For-Profit Schools don’t like the new rules.So they sue the DOE
The Association of Private Sector Colleges and Universities (APSCU) [official website] on Friday filed suit [complaint, PDF] against the US Department of Education(DOE) [official website] in federal court seeking to overturn three regulations promulgated by the department. The challenged rules are a part of the DOE’s final regulations [text, PDF] adopted in October. One rule challenged by the suit would stop deceptive advertising by schools. Another bars recruiters from being paid based on how many students they enroll. A third specifies minimum steps a state must take to authorize post-secondary programs that participate in federal student aid programs. In the complaint, filed at the US District Court of the District of Columbia [official website], APSCU claims the DOE’s final regulation’s violate both the Higher Education Opportunity Act [text, PDF] and the Constitution. Additionally, the complaint accuses the DOE of not granting private sector schools adequate representation during the negotiation rule-making process. APSCU claims that the DOE rushed the regulatory process for proposals that they knew would not be well-received in order to implement a desired outcome irrespective of the concerns of the stakeholders and the public. The DOE has not yet responded to the complaint.
The new regulations are a part of a larger federal crackdown on for-profit schools that are accused of graduating poorly educated students with high student-loan debt. A report [text, PDF] released by the USGovernment Accountability Office (GAO) [official website] accused for-profit colleges of promoting fraudulent practices so their students could acquire federal aid, exaggerating potential salary after graduation and failing to provide clear information about costs and duration of programs. Additionally, a 2009 GAO report found that for-profit college students were more likely to default on federal student loans than were students from other colleges.
Over the last decade, enrollment in these colleges surged by 300 percent 1.5 million—ten times the rate of all post-secondary programs. Their coffers also grew quickly. During the past 10 years, the industry’s revenue has ballooned from $9 billion to $29.2 billion, according to BMO Capital Markets.
Much of this spectacular growth, however, has been funded by taxpayers.For-profit schools are private businesses, but finance their operations primarily with public dollars coming by way of federal student aid.While these schools enroll roughly 10 percent of all higher education students, they receive 24 percent of public funds. In 2009, that amounted to more than $24 billion.Moreover, the schools benefit from other forms of government aid— including money from Department of Defense, Department of Veterans Affairs and various state programs. In the last four years, combined VA and DoD education benefits received by for-profit education companies increased 683 percent to $521 million.At many for-profits schools, like University of Phoenix, part of the Apollo Group,federal loans and grants now account for almost 90 percent of revenue.The business model built around taxpayer subsidies has allowed not only for impressive growth of for-profit education companies, but also for impressive compensation for their executives, critics argue.*snip*A recent report from Education Trust, an influential Washington think tank, equated for-profit colleges to subprime lenders and accused the industry of “peddling access to the American dream but delivering little more than crippling debt.”Earlier this year, hedge fund manager Steve Eisman made waves with a similar comparison. Eisman tied the industry’s success to a Bush administration that loosened regulations and increased the private sector’s access to public money.“The government, the students, and the taxpayer bear all the risk, and the for-profit industry reaps all the rewards,” said Eisman in a speech at the Ira Sohn Investment Research Conference last May. “This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.”
For example, take student loan defaults. True, the rates are rising across the board, but graduates of for-profit schools default at three times the rate of those at private nonprofit institutions. Last year, students at for-profit colleges represented 26 percent of the borrowers and 43 percent of all defaulters, according to the Education Department.
Over the past two years, defaults have swollen to $50 billion from $36.6 billion. As of the end of September, the government collected $10.2 billion of that money.
Industry representatives argue that rising default numbers reflect the poor economy. They also note that for-profit schools enroll large numbers of low-income students, who are likely to default no matter what institution they graduate from.