For Profit Stocks See Late Day Rally (APOL, CECO, ESI)

December 29, 2010

Apollo Group Inc. (Nasdaq: APOL) and other for-profit education stocks are moving higher in late day trading after CNBC highlighted a Wall Street Journal"Heard on the Street" column that suggested the incoming chairman of the House Education Committee, Republican John Kline, may try to overturn the "gainful employment" rule. The article also suggest that a compromise could be reached with President Obama that will benefit the for-profit-education group, which spends heavily on lobbying efforts.

The article ends with a warning to short sellers, who have controlled the stockslately:

"Given that the president has shown a willingness to negotiate since his party's midterm losses, a compromise can't be ruled out. Short-sellers should bear that in mind."

Direct link to article: ttp://,+CECO,+ESI)/6185536.html

St. Petersburg Times: Criticism of colleges misses mark

St. Petersburg Times

Sunday's Letters:
Response to December 25, 2010 editorial: Taxpayers get a lesson in Greed 101

December 25, 2010
By Kathy Mizereck

The Times missed crucial elements in its Dec. 25 criticism of career colleges. It's all of higher education that's on the chopping block as the federal government questions its value in relation to rising student debt and the ability of graduates to repay their loans.

Much attention in this regard is unfairly focused on private career colleges. Our association represents Florida's 900 licensed, private career schools and colleges, serving 370,000 students annually.

Most career college students are working moms and dads with children who need flexibility and found the traditional college path wasn't for them. The so-called gainful employment rule proposed to curb student debt would harm students like these, the very ones it purports to help: low-income individuals seeking to improve their lives.

Financial aid goes to the student, not the school. Pundits, regulators and educators pursuing their own agendas point to career college students as having higher loan default rates. They cleverly ignore that when student debt is analyzed based on the student's income level and other risk factors, as it should be, the default rate is substantially the same across all types of colleges.

The gainful employment rule is based on what the association considers a flawed report issued by the Government Accountability Office. Several members of Congress have also criticized the report for its carelessness. Even so, the report is the basis for attacks against all career colleges, including those in Florida, which are highly regulated. The rule would negatively impact any institution's program where indebted graduates' first salaries fall below that defined by an arbitrary formula set by the U.S. Education Department.

It's time for structural changes to student loan programs, but let's make sure the rules are played fairly across the board.

Kathy Mizereck, executive director, Florida Association of Postsecondary Schools and Colleges

Letter: Members Query GAO on Revisions to Proprietary Colleges Report

December 22, 2010

WASHINGTON, DC – A bipartisan group of six lawmakers today released a letter sent to Acting U.S. Comptroller General Gene Dodaro seeking answers about controversial revisions to an August 2010 U.S. Government Accountability Office (GAO) report critical of recruiting practices at proprietary colleges and universities. The revisions to the GAO report were released on November 30, 2010, and included major changes to 16 of the 28 key investigative “scenarios” in the report. The factual changes to the report have raised new questions about conclusions reached by GAO regarding the recruiting practices of proprietary schools.

“As the ‘congressional watchdog,’ GAO’s mission is to ‘provide Congress with timely information that is objective, fact-based, nonpartisan, nonideological, fair, and balanced,’” Rep. Darrell Issa (R-CA), Rep. John Kline (R-MN), Rep. Alcee Hastings (D-FL), Rep. Carolyn McCarthy (D-NY), Rep. Brett Guthrie (R-KY) and Rep. Glenn Thompson (R-PA) said in the letter. “In the same manner that GAO investigates how the federal government spends taxpayer dollars, Congress is entitled to hold GAO to the highest standards of ‘accountability, integrity, and reliability.’ Accordingly, we expect GAO to adhere to ‘strict professional standards of review and referencing,’ and to conduct thorough analysis and fact-checking.”

The letter to Dodaro asks that he respond to questions about the revisions no later than January 3, 2011 and that GAO brief relevant Congressional staff about the circumstances surrounding the revisions.

Direct link to letter: Click here to read the letter from the six Members of Congress to GAO.


Forbes: An $8 Billion Misunderstanding

Forbes’ CCAP Blog

By Richard Vedder
December 22, 2010; 5:00am

It has been over a year since Barack Obama and his aides threatened war on for profit colleges and universities, and arguably six months since they commenced formal hostilities. When I testified before Congress with Bob Shireman early last year, I told Shireman that he was the only guy I ever met whose very appointment to public office destroyed hundreds of millions of dollars in wealth. Shireman, a fierce opponent of for profit education, had been given an important position in the Education Department, which rightly scared investors.

Shireman eventually left, but the sigh of relief was brief. Ed Meehan of Arcady Bay Partners, a financial services firm with investments in the for profit industry, writes an occasional newsletter on that industry that I find very insightful and informative. In his December 20 letter, Meehan dates the beginning of formal hostilities (my words, not his) to June 24 when, incredibly, an alleged short seller of for profit industry stocks was allowed to trash the industry before a Senate committee (how much money did he make on that?). From that date through December 17, the value of 13 publicly traded for profit higher education company stocks fell by $7.9 billion (according to my calculations from data provided by Meehan’s newsletter), or 27 percent. So investor reaction to Shireman’s appointment gravely underestimated the damage to come from the Obama Administration’s war on the for-profits (the true damage is no doubt even greater, since a good deal of the industry’s services are provided by companies not publicly traded on stock exchanges).

Several weapons are being used by the Administration in this war, for example, a call for much increased subsidization of a major competitor, public community colleges, or a new requirement that online for profit institutions get licensed in every one of the 50 states. However, easily the most effective (and destructive) weapon is the plan to implement unrealistic “gainful employment” rules that would apply to graduates of for profit schools. Schools that have an unacceptably high proportion of graduates that are not gainfully employed would lose the right to take students receiving governmental financial assistance in the form of subsidized loans or outright grants. Since these schools serve primarily a relatively low income community of adult workers heavily dependent on financial assistance, this is the equivalent of a death penalty.

As a student of higher education economics, I have long despaired at the waste and inefficiency in the federal system of financial assistance and, indeed, believe a compelling case can be made for the federal government to get out of that business entirely. The system is Byzantine in its complexity, highly dysfunctional, and leads to undesired unintended consequences: a smaller proportion of college students today, for example, come from the lowest quartile of the income distribution than 40 years ago at the outset of the Pell Grant and student loan programs. This financial assistance money has mainly contributed to growing college inefficiency, falling productivity, and an academic arms race that has enriched some in the Academy but impoverished nearly millions of others.

Hence, the “gainful employment” rules superficially seem reasonable. I deplore them, however, for several reasons, but the overwhelmingly most important is that they apply only to the for profit schools. By one good definition, a majority of the students who have graduated from American colleges and universities (the bulk from traditional not-for-profit schools) since 1992 are not gainfully employed. Of the 20 million increase in the number of college graduates from 1992 to 2008, 12 million (60 percent) went into jobs that the U.S. Department of Labor’s Bureau of Labor Statistics says do not require any college education. For example, the number of waiters and waitresses with college degrees tripled (to one-third of a million), even though this is an occupation where large numbers (over 400,000) have less than a high school education. (For a complete study, on this topic, click here.) There are many major traditional schools where the percentage of entering fulltime students who obtain a bachelor’s degree within six years is below 20 percent –for every success story, there are four or more failures. If we are going to close down part of, say, Corinthian Colleges, why not close down the University of Texas at El Paso?

Meehan aptly calls postsecondary education “a system that serves everyone but the student.” The people attending the for-profits, by and large, are there because they want to be, and many of them are highly satisfied customers years later. Are there a large number who dropout and others who fail to get good jobs? Sure –but that is true of many traditional public schools as well. A compelling argument can be made that too many persons are going to all degree granting institutions, but the solution is not to attack a sector educating 10 percent of the students. Why are they doing this? Assessing motives is difficult, but I simply consider this another example of the socialist, anti-business orientation of the Obama Administration –they hate for profit schools just as they dislike most other American businesses.

