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Is oversight of for-profit colleges rigorous enough?

The for-profits collect many of the same benefits awarded to colleges in the public education system, but they operate with less open accountability to students and taxpayers.

Von Kemo went $75,000 into debt to earn 146 credits at the Minnesota School of Business.
MinnPost photo by Bill Kelley

This special project on for-profit colleges and universities was produced in partnership with WCCO-TV, whose story, “For profit colleges under fire: ‘They’re selling a dream,'” can be seen on its website.

MinnPost journalist Sharon Schmickle directed MinnPost’s coverage, coordinating with WCCO and working with the authors of MinnPost’s stories — Matt Herbert and Elizabeth Hustad, who are students in the University of Minnesota School of Journalism and Mass CommunicationThe first article is here: “For-profit colleges: Prospective students need to approach them with eyes wide open.”

Part two of two articles

In theory, for-profit education operates on a simple model: Student consumers buy education in an open marketplace.

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In practice, the model is anything but simple. Taxpayers have subsidized for-profit education companies with more than $30 billion per school year by backing students with federal and state loans and grants. In Minnesota alone, for-profit companies received $99 million in federal Pell grants and $17 million in state grants during 2010-2011.

And now – from students in Minnesota’s for-profit classrooms to senators in the U.S. Congress – citizens are asking whether they are getting their money’s worth and whether oversight of the for-profit education industry is adequate.

The for-profits collect many of the same benefits awarded to colleges in the public education system, but they operate with less open accountability to students and taxpayers. Some states have stepped up oversight of for-profits in recent years, and the head of the agency responsible for regulating for-profits in Minnesota says it may be time for more scrutiny here too.

“There’s more money involved, people are going into more debt, and it’s a rough and tumble marketplace,” said Larry Pogemiller, commissioner of the Minnesota Office of Higher Education. “Moving toward a more aggressive posture would be a good thing for the state to do.” 

Despite strong criticism from many students, U.S. senators and President Barack Obama, the for-profits have staunch defenders in Congress, led by Minnesota Republican Rep. John Kline. Powerful lobbying groups from both sides have weighed in on the debate, and large sums of campaign donations are at play.

Caught in the middle are students like Von Kemo of Eden Prairie, who went $75,000 into debt to earn 146 credits at the Minnesota School of Business. None of those credits would transfer to a state college, Kemo said. She has no degree. She has not landed the internship she said she was promised. She has topped out on federal student loans, and she is working as a part-time hospital tech aid.  

“I felt like I was alone when this was all happening to me,” Kemo said. “I never had ever thought anybody could do this legally, but they have and they are.”

Cumulative student debt of associate degree recipients

Number of degree recipients 2010Number with loansPercent with loansAverage debt for those with loans
MNSCU 2-year colleges13,5518,61464$17,157
Private not-for-profit institutions6845958714,680
Private for-profit institutions3,5153,2019126,912

Cumulative debt of bachelor’s degree recipients

Number of degree recipients 2010Number with loansPercent with loansAverage debt for those with loans
MNSCU four year9,8776,87770$23,879
University of Minnesota8,9695,9996726,727
Private not-for-profit institutions10,2337,4707329,126
Private for-profit institutions1,2911,1518945,065

Source: Minnesota Office of Higher Education, May 2013

State oversight criticized

Across the country, states are the official gatekeepers in determining whether for-profit institutions qualify for lucrative federal student assistance programs as well as state-funded student aid.

But state oversight has failed to keep pace with explosive growth in the for-profit sector, according to a 2011 report by the National Consumer Law Center. Enrollments in for-profits have more than doubled during the past two decades. Meanwhile, tight state budgets have diminished the staffing and funding that officials say are needed to protect students and taxpayers from abuse.

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Some states are starting to exercise their authority to rein in abuses and provide relief for students, the report says. But Minnesota isn’t in that group.

“State government’s role in this has been one more of acting when (problems are) brought to our attention,” Pogemiller said. “It’s pretty clear … here that just waiting to kind of be asked to do something may not be enough. We need to be more proactive in terms of …  surveying the landscape of what is the actual student experience out there.”

