationalization and must be stopped.

The Sunlight Foundation Influence/Explorer web site tracks political contributions and has data for for-profit educational institutions in the 2011-2012 election cycles. This data show the industry support for key Republican legislators, their super PACs and the Republican Party. Examples are:

What do these organizations get for their money? Chris Kirkham reported at The Huffington Post on two examples:

Rep. John Kline (R-Minn.), who chairs the House Education and the Workforce Committee, received more than $40,000 in campaign contributions during the last election cycle. His political action committee, the Freedom & Security PAC, received an additional $35,000. Kline was instrumental in introducing the legislation in the House that aimed to block the gainful employment rules, and led the effort earlier this month to have the prohibition included in the budget bill.

Rep. Howard “Buck” McKeon (R-Calif.), another longtime member of the education committee, received more than $20,000 from the industry in his personal campaign and more than $65,000 to his political action committee, the 21st Century PAC. While McKeon was serving on the committee during the Bush administration, he owned stock in one company, Corinthian Colleges Inc., at the time the restrictions on online programs were being lifted. [See Dina Rasor’s past column on how defense contractors gave money to McKeon’s wife for her state legislature campaign.]

In 2007, Corinthian Colleges paid a $6.5 million fine and provided restitution to students to settle a deceptive practices suit filed by the state of California. The lawsuit charged Corinthian with misleading prospective students about its schools’ job placement rates and the starting salaries of their graduates, running 11 substandard programs and falsifying records provided to the government. Sound familiar?

Like most lobbying campaigns, these people and institutions have given money to Democrats, as we reported last week, but they have a more cozy financial relationship with the Republican Party. The Association of Private Sector Colleges and Universities almost always gets unanimous support for their interests from Republicans in the House. In 2011, a bipartisan group in the House pushed through a rider to restrict the Department of Education’s ability to implement common-sense regulation such as the 90/10 Rule and the gainful employment provision (described in our first article.) The Democratic Senate killed this attempt.

The EDMC has had its own in-house lobbying person for several years. The Chairman of the Board of Directors is John R. McKernan Jr., who previously was the company’s CEO. The former Congressman and governor from the state of Maine is married to Sen. Olympia Snowe.

According to Senator Snowe’s most recent financial disclosure form, she and her husband have investments worth between $2 million and $10 million in EDMC. EDMC is now embroiled in a lawsuit in which the federal government, 11 states and the District of Columbia are seeking to recover a portion of the $11 billion in federal student aid that the education firm has received since July 2003.

This suit was originally filed under the qui tam Federal False Claims statute by whistleblowers in the company. The lawsuit alleges that the company violated a federal law that prohibits schools from paying admissions officers based on the number of students they recruit and enroll. Again, we see the pernicious business model of using boiler room marketing tactics to obtain more and more federal money. The education appears to be just a minor part of this model, the hook that makes the cash flow.

The Justice Department intervened on August 8, 2012. In its complaint, the Justice Department alleged that Education Management Corp. submitted “knowingly false, misrepresented, and/or improper certifications” to the Department of Education, stating that it did not offer enrollment incentives to its admissions officers. Without those certifications, students enrolling at the company’s schools would not be eligible for federal financial aid.

In 2009, the Apollo Group, the parent of the University of Phoenix, settled a suit with the Justice Department for about $67 million. This suit also began as a qui tam suit brought by whistleblowers. who served as recruiters for the university. They claimed they were paid incentives for the number of students recruited, which is counter to Higher Education Act (HEA) provisions. Unfortunately, the settlement was lower than expected, involved no admission of wrongdoing and contained a Department of Education agreement not to pursue further actions against the University. Apollo stock rose on news of the settlement.

Education Management Corp’s SEC filings state, “Most of the students at our U.S. schools rely, at least in part, on financial assistance to pay for the cost of their education. In the United States, the largest sources of such support are the federal student aid programs under Title IV of the HEA. Additional sources of funds include other federal grant programs, state grant and loan programs, private loan programs and institutional grants and scholarships.” Later in the filing, the company states that total federal Title IV aid was $2,607,100,000. This amounted to 74.3 percent of gross cash receipts and slightly over 90 percent of net revenue. It is no wonder that Goldman Sachs engineered a private equity buyout of this company in 2006.

The two Bush administrations were good friends to for-profit education. The first Bush Education Secretary, Rod Paige, went through the revolving door after his public service and founded Chartwell Education Group along with his Chief of Staff John Danielson. Their goal appears to be to cash in on the No Child Left Behind program he helped put into place by advising state governments on how to comply. The consulting group also advises for-profit education on accreditation issues. Businessweek reported that Chartwell lobbied on behalf of the Apollo Group.

Margaret Spellings, the second Bush secretary of education, founded Margaret Spellings and Company when she left government to pursue the same general goals as Mr. Paige.

In the second Bush Department of Education, the Assistant Secretary overseeing higher education in Washington was Sally Stroup, a former lobbyist for the University of Phoenix, the largest of the for-profit college corporations. She left the administration in 2006, and became a top aide for the House Education and Labor Committee, now known as Education and Workforce. She is now the deputy general counsel at Scranton, a software company that provides educational assessment programs.