Is this a dangerous sector to invest in? Who knows? I do think that inherently these schools are more efficient and responsive to student needs than traditional universities more interested in their faculty’s output of obscure research (well over 20,000 articles have been written on Shakespeare since the mid 1980s –surely diminishing returns have set into new interpretations of the Bard and his work). And I think a newly energized Republican majority in the House may make it difficult for the Obama Administration to continue its war –its munitions may be cut off by the holders of the purse.

Richard Vedder directs the Center for College Affordability and Productivity, is Distinguished Professor of Economics at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

Direct link to blog:


Atlanta Journal Constitution: Proprietary colleges bullied by government

Atlanta Journal Constitution

December 20, 2010
By Bob Barr

Several times during my tenure in the House of Representatives, then-Speaker Newt Gingrich found reason to illustrate a point he was making, by recounting a story attributed to Albert Einstein. According to Newt, when the famed physicist was asked what he considered “the most powerful force in the universe,” he replied “compound interest.”

While I hesitate to take issue with one as renowned as Albert Einstein, I think he was wrong. In my view, the most powerful force in the universe is not compound interest, or even the forces of atomic particles the study of which won Einstein the Nobel Prize. If you ask me, the most powerful force in the universe is the force of the status quo.

Think about it. Can you recall any program instituted by government that was totally de-funded and abolished? And, is it not easier to move a mountain than to have one organization accept competition that might upset the status quo of its monopoly.

Thus it is with the escalating war of words and dollars between traditional (that is, status quo) universities and colleges and the “new kids on the block” — proprietary or for-profit colleges. Considering the vehemence with which the federal government and others are bashing proprietary schools, one might think these institutions were serving up curricula advocating degrees in terrorism, pedophilia and marijuana cultivation.

The reality is that proprietary schools are simply fulfilling a market need by providing many of the same degree programs offered by their more traditional public and non-profit counterparts; but in locations and at times that more conveniently meet the needs of “non-traditional” students. The schools are successfully competing in the market place of academia; and they are upsetting the status quo. For this, they are reaping a whirlwind of regulations and calumny that threatens their very existence.

Two baseball bats with which legislators in Congress and bureaucrats in the administration beat up proprietary colleges, are an undercover investigation conducted earlier this year by the congressional Government Accountability Office; and a 2009 study, also by the GAO, purporting to show that proprietary schools graduate too-few students and saddle them with too-high debt.

The undercover study, in its initial version issued in August, was rife with titillating anecdotes of students being lured into signing up for programs at proprietary colleges by admissions personnel fibbing about costs, job prospects, and graduation rates. The GAO was forced to significantly soften much of the more inflammatory language in the report, and issue a revised version in November. The implied admissions of inaccuracy have caused the credibility of the entire report to be questioned.

The 2009 GAO report was a primary basis on which the Department of Education proposed rules that would severely hamper the ability of proprietary schools to compete with other colleges and universities for access to federally-guaranteed loans. This report claimed that too many proprietary school students graduate with what the feds consider more debt than graduates from other schools. There are sound reasons why this may be the case for many such graduates – they often are members of minority groups, and are already saddled with families and lower-paying jobs that hamper their ability to enter the job market as easily as graduates of traditional schools.

Such facts matter little to those in Congress and the Obama Administration who are busy bullying for-profit schools. More likely what lurks beneath the lofty rhetoric is resentment that these institutions are managed so as to actually make a profit – something taxpayer-funded public colleges and non-profit universities don’t have to worry about. After all, “education” is supposed to be “above” something as crass as profit.

Perhaps the incoming Republican majority in the House will understand that “profit” is not a four-letter word, and that competition challenging the status quo in secondary education is actually a good thing.

-by Bob Barr, The Barr Code

Education Week: Why the GAO Should Play Powerball

Education Week

December 20, 2010
By Rick Hess

On Friday, Andrew Kelly and I penned an Inside Higher Ed column that called out the Government Accountability Office (GAO) for the fact that its influential and scathing report on for-profit colleges turns out to be riddled with errors. Even worse, the GAO did its damndest to keep it under the radar--quietly posting an errata online on November 30, without so much as a press release to document the changes. Senator Mike Enzi expressed concerns in a December 7 letter to the GAO, and then it took enterprising journalists like theWashington Post's Nick Anderson to bring the issue to the public's notice. And then, when questioned, the GAO denied that the errors mattered and refused to alter any of its conclusions.

In our piece, Andrew and I observed: "The authors of the Government Accountability Office's for-profit secret shopper investigation pulled off a statistically impressive feat in August. Let's set aside for the moment that on Nov. 30, the government watchdog quietly revealed that its influential testimony on for-profit colleges was riddled with errors, with 16 of the 28 findings requiring revisions. More interesting is the fact that all 16 of the errors run in the same direction -- casting for-profits in the worst possible light. The odds of all 16 pointing in the same direction by chance? A cool 1 in 65,536." This is all especially troubling given that the report was seized upon this summer by Senator Tom Harkin to attack for-profit lenders and by the Department of Education to justify its controversial "gainful employment" regulations.

Andrew and I noted, "The GAO [is] the $570 million-a-year organization responsible for ensuring that Congress gets clean audits, unbiased accounting, and avowedly objective policy analysis... Its report-vetting process entails GAO employees who are not involved with the project conducting a sentence-by-sentence review of the draft report, checking the factual foundation for each claim against the appropriate primary source."

Yet, the mistakes were manifold. The original report claimed that a financial aid officer purposely ignored an undercover applicant's supposed $250,000 in savings when calculating eligibility for financial aid, yet it turns out that the financial aid representative did so "upon request by applicant." This doesn't exonerate the financial aid officer, but it sure changes the equation. Another applicant was actually informed that he "could" take out the maximum in student loans, whereas the original report said that he was told he "should" do so. A for-profit official supposedly told an applicant that massage therapists could earn up to $100 an hour--turns out that the official really said that the applicant could expect to earn up to $30 an hour (below the Bureau of Labor Statistics' estimate of $34 for therapists in California).

Not surprisingly, our column roused the ire of those who have no use for for-profit colleges. In a particularly high profile response, Senator Harkin fired back in a December 20 Inside Higher Ed piece that we had been too hard on the nature of the revisions, suggesting that there were even a handful that went in the opposite direction. Without any illustrative examples, this claim does little to bolster one's faith in the edits. Especially disheartening is that Harkin never expressed disappointment or concern with the GAO's handiwork.

Instead, Harkin's apologia was echoed by Education Sector analyst Chad Adleman'senthusiastic defense of the GAO. Adleman dismissed many of the GAO corrections as "minor things like changing a 'should' to a 'could.'" (Seriously? It's small beer, after savaging a loan officer for telling potential students they "should" take loans, to find out she was answering a query about whether a student "could" take loans?)

Behind the scenes, Harkin's office responded to our column by circulating on Capitol Hill a three-page memo titled "Setting the Facts Straight - GAO and the For Profit Investigation." Tantalizingly, the memo lists five "new instances of deceptive or misleading conduct" from the GAO secret shopper tapes. My favorite nugget? "The admissions representative talks about what the applicant could expect with a college degree, asking her if she could imagine having a car and home of her own along with a job that she enjoyed." The sleazy horror... But wait a minute, haven't administration officials and higher education advocates also been touting college as a pathway to the middle class?! Those deceptive, misleading sonovaguns!

