Blog Post
June 28, 2010
In the first of several planned Senate hearings investigating the for-profit education industry last week, a former supervising deputy attorney general testified that, based on her experience in California, consumer abuses in proprietary schools are among the most egregious in any industry and will require "stronger, tougher regulations than the Department of Education has yet proposed."
Witnesses at last week's three-hour hearing by the Senate Committee on Health, Education, Labor and Pensions were overwhelmingly critical of the for-profit education sector.
Committee chairman Sen. Tom Harkin, D-Iowa, led the charge, issuing a report saying the industry begs for oversight because taxpayers are investing billions of dollars in the colleges while student debt and default rates at these schools are disproportionally higher than at nonprofit and public universities.
For-profit schools enrolled more than 1.8 million students in 2008, less than 10 percent of all higher education students, but receive 23 percent of all federal student financial aid dollars – approximately $23.9 billion in the 2008-09 school year. The hearing comes as the Obama administration has been ramping up its scrutiny of the sector as well, proposing several changes to regulations that govern the schools.
Blog Post
May 24, 2010
A coalition of higher-education groups and advocacy organizations is urging the federal government to stick to its guns in its efforts to more tightly regulate the for-profit education industry.
Educators, advocates and industry analysts are waiting for the U.S. Department of Education to issue regulations that, among other things, would withhold federal funding from institutions whose graduates' debt-to-income ratio is too high.
The regulations are aimed at vocational or job-training programs, many of which are offered in the for-profit career college realm.
Career college groups have argued some of the draft regulations discussed in January would force the closure of thousands of job-training programs. Backers of the new proposals say the measures would protect students from getting into too much debt for a program that won't pay off.
In a May 20 letter to U.S. Secretary of Education Arne Duncan, dozens of groups – including the Institute for College Access and Success in Oakland, the California Community College Student Financial Aid Administrators Association, and the Consumer Federation of California – endorsed the administration's efforts to toughen the law and called on officials to make sure they include a few specific details or provisions.
Here's a quick run-through of some of their recommendations:
Incentive compensation
Blog Post
May 18, 2010
Stock prices of for-profit education companies shot up yesterday after news that a federal education official who had closely scrutinized the industry was stepping down from his post.
The Chronicle of Higher Education reported that U.S. Education Deputy Undersecretary Robert Shireman would leave his job this summer. Shireman had focused much of his career on reforming the bank-based federal student loan program – a goal he achieved with the move to direct lending at all colleges, the website reported.
Shireman has roots in the Bay Area. Before joining the Department of Education in 2009, he led the Institute for College Access and Success, an Oakland-based nonprofit. Inside Higher Ed reported he was likely to return to the West Coast after his stint in Wasington, D.C.
While Shireman focused much of his energy on student loan reform, analysts of the proprietary education sector watched him carefully. A frequent critic of for-profit college companies, he was viewed by many as the biggest potential threat to the industry's financial future.
In fact, we reported a few weeks ago that a single speech by Shireman that zeroed in on for-profits caused shares of Apollo Group, DeVry, Corinthian Colleges and others to drop in value.
Now, Bloomberg News reports that Shireman's departure is having the opposite effect:
Blog Post
May 10, 2010
In a federal lawsuit that was unsealed last week, a former employee of a for-profit education company that runs several colleges and online programs in California claims the company illegally compensated recruiters based on how many students they enrolled.
In the July 2007 lawsuit, Brian T. Buchanan of Squirrel Hill, Pa., claimed he saw his employer, South University Online, pay admissions representatives based on the number of students they signed up for courses, according to the Pittsburgh Tribune-Review. That's a violation of a federal law that applies to any university that disburses federal student loans.
South University Online is a subsidiary of Education Management Corp., a Pittsburgh-based for-profit company. The company also runs Western State University College of Law in Fullerton, the Art Institutes and Argosy University – both of which have several locations throughout California.
The July 2007 lawsuit was filed under the False Claims Act, which allows whistleblowers to bring a lawsuit on behalf of the federal government. After a lawsuit is filed, the Department of Justice can choose whether to intervene in the case.
If the lawsuit is successful, the whistleblower can received 15 to 30 percent of the proceeds won by the government, according to a 2008 Congressional Research Service report. The law is seen as a powerful tool for the government to recover losses due to fraud.
The lawsuit was unsealed last week but the government has said it may still intervene in the case.
Blog Post
May 3, 2010
Several for-profit college companies, including a California-based outfit, saw dips in their stock prices this week after a senior education official likened the industry to Wall Street firms that played a part in the financial crisis.
The Associated Press reported that Santa Ana-based Corinthian Colleges Inc. and several major for-profit players that serve students in California experienced drops after Deputy Undersecretary of Education Robert Shireman's speech to regulators last week:
Shares of DeVry Inc. dropped $4.09, or 6.1 percent, to $62.61 on Thursday. And stock in Apollo Group Inc. – which runs the University of Phoenix chain, the nation's largest for-profit school – slid $3.56, or 5.8 percent, to $57.94.
Shares of Corinthian Colleges Inc. fell 87 cents, or 5.1 percent, to $16.04; Career Education Corp. sank 3.36 cents, or 10.1 percent, to $30.05 and Strayer Education Inc. lost $3.04, or 1.2 percent, to $243.71. ITT Educational Services Inc. shed $7.09, or 6.4 percent, to $103.61.
Analysts who track the stocks of publicly traded higher education companies have closely tracked the movements of the U.S. Department of Education, watching for signs that new regulations might cut into these businesses' profits.
According to a piece in Inside Higher Ed, Shireman specifically called out companies that are reaping vast amounts of federal student aid funding:
Blog Post
January 22, 2010
A new rule proposed this week by the U.S. Department of Education aims to make sure students who go to vocational schools take on only as much debt as they can reasonably afford considering their earnings after graduation, Inside Higher Ed reports.
The rule takes aim at some for-profit schools that take advantage of students by charging high prices for low results:
The result of implementing a debt-to-income limit could be to weed out (or at least cut tuition at) vocational programs and institutions that don't yield their recent graduates in-field jobs that pay well enough for them to repay their student loan debt on a 10-year schedule.
Under this proposed rule, the average debt repayment for a program's graduates could be no more than 8 percent of the expected earnings of someone working in the occupation that the program prepares students to enter.
Programs that don’t meet the 8 percent rule would risk losing their federal student aid funding.
Blog Post
January 19, 2010
Besieged with negative press about the for-profit college sector, a lobbying group for the industry has been waging something of a Web 2.0 attack against the media.