Current House Speaker John Boehner (R-Ohio), then the chairman of the lower chamber’s education committee, worked on past legislation that removed restrictions on federal student aid flowing to online college programs, which are mainly for-profit programs. In return, as you see from the chart above, they supported his bid to be speaker of the House.

Mitt Romney is also on board with for-profit schools. Rod Paige of Chartwell is one of his advisers as is Nina Rees, senior vice president for strategic initiatives at Knowledge Universe, a company controlled by financier Michael Milken and his brother, Lowell. Knowledge Universe is an investor in K12 Inc. (LRN), the largest US operator of online charter schools.

Another one of Romney’s top education advisers is William D. Hansen, who has lobbied extensively for for-profit schools, as reported by Andrew Leonard for Salon. As a deputy secretary of education under George W. Bush, Hansen is well known in the higher education community for issuing a directive promising that the Bush administration would relax the enforcement of rules meant to crack down on student enrollment recruiting abuses at for-profit schools.

In an earlier Truthout article, David Halperin pointed out that Romney has pledged to eliminate the “gainful employment” rule and the 90/10 rule, thorns in the side of the for-profit college companies like the Apollo Group and EDMC, which are donors to his campaign. Halperin writes:

On the campaign trail, Romney has pointed to a for-profit college, Florida’s Full Sail University, as an innovative, cost-effective leader in higher education. Never mind that Full Sail has sky-high prices and, at best, a mixed record when it comes to helping students. Romney did not inform voters that his campaign and Super PAC have received nearly $100,000 from Full Sail CEO Bill Heavener and from C. Kevin Landry, chairman of TA Associates, the private equity firm that owns Full Sail.

Nor did Romney tell voters about the private equity fund Solamere Capital, which is run by Mitt’s son Tagg Romney and Spencer Zwick, who also serves as the top fundraiser on the Romney campaign staff. Solamere was launched with a $10 million investment from Mitt and Ann Romney, and Mitt also has provided strategic advice. Solamere Capital offered its clients a stake in TA Associates, which owns not just Full Sail but a number of for-profit schools, including troubled Vatterott Colleges, marked by exploitative recruiting practices and high student loan defaults.

Note the contributions in the chart, above, made by Heavener to Restore Our Future. This is a super PAC dedicated to seeing Mitt Romney elected President. According to the latest Federal Election Commission filings, as reported by OpenSecrets.org, Mr. Heavener’s contributions to this pro-Romney PAC are up to $135,000. What could he expect from this investment? Elimination of regulations and perhaps protection from Federal lawsuits such as those at Apollo and EDMC would be a good return on the investment. A Romney presidency would be very good for Heavener’s Full Sail, the for-profit education industry and for the investments of his son Tagg.

One of the most important ways to ensure that federal funds support legitimate higher education opportunities, especially for lower income students, is to maintain a strong state community college and university system. Advisers at these institutions are not compensated based upon how many new enrollments they arrange. Their No. 1 priority is to help the students get an education. The community colleges generally offer a variety of courses from the basic first two years of college to vocational courses in culinary, design and even truck driving. Often these colleges and universities have programs designed to ensure that credits will transfer to other adjacent state systems and most private nonprofit colleges within the state. In this way, they provide additional value to their students.

Unfortunately there is great pressure at this time to cut back on state educational funding. The for-profit schools have an incentive to lobby for these states’ “austerity” programs to cripple their competition – public colleges. There have been efforts to resist these cutbacks in one of the most valuable public goods the states can produce, educated citizens. The fight will be a tough one, however, because the public colleges are competing with well-financed for-profit colleges and the attitude of the Republican Party toward the privatization of most aspects of government.

Danny Weil reported at Truthout on May 30, 2012, on the intense lobbying attack on public community colleges. With states beset by financial problems and often with Republican governments dedicated to reducing state services, community colleges are an inviting target. Reducing public education has, of course, the “benefit” of forcing more students to look to the for-profits for an education. As Mr. Weil points out, this lobbying effort is fraught with conflicts of interest. When The Washington Post prints an op-ed attacking community colleges, it should inform readers that most of its corporate revenue comes from Kaplan University and Kaplan Prep, two for-profit institutions. When PBS attacks community colleges, most listeners do not know that, “The Washington Post executive Boisfeuillet (Bo) Jones Jr. became president and CEO of MacNeil/Lehrer Productions back at the end of 2011. Jones now produces the ‘PBS Newshour.'”

With the attack on the public colleges, the well-lubricated money flow of federal student loans to for-profit colleges and their bankrolled Republican politicians in and out of the government, the for-profit colleges look like they will continue to have a lucrative business. This business as usual won’t change until someone, perhaps the potential next Obama administration, cracks down harder on the almost unlimited access to the federal student loan program and their fraudulent schemes to recruit some of the more desperate students in these tough economic times.