Most amusingly, both Harkin and Aldeman seemed to take great comfort in noting that the GAO revised 12 reports last year. They both fail to note that this is a dozen out of the 1,000-odd reports issued in that period, which, as Andrew and I noted on Friday, makes corrections "almost unheard of." O-kay. That 12 out of a thousand breaks down to one out of a hundred. So, let's recap. There's a 1-in-65,000 chance that the corrections would all point the same way, and then a 1-in-100 chance that the GAO has to correct a given report. The combined odds mean we'd expect this kind of situation once out of every 6.5 million reports. Coincidental that it happened just when a powerful Senate chair and like-minded administration are pushing so aggressively for controversial policies. If those eager to apologize for the GAO's troubling behavior want to stand on those odds, more power to them.

Me, I find those probabilities damning. Either there's a problem here, or the GAO staff ought to be playing a whole lot of Powerball. And, when it comes to transparency, the GAO has failed miserably by even the most rudimentary measure.


Pioneer Press (Minneapolis-St. Paul)



The chairman of a committee of the U.S. Congress has a lot of power. U.S. Rep. John Kline, a Republican from Lakeville who was first elected in 2002, will chair the Committee on Education and Labor when Republicans take over the U.S. House in January.

Kline takes over the committee as two Minnesota Democrats give up their gavels. Rep. Jim Oberstar, D-Chisolm, who has chaired the House Committee on Transportation and Infrastructure, was defeated by Republican Chip Cravaak. Rep. Collin Peterson, D-Detroit Lakes, easily won re-election but will no longer chair the House Agriculture Committee.

Democrats controlled the U.S. House for four years — the first two under Republican President George W. Bush and the last two under Democratic President Barack Obama. Before that, Republicans controlled the House for 12 years, first under Democratic President Bill Clinton and then under Bush. (More than four decades of Democratic control of the House preceded the Republican takeover of 1994.) The U.S. Senate will remain Democratic, although by a narrower margin than it currently holds. President Obama's first term extends for two more years. That means that Kline and the other new House Republican chairs will have to negotiate and compromise and find common ground if they want to have bills signed into law.

"The focus of Congress, and the new Republican majority, is going to be on the economy and jobs, creating conditions for the private sector to create jobs," Klinetold us. His committee deals with educational policy and budgets from kindergarten through higher education, including the No Child Left Behind law, child nutrition and programs concerning child abuse and adoption. On the labor side, the committee has jurisdiction over labor-management law, occupational safety (including mine safety), pension and health-care benefit policies and workers compensation.

The Republican takeover — which means Republican majorities and chairs in all committeees — means the House will "put to bed" the labor-backed proposal to make union organizing easier via a card checkoff recruitment system, Kline said. It means the committee will look hard at regulations and rule-making and wasteful programs, he said.

The Republican house will attempt to repeal the federal health-reform law, Kline said. Assuming Obama (and the Senate) do not go along with that plan, Kline said his committee would join in attempts to point out and eliminate specific problems, such as burdensome reporting requirements for businesses.

He said the state and local school officials believe the No Child Left Behind law, a Bush Administration initiative that focused greater attention on standards and testing, needs revision. He said the law requires students to be at grade level in reading and math in 2014, and he has been told, "If you don't do something to change it, every school in America's going to be failing."

Kline said he will also challenge the Obama Adminstration's proposed restrictions on for-profit colleges. The U.S. Department of Education, concerned about abuses in recruiting practices and the high percentage of loan defaulters among students at for-profit colleges, is proposing rules to address these concerns. Kline said he believes for-profit colleges have "proven to be very nimble" in meeting needs for retraining in the workplace, and fears the federal crackdown will "hurt access for many students."

Kline is a retired Marine Corps colonel whose career included piloting helicopters in Vietnam, directing Marine aviation forces in Somalia and serving as a personal military aide to two presidents. He will remain a member of the House Armed Services Committee, which will be chaired by U.S. Rep. Buck McKeon, R-Calif.

Elections have consequences. Kline replaces Rep, George Miller, D-Calif., who helped draft the health care reform law, co-sponsored a large increase in federal student aid and sponsored a $2.10-per-hour increase in the federal minimum wage. Kline's challenge will be to be equally effective for his more business-friendly philosophy, and to compromise where he can to get things done. We think he's ready for the job.

Toledo Legal News: Schools hit back after revised report

Toledo Legal News

December 16, 2010
By Scott Woods

The association representing Ohio's career colleges and schools blasted the Government Accountability Office for errors in a report that hastened a drive for increased regulation of for-profit colleges around the country. The federal GAO last week revised a report on recruiting practices at 15 for-profit colleges. The report was originally released Aug. 4.

"Ohio's career colleges and schools are pleased that the GAO has corrected the multitude of errors in its report on our sector, but it is too late to reverse the damage it has done to our schools and students," said R. David Rankin, executive director of the Ohio Association of Career Colleges and Schools.

"Because the report fueled skepticism among public officials in Ohio and Washington about the value of career college education, the errors are highly significant to us," he said.

The GAO report used undercover "secret shoppers" to visit 15 college campuses and record conversations with admissions officers. Several of the corrections retract the recruitment techniques reported - such as fraud and high-pressure sales tactics - that have come under scrutiny in the U.S. Senate and sparked legislation in the Ohio House of Representatives.

Following the August report, President Barack Obama proposed rules that would limit eligibility for financial aid and crack down on enrollment practices at for-profit colleges, which received $26.5 billion in U.S. loans and grants in 2009. The August GAO investigation detailed practices at popular for-profit schools such as the University of Phoenix, Kaplan College, Everest College and Argosy University.

The revised report, however, does not change the GAO's conclusions, and Rankin said career colleges and schools should be held accountable for meeting the highest standards in recruiting and educating students.

"Unfortunately, this inaccurate report has created a sense of urgency to tighten regulations that may result in a loss of federal loans to thousands of Ohio career

Huffpost College: Time for a Re-Do on “Gainful Employment”

Huffpost College

December 15, 2010
By Lanny Davis

When I first became involved as an attorney and public advocate for the for-profit career colleges who are the target of the Department of Education's "gainful employment" (GE) regulations, I believed - as a liberal Democrat - that there was a basis for reasonable regulation of excessive student debt and abuses.

In an earlier commentary about the GE regulations, I warned that the rules, as currently written, would have a paradoxical effect on the progressive Obama administration. I also detailed many of the problems with GE at some length, including an explanation of how the regulations would disproportionally hurt minorities and lower income students who predominantly attend for-profit career colleges.

So many actions, or omissions, by the DOE have left a strong impression of bias -- of a stacked deck by the DOE targeting just "for profit" career colleges, ignoring or distorting facts and data, choosing non-transparency over transparency, and an unavoidable impression of anti-business, anti private sector animus. Rightly or wrongly, that is the appearance; they matter, especially when an executive agency decides to regulate, rather than let congress do the legislating, on a matter that, as here, affects millions of students and tens of thousands of jobs.

Just take a look at this process. Step-by-step the Department simply lost its way:

• First, the panel of negotiators involved in developing the "gainful employment" regulations with the Department, included only one representative out of 14 members -- a panel that the law empowers to write the regulation if there is "consensus." Why the imbalance? Is there any surprise that the regulation that emerged focused only on setting standards to student debt and repayment that applied only to for-profits, and not to not-for-profit and public colleges who see themselves as competitors of for-profit colleges?

• Then proponents of the Department's rules claimed that students at for-profit schools default on their student loans at a higher rate. The truth is that within the same demographic, there is no perceptible difference based upon the type of schools attended. The default rates are related almost entirely to the socio-demographic cohort. In other words, defaults are about the socio-economic status of the students -- not the tax status of the schools. Isn't that obvious?

The DOE (and several outspoken for-profit college critics in the U.S. Senate) also claimed incorrectly that these defaults make the for-profit colleges more costly to taxpayers. The opposite is true. As pointed out in a recent research report by Charles River Associates, community colleges cost taxpayers a minimum of $25,000 more per graduate than the for-profits. In fact, taking into account the approximately $1 billion in income taxes for-profits pay to all levels of government each year, for-profits cost taxpayers substantially less per student at four-year institutions than not-for-profits and public colleges

• The Department then stated that it plans to eliminate job training programs using statistics schools and the public cannot access. The Department originally considered using publicly available, transparent median Bureau of Labor Statistics (BLS) data to determine the likely income from jobs in the program in which the student was enrolled. Then, in the final proposed regulation, the transparent BLS data was replaced by non-transparent data derived from IRS or Social Security Administration records, which are not publicly accessible due to privacy laws.

In short, by substituting non-transparent data, for-profit career colleges will have no way of improving their programs, the original goal of the regulations. Without access to transparent metrics, there also is no recourse for a school that believes the metrics are not accurate, which raises serious due process issues.

So the question is: Why would DOE withdraw transparent data and substitute non-transparent data? Doesn't this look as if the real goal is not reform and incentvising better behavior but harming and possibly destroying a business sector - the for-profit career colleges?

• In addition, the Department's drafted rules propose that only loans in which principal payment reductions are occurring will be deemed to be in compliance. That is contrary to the government's menu of loan repayment options -- such as interest only and income based -- that recognize that an education's value is realized over time or hardship deferrals or forbearance. The proposed rules would catch the majority of non-profits serving minority students and medical schools were it applied across the board. Is it just to penalize those with a for-profit tax status?

As if the process alone isn't reason to call for a "do-over," here is the greatest irony of all: through this proposed regulation, the Department will be making law that shuts out the very students who have the most to gain through their access to the programs offered by career colleges -- and in some respects form the core of President Obama's political base.

That would explain the broad expression of unease about the Department's plans among progressive Democratic voices such as mine and many others, including: Congressional leaders such as Reps. Alcee Hastings, Debbie Wasserman Schultz, Edolphus Towns, Yvette Clarke, Donald Payne, and Robert "Bobby" Scott; to community leaders such as Rev. Jesse Jackson and Rev. Al Sharpton.

When Secretary Duncan justified the focus on just for-profit colleges and not an across-the-board reform approach, his explanation was that the Department did not have the authority to regulate not-for-profits and public universities who also rely substantially on federal student loans and grant programs for many of their students. That may be debatable -- it is ironic that the DOE is quite liberal in taking a shred of statutory authority to issue these wide-ranging, policy-making GE regulations and claim they have a legal basis, yet they become "strict constructionist" when it comes to applying these regulations across-the-board, knowing that there are abuses at not-for-profits and public institutions too.

But in any event, this is just one of the reasons -- in addition to the many actions leading to the appearance of bias and an unfair regulatory process cited above -- why it would be wise for Secretary Duncan to go to congress to seek legislation and reform of abuses across-the-board, affecting not-for-profits and public colleges, not just for-profits. The best solution is for congress to seize control, and legislate -- seeking national solutions for student debt and financing, especially for those at lowest end of economic ladder and working people who can't afford to go to college full time.

Certainly the Secretary should not -- cannot -- "rush to regulate" and push these far-reaching proposals through and make them "law" before the newly elected congress can weigh in and DOE has more of an opportunity to re-think the entire issue.

As Harry C. Alford, President and CEO of the National Black Chamber of Commerce wrote recently, "student debt is a national problem, one that must be addressed, but imposing regulations on schools that are effectively educating students is unnecessary."

He also wrote:
Without access to Title IV financial aid, the Department of Education will effectively eliminate the ability to gain a college degree for young Black men and women which as the Joint Economic Committee show, is the only proven route out of high unemployment for that most vulnerable segment of the American population. For this reason, I hope the Department will abandon this proposed rule.

I agree completely. Thus the answer is to stop the GE regulation and hit the reset button and let congress, Republican and Democratic elected officials representing all the American people, take on this issue for the reasons Mr. Alford states.

That is the best way to address the serious issues of student debt and abusive practices and achieve real reform at all colleges, rather than an anti-business, anti-private sector agenda to harm just for-profit career colleges.

ASTRA: Non-profit Administrators Are Heading To The For-profit Sector


January 06, 2011

Amidst recent controversy over recruiting practices and poor job placement, for-profit education institutions have begun to recruit non-profit administrators in an effort to influence what can be a predatory, misleading admissions culture. The intent is to demonstrate to Washington and critics in general that there are many positive similarities between for- and non-profit schools, and that for-profits offer accessibility and opportunity to students who may be unable to enter a traditional non-profit.

Diane Auer Jones, an assistant secretary for postsecondary education during the George W. Bush presidency and a lobbyist and Congressional staffer, is one of the first to make the move. Jones recently accepted a position as Career Education Corp.'s vice president of external and regulatory affairs.

Long before her career began in education, Jones was a massage therapist student at a for-profit college in Baltimore.
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Her son, similarly, attended a for-profit college. Jones has remarked that she would never work for a "bad actor" and that the for-profit sector, despite criticism, is "not all bad." Her reputation and work will be a huge asset to the company, but Jones was quick to warn that for-profits have proven themselves and can stand on their own. "If by hiring me it does help some people open their eyes that the sector is serious about doing it the right way, then great. If people look at my credibility and that lets them look at the sector in a new way, then that's a benefit for the company."

Geri H. Malandra, a former official at the University of Texas System and the American Council on Education, has followed Jones' lead and switched sectors.
Malandra recently accepted the provost position at Kaplan University and brings to the table extensive experience in the education sector. Malandra has said that she has followed and been interested in for-profit education institutions since the 1990s. During the 90s, Malandra headed a continuing education project at the University of Minnesota- Twin Cities which operated as a for-profit. Her experience, she says, "helped me come to see that for-profits are just as passionate about the quality of education, just as passionate about student outcomes, just as passionate about serving our nation" as the best nonprofit colleges.

Jones and Malandra are just two non-profit administrators that have chosen to move to for-profit education. And it's not just the pay. Larry A. Isaak, the former president of the Midwestern Higher Education Compact, recently made the move to Capella University, assuming the university's presidency. Isaak recently noted that his decision wasn't based on for or non-profit. He was driven, he says by "the university's focus on adult learners, innovations in delivery and offering a student-centric approach."

Although for-profit education institutions have established an admirable traditional and reputation (despite some recent criticism) all their own, the decisions made by some of non-profit's best to switch sectors speaks volumes.

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Huffington Post Blog by Larrry Penley: Community Colleges Overcrowding


December 14, 2010
BLOG by Larry Penley,

Former president, Colorado State University; past dean of the W.P. Carey School of Business at Arizona State University

Limiting students' educational opportunities creates barriers to success that many cannot overcome. As students seek opportunities in higher education, we must be careful not to limit these options for any segment of society; instead, we should support a system that encourages all students to pursue higher education. A 21st century economy depends upon a person's knowledge as a foundation for increased personal earnings and the economy's enlarged capacity to grow.

A recent Washington Post article cited difficulties that community colleges are having nationwide. Due to budget shortfalls, many of these institutions can no longer accommodate the number of students interested in attending. They have been forced to turn applicants away. In Colorado, where I served as president of Colorado State University, the waiting lists for nursing programs at some community colleges can be as long as 3.5 years. Due to overcrowding and underfunding, nursing students in Colorado face the alternative of a career for which they have less passion or a wait of more than 3 years.

Why is this problematic? Now, more than ever, a college education is the key to future opportunities for today's students and the capacity of a market economy to grow. Students denied access may become bored with their wait and give up on their education dream. Society suffers as well. With a growing, aged population, the absence of adequate employees in sectors like nursing will mean lower quality health care.

There are alternatives to traditional community colleges in the form of career colleges. But this option is also facing limitations in its capacity to serve student and society. With the potential to play a vital role in the higher education sector, career colleges offer an alternative -- a place for non-traditional students who would struggle in a more traditional college setting and as an educational option, not limited by traditional funding sources. Their focus on practical, hands-on training is an additional advantage.

As I have already pointed out, prospective community college students must wait longer periods to take desired classes; their budgets are limiting their capacity to provide the services needed by non-traditional students, and students in traditional community colleges may even face being closed out of entire programs altogether. The option of a career makes sense. With their typical robust set of support services, career colleges address the needs of non-traditional students. Their enrollment structure can remove barriers to successful program completion-barriers that are largely unaddressed in the community college environment.

Career colleges also offer desired training for a student's career. The Washington Post article cites a craps dealer studying to become an anesthetist, a cocktail waitress learning to be a dental hygienist and a former stripper training to become a nurse - all careers that can be trained for at career colleges across the country in classes with fewer students than their community college counterparts.

As community colleges are suffering from funding and overcrowding issues, career colleges are being unfairly targeted by a proposed Department of Education regulation intended to curb the amount of unpaid student debt in this country. In an effort to prevent students and graduates from defaulting on their student loans, the rule will deny federal financial aid to students who choose certain career college programs over a traditional community college. Unfortunately, this rule -- the Gainful Employment rule -- will potentially limit access for hundreds of thousands of students, students who need financial support the most because they are disproportionately low-income and minority students.

The Department of Education should recognize that career colleges are a vital part of the higher education community and an essential solution to our economic competitiveness. Without these institutions, students have fewer options and society suffers from the lack of needed employees. Career colleges must remain a viable alternative to traditional community colleges and a substantial source of learning for those who choose to pursue higher education.

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BusinessWire: Coalition for Educational Success Responds to Senator Harkin’s Latest Attack


December 14, 2010
By: Noah Black
WASHINGTON--(BUSINESS WIRE)--In response to Senator Tom Harkin’s floor statement today, Coalition for Educational Success counsel and public spokesperson Lanny J. Davis issued the following statement:

“It would be better if the Senator could answer these important questions”

“On the eve of the White House’s meeting with U.S. business leaders, Senator Tom Harkin launched another inaccurate anti-business attack on for-profit education. In making his argument, which ignores indisputable facts, the Senator is using a GAO study that we now know through comparisons to the actual tapes contained substantial distortions and omissions. This is the same study used to support the Senator’s earlier attacks as well as the Department of Education’s ‘gainful employment’ proposal. Rather than admit to the GAO study’s misrepresentations and distortions, the Senator seems bound to repeat them to prop up an increasingly shaky house of cards that he and the Department have built.

“It would be better if the Senator could answer these important questions:

* Why doesn’t the Senator’s concern about student outcomes extend to all of higher education?
* Why does the Senator ignore the tens of millions of positive student outcomes from for-profit colleges?
* Why doesn’t the Senator acknowledge that for-profit colleges produce graduates at substantially less cost to taxpayers than public colleges?

“While Senator Harkin seems unwilling to accept that ‘education’ and ‘profit’ can be used together in the same sentence, more than 3 million students will enroll this year in for-profit higher education. In a fact lost or ignored by the Senator, for-profit higher education is succeeding because our students are succeeding. These students seek out our schools because they want what we can offer: a path to a new or better job through effective skills training and focused job placement assistance.”

About the Coalition for Educational Success

The Coalition for Educational Success includes many of the nation's leading career colleges, serving more than 350,000 students at 478 campuses in 41 states. Career colleges provide training for students in 17 of the 20 fastest growing fields. The Coalition advocates for policies that support wider access to higher education, particularly for non-traditional students including full-time workers, workforce returners, working parents, minorities and veterans.


The Coalition for Educational Success
Noah Black, 202-295-8797

Boston Globe: Sector Snap: For-profit colleges face challenges

Boston Globe
December 13, 2010

NEW YORK—Next year is likely to be another tough one for-profit college operators as they cope with declining federal student aid, lower enrollment and proposed regulations that may force them to cut tuition.

While their shares were trending higher on Monday following the broader market trend, stock in companies that offer higher education for profit has fallen an average of 22 percent so far this year.

The companies have come under intense scrutiny because of student loan defaults. Critics have said some of the companies recruit overly aggressively and pull in unprepared students. The schools then get federally-backed student aid, the lion's share of their revenue, even if the students drop out -- while the students are burdened with debt.

The Department of Education has proposed new rules that could limit the companies' access to federal financial aid if too few of their former students repay loans or if their graduates owe too much.

That tightening in addition to an expected decline in Pell Grants and other government funding programs will create a highly competitive environment in which the companies fight for fewer dollars.

"We believe the for-profit industry will lose out, significantly impeding revenue and earnings growth," said FBR Capital Markets analyst Matt Snowling.

Some companies have already begun to prepare. Kaplan Higher Education, a unit of Washington Post Co., said last week that it was eliminating about 770 jobs because enrollment is slowing and the company is getting more selective in student admissions.

Apollo Group Inc., the nation's largest for-profit education company and operator of the multi-campus University of Phoenix, laid off 700 full-time employees in November, mostly in admissions.

Other companies expected to feel increased pressure from falling enrollment areCorinthian Colleges Inc. and Career Education Corp., Snowling said.

Shares of Corinthian Colleges fell about 1 cent to $4.46. Career Education Corp. rose 49 cents, or 2.5 percent to $20.41, and The Washington Post Co. rose $3.11, less than 1 percent, to $417.66.

Long-term investors willing to ride out some volatility may be rewarded if they invest in companies that successfully cope with the challenges, however, Snowling said.

He upgraded shares of Apollo Group to "Market Perform" from "Underperform" on Monday, but maintained a price target of $40 on the stock.

Its shares rose 65 cents, or 1.6 percent, to $38.60 by midday Monday.

Snowling said Monday that the company's management is taking the right steps -- cutting costs and focusing on higher-quality students -- to reposition it for a new regulatory environment.

"Make no mistake -- we continue to have a negative bias on the group due to regulatory and budgetary constraints, but we also believe that Apollo's strong brand and steady cash flow and earnings generation should provide support to the shares at current levels," he wrote.

DeVry Inc., which carries an "Outperform" rating, is among the for-profit school companies that FBR says are better positioned companies because of its consistent earnings growth, more diversified revenue stream, and relatively lower exposure to regulatory issues, Snowling said.

DeVry shares rose 7 cents to $44.92.

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The Wonk Room: Incoming Education Chairman On Regulating Higher Education Profiteers: ‘I Don’t Think So’

The Wonk Room

December 13, 2010
By Pat Garofalo

Incoming Education Chairman On Regulating Higher Education Profiteers: ‘I Don’t Think So’
One of the Obama administration’s higher education initiatives has been to take a hard look at for-profit colleges like Strayer University and the University of Phoenix. This scrutiny is well-founded, as for-profit colleges are taking in a growing number of students and an ever increasing amount of federal student aid, while also accounting for a disproportionate amount of student loan defaults.

Sen. Tom Harkin (D-IA) — who chairs the Senate Education Committee — has said that he is going to try and implement stricter regulations against these schools. But the incoming GOP chairman of the House Education and Labor Committee, Rep. John Kline (R-MN), told Reuters that “he would oppose such an effort”:

“I would push back really hard against a bill that might come out of Chairman Harkin’s committee.” Asked if such a bill could succeed, Kline said: “I don’t think so.”

For a sense of what kind of an industry Kline is protecting, consider that, currently, “eleven percent of all higher-education students are enrolled in for-profits, but they receive 26 percent of federal student loans and account for 43 percent of defaulters.” The graduation rate for first-time, full-time candidates at for-profit colleges is 22 percent; it’s 55 percent at state colleges and 65 percent at private non-profit universities.

As McClatchy reported, for-profit schools have been accused of “recruiting students with inflated promises, fudging financial-aid applications and leaving graduates with crushing debt and bleak job prospects.” According to the Pew Research Center, “one-quarter (24%) of 2008 bachelor’s degree graduates at for-profit schools borrowed more than $40,000, compared with 5% of graduates at public institutions and 14% at not-for-profit schools.”

Not only are some for-profit colleges leaving students crippled with debt and unemployed, but they’re doing it while lining their executives’ pockets with taxpayer dollars. Harkin put together a report finding that for-profit colleges even scammed $521 million from the U.S. taxpayer “by recruiting armed-services members and veterans through misleading marketing.”

For the record, before he’s even picked up the Education and Labor Committee gavel, Kline has expressed a desire to deny unemployed workers jobless benefits, punt on new mine safety regulations, and cut student loans. Ignoring abuses in the for-profit college industry would just be icing on the cake.UPDATE

At College Guide, Daniel Luzer notes that Kline "was a little unclear on what he thought was wrong with regulations that would limit the ability of for-profit colleges to take advantage of federal financial aid if they saddle their students with too much debt.

Pat Garofalo is the Economic Policy Editor at American Progress

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Military Online College - blog: New Profit Colleges Rule for Military Degree

Military Online College - blog

December 13, 2010
by admin

The Education Department released regulations in late October that give the government a stronger hand overseeing the for-profit education sector — including new rules reining in how recruiters are paid. Other new regulations strengthen the department’s authority to take action against schools engaging in deceptive advertising, marketing and sales practice.

Still to come early next year is the most controversial proposal: a rule that would cut off federal aid to college vocational programs with high student-debt levels and poor loan repayment rates. The Education Department significantly scaled back one part of the gainful employment rule, doing away with a proposal that would have required schools starting aid-eligible occupational programs to provide five years of enrollment projections and get documentation from employers showing the curriculum aligns with job needs. Schools instead will be required to notify the department 90 days in advance of starting a new program.

The Obama administration released a broad set of rules to strengthen federal student aid programs at for-profit, nonprofit and public institutions by protecting students from aggressive or misleading recruiting practices, providing consumers with better information about the effectiveness of career college and training programs, and ensuring that only eligible students or programs receive aid.

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The Chronicle of Higher Education: Online Colleges to Develop Framework for State Authorization

The Chronicle of Higher Education

December 13, 2010
This entry was posted in Uncategorized. Bookmark the permalink.

Using a grant from the Lumina Foundation for Education, a group of online colleges will try to develop an outline of rules that states could use to regulate their institutions, as will be required by the U.S. Department of Education. The goal is to create a framework for reciprocity that states could use, according to a news release from Excelsior College,which received the $300,000 grant and will be working with the Council of State Governments.

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Washington Post: College maybe isn't for everyone?

Washington Post

December 13, 2010
By Jennifer Rubin

For years now, both liberals and conservatives have sung the praises of college education, urging increased access to college and spending billions in aid to increase the flow of students into colleges and universities. But is this a good idea?

It's heresy in some quarters to suggest that this is a gross error and misallocation of resources. But a new piece in the Chronicle of Higher Education (h/t Ben Smith) by Richard Vedder takes on, what he calls, the "scam" of higher education. His main point is that we have a mismatch between the education we are offering young people and the actual needs of the job market. The basis of his argument is found in a startling statistic: "approximately 60 percent of the increase in the number of college graduates from 1992 to 2008 worked in jobs that the [Bureau of Labor Standards] considers relatively low skilled--occupations where many participants have only high school diplomas and often even less."

So Vedder makes the case:

[T]he push to increase the number of college graduates seems horribly misguided from a strict economic/vocational perspective. It is precisely that perspective that is emphasized by those, starting with President Obama, who insist that we need to have more college graduates.... [A]ll of this supports the notion that credential inflation arises from a perceived need by individuals to demonstrate potential employment competence through a piece of paper, i.e. a college diploma. Employers are using education as a screening and signaling device, at a low cost directly to them (although not costless because of the taxes they pay to sustain much of this), but at a high cost to the prospective employees and to society as a whole.

This is a subject I've discussed before with the president of the Ethics and Public Policy Center, Ed Whelan. I asked him this morning if he agrees with Vedder. Whelan responded via e-mail:

"The net effect is that many employers insist on a college degree for jobs that plainly don't require college-level skills and that many young people who would be far happier and more productive in the working world waste lots of time and lots and lots of money chasing after a paper diploma. The even bigger losers in this system are the young men and women, disproportionately minority, who went to crummy high schools that didn't prepare them for college and who can't get decent entry-level jobs. The big winners in this system are the colleges, which end up with a massively inflated demand for their services."

This strikes me as not only an economic issue, but a legal problem. Back in the day when I was an employment lawyer, I worked on many a "disparate impact" lawsuit in which a minority or female job applicant claimed that a seemingly neutral job qualification wasn't related to the demands of the job but had a disproportionately adverse effect on a group (e.g. women, Hispanics). Isn't that what's going on here? Whelan thinks so:

"We have this crazy system in which racial quotas have been invoked to prohibit employers from using criteria other than a college diploma in making hiring decisions. But the college-diploma requirement also has a racially disparate impact. So why has that requirement -- which is far less connected to job qualifications than skill certificates and other criteria that employers can't use -- been permitted?"

Far be it for me to suggest a whole new cottage industry for plaintiffs' lawyers suing big companies for insisting that college education is a prerequisite for employment, but it seems we should do some hard thinking about this. Whelan suggests that we work to develop "alternative certificates that demonstrate actual mastery of basic skills, and allow and encourage employers to rely on those certificates in making employment decisions." And he also suggests, in effect, starving the beast of higher education: "Subsidize college tuition only for those colleges that keep their tuition increases below the rate of inflation."

This is rich ground for education reformers. But we first have to give up the myth that a college education is for everyone.

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Washington Monthly: Limits on For-Profits: "I Would Push Back Really Hard"

Washington Monthly

December 13, 2010
By Daniel Luzer

A piece in Bloomberg News indicates that incoming Republican congressman seem to be opposing stronger regulations of the for-profit college industry. According to the article by Esme Deprez and John Lauerman:
Representative John Kline, the Republican who will head the House Education Committee, said he opposes tighter rules for the for-profit education industry, sending company shares higher.

“I would push back really hard against a bill that might come out of Chairman Harkin’s committee,” Kline, of Minnesota, told Reuters, referring to Senator Tom Harkin, the Iowa Democrat who heads the Senate education committee.

Kline, a four-term representative from Minnesota’s 2nd congressional district, who once introduced legislation to put Ronald Reagan’s face on the $50 bill, was a little unclear on what he thought was wrong with regulations that would limit the ability of for-profit colleges to take advantage of federal financial aid if they saddle their students with too much debt.

One of his aides late explained, however, that Kline, “has concerns about arbitrary proposals that would limit students’ higher-education options, as the proposed gainful- employment regulation is currently drafted.”
The current gainful employment regulation would cut vocational colleges off from federal funding if more than 35 percent of former students aren’t paying off their loans and/or if the average former student spends more than 8 percent of his income servicing student loans.

Apparently in response to Kline’s statement for-profit education company stock prices advanced 2.6 percent. Bridgepoint Education Inc. and Strayer Education Inc. gained the most in price, both adding 5.4 percent. Bridgepoint increased 89 cents, to $17.32. Strayer improved $7.88, to $154.07 a share.

Daniel Luzer is the web editor of the Washington Monthly.

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The Chronicle of Higher Education: IRS Steps Up Scrutiny of Colleges and Other Nonprofit Groups

The Chronicle of Higher Education

December 20, 2010
By Eric Frazier

The Internal Revenue Service says it plans greater scrutiny of a wide range of charity activities in the next year, including compensation and loans that colleges and other nonprofit groups make to top officials and whether they paid sufficient employment taxes.

Most important for colleges, the agency said it would continue to focus on the results of a compliance questionnaire sent to 400 public and private institutions in 2008, asking about unrelated business income, endowments, and executive-compensation practices. A preliminary report on the findings of those questionnaires was released this year, and more than 30 of the colleges have been audited as a result of the agency's inquiries.

The IRS's plans follow stepped-up efforts over the past few years to oversee nonprofits. Figures released last week in a new report by the Internal Revenue Service show its audits of charities increased from 7,861 in 2008 to 10,187 in 2009, a jump of 30 percent. In 2010 the number of audits jumped 12 percent, to 11,449.

Michael Peregrine, a tax lawyer in Chicago, said nonprofits should pay close attention to the increasing number of audits, "The IRS is still fully engaged in oversight of tax-exempt organizations," he said.

That greater oversight is largely the result of an increased number of IRS employees. The report shows the IRS has added 100 employees since 2008 to the unit that handles audits of charities.

Employment Taxes
IRS officials also said their enforcement efforts had benefited from increased collaboration with the Social Security Administration and with state regulators, yielding valuable electronic data that allowed them to spot organizations that were trying to avoid paying employment taxes.

The collaboration also helped the IRS zero in on employment taxes as one of its areas of focus for next year, the agency said in a document outlining its 2011 priorities.

The IRS has been studying the employment-tax reporting practices of about 4,000 tax-exempt organizations each year since 2007, comparing information reported to the Social Security Administration against data reported on tax forms.

The agency was able to pinpoint organizations that reported paying wages to employees but didn't file a federal form to report employment taxes. Others showed compensation for officers on their informational tax forms but didn't file wage or employment tax documents for those workers.

Loans to executives, trustees, and other key employees are also drawing more scrutiny. The agency said it had studied the issue by conducting 169 audits and now will make this a regular part of its examination of charities.

Agents found loans to charity officials that were not correctly reported on the organizations' Form 990 in 91 cases; the IRS assessed more than $5-million in penalties.

The report also described IRS scrutiny of:

· Consumer-credit counseling agencies, with which the IRS has found widespread problems in the past. The agency examined 63 of the largest credit-counseling organizations and revoked, terminated, or proposed revoking the tax-exempt status of 41 groups that the IRS said had failed to provide a charitable service.

· Down-payment assistance groups, which offer financial and educational help to low-income homebuyers who cannot afford the initial down payment. The report says many of the groups offer the help through self-serving arrangements that disqualify them for tax-exempt status.

· Supporting organizations, which are charities that typically collect and channel money to a specific nonprofit. The IRS says some nonprofit officials have established those organizations for their own financial benefit.

New Tax Forms
The report also contained data on filings using the redesigned Form 990. It suggested the full impact of the new form and its expanded disclosure requirements has yet to hit for many of the nation's smaller charities. That's because many charities took advantage of the three-year transitional window the IRS established, in which small organizations could file Form 990-EZ instead of Form 990. (Form 990-EZ wasn't changed when the IRS revamped Form 990 for the 2008 tax year.)

The new Form 990 requires more-detailed reporting about organizations' governance policies and executive compensation, among other things. Many groups, however, are avoiding using that form until they are required to do so.

For the 2008 tax year, for instance, organizations with gross receipts of $25,000 to $1-million and assets of less than $2.5-million could file Form 990-EZ.

That led to a big change as the number of groups that filed the regular Form 990 on paper fell 51 percent from the 2007 to the 2008 tax year. Meanwhile, the number of Form 990-EZ paper returns shot up by 80 percent.

Eric Frazier is a contributor to The Chronicle of Philanthropy. Eric Kelderman, of The Chronicle of Higher Education, contributed to this article.

The College Debt Crisis: A CNBC SPECIAL REPORT

Dec. 20, 2010

The College Debt Crisis: A CNBC SPECIAL REPORT

Rewriting of Regulations May Spell Trouble for Some Schools

By: Karina Frayter
Producer, CNBC

The for-profit education industry is in the fight of its life.

The Education Department early next year is expected to impose a new regulation—dubbed the gainful employment rule— that is likely to dramatically alter how the industry does its business and in some cases mean the end of some program altogether.

At stake for the $29 billion industry is eligibility for federal student loans, which accounts for almost 90 percent of all revenue.

New Play Book

The proposed regulation would require career schools and training programs to prove that they prepare students for “gainful employment in the recognized occupation”, or that their graduates earn enough to pay back student loans.

The federal government will use two separate metrics: debt-to-income ratio of the program and loan repayment rates.

Programs with unsatisfactory results would be required to disclose them to current and prospective students. They also could lose eligibility for federal student aid.

The Education Department estimates that, if existing debt thresholds remain unchanged, 5 percent of programs that are subject to the requirement would no longer be eligible for aid, while 55 percent would have to inform students of high debt-to-income ratios.

The issue of gainful employment continues to weigh heavily on the industry. An index of 13 for-profit education companies is down more than 30 percent this year. Corinthian Colleges has lost 76 percent over the last twelve months. Shares of Apollo Group, [APOL 38.80 --- UNCH ] are down 36 percent,Strayer [STRA 164.24 --- UNCH ] down 23 percent, ITT Education Services [ESI 64.58 --- UNCH ] down 34 percent, and Education Management [EDMC 14.68 --- UNCH ] down 33 percent through middday December 20.

Debt-Laden Diplomas

For-profit schools have enjoyed an impressive growth over the last decade. But high default rates among students and a questionable job placement record have rasied concerns that these institutions leave students with big debts and educations of little worth.

For-profit programs are pricey—though costs vary they are usually more expensive than public schools—and enroll high numbers of non-traditional low-income students. That places them among the biggest beneficiaries of federal student aid. University of Phoenix, a unit of Apollo, DeVry [DV 47.32 --- UNCH ] and Kaplan University, a unit of the Washington Post Company [WPO 432.06 --- UNCH ] are top recipients of federal financial aid.

And more students at for-profit programs graduate with debt. At the associate-degree level, 98.2 percent of students at for-profits graduated with debt in 2008, according to BMO Capital Markets. That compared to 38.2 percent for public nonprofit schools. Cumulative debt at graduation was $20,188 and $10,329, respectively.

A two-year program at a for-profit college on average cost $27,488 last year, according to BMO Capital Markets. The average price for a similar program at a private not-for-profit institution was $24,859, and $15,109 at a public school.

The average price for a four-year program was $31,322 at a for-profit, just marginally lower than $31,708 at a private not-for-profit, and significantly higher than $19,906 at a public school.

Students at for-profit colleges also default on their loans in higher numbers—three times the rate of graduates at private nonprofit institutions. According to one estimate from critics of the industry, without tighter regulation students at for-profit colleges will default on $276 billion of student loans over the next decade. Taxpayers would be left to foot the bill.

No Consensus on Remedy

The administration believes the gainful employment regulation will remedy the situation.

“These new rules will help ensure that students are getting from schools what they pay for: solid preparation for a good job,” said Secretary of Education Arne Duncan in a statement last October.

The industry argues that the rules are based on incomplete data and flimsy policy rationales. With traditional schools unable to meet the growing demand for higher education, for-profit programs are the best bet for people seeking vocational training or college diploma.

The Association of Private Sector Colleges and Universities says the proposed regulation is “a bad deal for all concerned”. The rules “would severely limit choice in higher education, and yet would do nothing to prevent “bad actors”.

The U.S. Chamber of Commerce says the regulation is “ill-conceived” and “will work against job creation."

Big Game Changer

Apollo Group warned investors in a recent SEC filing that compliance with the regulation “could reduce our enrollment, increase our cost of doing business, and have a material adverse effect on our business, financial condition, results of operations and cash flows.”

Similarly, Corinthian, another large operator of for-profit career colleges,said in a recent filing that the regulation would lead them to “further limit enrollment”.

The industry is waging an intense lobbying campaign. Representatives of the industry flooded Capitol Hill and federal agencies with critical letters and personal visits, stepped up donations to members of Congress, and spent millions on media advertisements.

“We are urging the Department to put the brakes on this proposal before its unintended consequences take a human toll,” said Peter Waller, former CEO of Corinthian Colleges. The Education Department received over 90,000 comments.

The Department already put out a portion of new rules surrounding gainful employment that cover incentive compensation for recruiters, deceptive advertising and the need to get state authorization for online schools. They go in effect on July 1, 2011.

The final metrics that would define “gainful employment” in terms of repayment rates and debt-to-income ratios are slated for release early next year. This part of the regulation takes effect in July of 2012.

Republicans to the Rescue?

The industry has turned its hopes to the Republican Party, which will have a large House mahority in ther new Congress. The GOP has been more sympathetic to for-profits, arguing in part that the issue of student debt should be applied to all postsecondary schools.

The incoming Republican chairman of the House Education Committee, John Kline of Minnesota, said he hopes the Education Department would ease the final version of the gainful employment rule.

“The Republicans taking over the House makes it more likely that there will be some sort of Congressional action to try and block the implementation of the regulation," says John Bailey, an industry analyst and director at the lobbying firm Dutko Worldwide.

A recent survey conducted by the firm found that 82 percent of key Washington insiders expect the Republican House to try and stop the gainful employment regulation.

There are several options available. First, they could attach a rider to an appropriations bill that prohibits the Education Department from issuing regulation on gainful employment. Or, the House appropriations committee could deny the Secretary the funds he requests to conduct the program reviews. Republicans could also request additional investigations. Just last month, two Republican senators asked for a probe into alleged leaks of the proposal.

“The challenge is that it would still need to pass the Democratic majority in the Senate and also not be vetoed by the President”, says Bailey. “ So the bar is pretty high to enact either of these strategies.”

Watch the premiere of "Price of Admission: America's College Debt Crisis," a CNBC Original documentary, Tuesday, December 21 at 9pm ET.

Bloomberg: For-Profit Education Stocks Rise as GOP Opposes Tighter Rules


December 10, 2010
By Esmé E. Deprez and John Lauerman

Representative John Kline, the Republican who will head the House Education Committee, said he opposes tighter rules for the for-profit education industry, sending company shares higher.

“I would push back really hard against a bill that might come out of Chairman Harkin’s committee,” Kline, of Minnesota, told Reuters, referring to Senator Tom Harkin, the Iowa Democrat who heads the Senate education committee. Harkin has commissioned a government probe of for-profit colleges and held hearings on their sales tactics, use of government funds and program quality.

A measure of 13 education company stocks advanced 2.6 percent at 4 p.m. New York time. Bridgepoint Education Inc. and Strayer Education Inc. gained the most, both adding 5.4 percent.

For-profit colleges have come under growing scrutiny as Secretary Arne Duncan prepares industry regulations and Senate and House committees examine how for-profit colleges mislead applicants, target veterans and register student default rates at least double those of traditional universities. Republicans are raising objections to tougher regulations as they prepare to take control of the House of Representatives in January.

“It looks like this may just be the first public confirmation of a Republican agenda that we’ve fully anticipated: that he would oppose Democratic legislation to regulate the space,” Jarrel Price, an analyst with Height Analytics in Washington, said in a telephone interview of Kline’s comments.

Opposes Rule

Kline views a regulation proposed by the Education Department as unnecessarily harmful to for-profit colleges and their students, said Alexa Marrero, a spokeswoman for the lawmaker.

The gainful-employment rule would restrict colleges from receiving federal aid if data showed their graduates have poor records for repaying government loans. Kline called the proposed rule “confusing and complex,” in an Aug. 2 letter. The rule would take effect in 2012.

“The best approach to protect students and taxpayers is for greater transparency across all sectors,” Marrero said. “He has concerns about arbitrary proposals that would limit students’ higher-education options, as the proposed gainful- employment regulation is currently drafted.”

Bridgepoint, based in San Diego, rose 89 cents, to $17.32, in New York Stock Exchange composite trading. Strayer, based in Arlington, Virginia, increased $7.88, to $154.07, in Nasdaq Stock Market composite trading.

To contact the reporters on this story: Esmé E. Deprez in New York at; John Lauerman in Boston at

To contact the editor responsible for this story: Jonathan Kaufman at

APSCU letter to H and S chairmen re: Chairman's Military Education Report

The Honorable George Miller
House Committee on Education and Labor
2181 Rayburn House Office Building
Washington, DC 20515
The Honorable John Kline
Ranking Member
House Committee on Education and Labor
2181 Rayburn House Office Building
Washington, DC 20515

Dear Chairman Miller and Ranking Member Kline:

We are writing to express our strong disappointment with the report released on December 8 by Chairman Harkin of the Senate Health Education Labor and Pensions Committee on private sector colleges and universities (PSCUs) serving military students. Increasing accessibility to higher education for servicemembers, veterans and their families is a very positive development that should be celebrated, not denigrated. As you know, the GAO recently amended its August 2010 undercover investigation of PSCUs’ recruitment and admissions practices in order to correct numerous errors about negative allegations in that report, but the damage has been done. We object to Chairman Harkin’s report on military education as making similarly damaging and inflammatory findings about PSCUs that we believe are not supported by a fair review of the facts.

The report makes no mention of the long-established relationships and regulatory protections in place between PSCUs and the Department of Veterans Affairs and Department of Defense with regard to receipt and use of this education funding. Nor does it mention that PSCUs have been among the earliest and most active participants in the Yellow Ribbon Fund program and within the Service Opportunity College that works with the Department of Defense, Active and Reserve components of military services, and 15 higher education associations.

The need for employment skills, particularly in a tough economy and with reduced capacity at traditional schools, has created the influx of military students into PSCUs, not “manipulating and misleading marketing campaigns” as the report states. Military and veteran students make informed choices every day. They have the maturity to defend their country and they have the maturity to make intelligent choices about selecting the higher education that is best for them.

Only 4.2 percent of higher education students today have any military experience whatsoever. PSCUs have a higher percentage of those with military service (6.1 percent) than any other branch of postsecondary education. Looking across all types of higher education institutions, PSCUs educate 12.4 percent of undergraduate servicemember and veteran students and 12 percent of all students in higher education. What the report should be asking is why other colleges and universities have not stepped up to accommodate the needs of our military and veteran students.

Unlike other types of institutions, outcomes for nationally accredited PSCUs are documented. Military and veteran students are selecting PSCUs because they offer career focused education, delivered in a manner that is flexible, relevant, concentrated and suited to their needs and interests. Military and veteran students routinely cite the convenience and support services provided by PSCUs as a unique strength of our schools. This type of purposeful education gets them from the military to the classroom to the workplace more efficiently, saving them – and taxpayers – money in the long run.

Any problems in the delivery of quality education to the military deserve to be addressed thoroughly and fairly. But there are many, many success stories in private sector education of military students. For example, Miller-Motte College graduate and U.S. Army veteran Angela Avellino of Cary, NC, agrees: “When my Army career came to an end, I entered the civilian workforce. As I decided to pursue a career that would provide greater personal satisfaction, I started looking for more education, first at community college and then at a career college. I am thoroughly pleased with the education I received and have no doubt that my degree in massage therapy put me on the track to a fulfilling career in spa management.”

Marine Corps veteran Will Sampson also credits a private sector college education for contributing to his success: “While I was on active duty, ECPI College of Technology provided me with the opportunity for higher education. This education allowed me to be more competitive when I entered the job market after completing my active duty commitment. I am currently employed by East Carolina Bank as Senior Vice President and Chief Information Officer. Without the choice of a school with flexible hours I would have missed out on a great education and on the opportunities which led to my current career.”

We look forward to working with the Committee in the 112th Congress to address higher education issues affecting all postsecondary institutions in a manner that does not unfairly single out private sector institutions.

Harris N. Miller
Association of Private Sector Colleges and Universities
1101 Connecticut Avenue, NW, Suite 900
Washington, DC 20036
+ 1 202 336 6754
Executive Assistant: Jackie McWilliams
+1 202 336 6706