Full oversight responsibility rests with a combined network involving accrediting agencies and both federal and state government.

State government

Licensing and authorization*
Disbursing state financial aid (grants and loans)
May do independent auditing
Review and process student complaints

*Now mandated by federal law that all post-secondary institutions must be authorized for operation by the state; previously the decision of who could authorize an institution (state government or accreditor) was determined by individual states.

Federal governmentDisbursing federal financial aid (grants and loans)
Determining whether institutions meet certain criteria for federal aid as outlined in the Higher Education Act
Accrediting bodyBestow or revoke accreditation of an institution
Peer-review institutions’ practices, including whether institutions’ programs are meeting quality standards for accreditation

Information from the National Consumer Law Center 2011 report [PDF]

Federal regulations passed in 2011 have attempted to strengthen the states’ role in overseeing the sector, at times shifting certain functions from accrediting agencies to a state regulatory body. States are now required to authorize any post-secondary institution that operates within state borders. Previously an institution could appeal to its accrediting agency for authorization, circumventing the state.

Some states have toughened regulation on their own, enacting new laws or reshuffling resources for more effective enforcement of existing legislation.

“Lawmakers have begun to look for ways to better hold these schools accountable for graduating students that can find gainful employment, not be overburdened with large debt they are unable to pay back, and in this way ensure taxpayers are getting a good return on their investment,” said a July 2013 report by the National Conference of State Legislatures.

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Tennessee’s Higher Education Commission started regular audits of colleges’ graduation and job-placement rates. The state also changed how it grants licenses to post-secondary education institutions, requiring colleges to be regionally accredited – considered preferable to national accreditation – or to use words like “vocational” and “technical” in names to signify national accreditation.

Wisconsin, though stretched for resources (five employees of the state’s Educational Approval Board oversee 193 schools, according to the NCLC’s report), has attempted to investigate complaints more thoroughly, at times delegating responsibility to other state agencies.

Maryland decided in 2011 to provide state grant money only to students attending public or non-profit schools, and California has tied eligibility for its Cal Grants program to federal standards for student loan default rates and graduation rates. Currently, 80 percent of the state’s for-profit colleges are on track to lose federal dollars by the time this change takes effect, according to the National Conference of State Legislatures.

Connecticut this year enacted a requirement that every prospective student who is accepted for admission be given a financial aid shopping sheet developed by the Consumer Financial Protection Bureau and the U.S. Department of Education. The sheet outlines the cost of attending the school as well as financial aid options, and it compares the school’s graduation and loan default rates with national averages.

Transparency questioned

Federal regulations that go into effect next year will block federal student financial aid to schools where students default at rates the government deems too high. 

On the surface, it appears that students at Minnesota for-profit colleges repay their loans as reliably as their counterparts in other institutions. But a U.S. Senate investigation found that some for-profits are suppressing their default rates by pushing students into loan deferments or a special forbearance arrangement where the student can delay payments.

“Aggressive default management undermines the validity of the default rate indicator by masking the true number of students who end up defaulting on their loans,” said a report of the investigation’s findings. “Critically, the schools that would otherwise face penalties – including loss of access to further taxpayer funds – continue to operate because they are able to manipulate their default statistics.”

For example, the report says that from 2005 to March 2008 Minnesota-based Rasmussen Colleges Inc. “contracted with General Revenue Corporation, a subsidiary of Sallie Mae, to operate its default management.”

GRC operates call centers with hundreds of employees trained to “cure” student defaults, the report says. Pushing a student into forbearance can temporarily avert default. But interest continues to pile up under that strategy and so  loan balances continue to grow.  The upshot is that for many students, “forbearance and deferment serve only to delay default beyond the three-year measurement period the Department of Education uses to track defaults,” the report says.

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“Rasmussen had a brief relationship with GRC for a small number of our campuses. GRC did not meet the College’s expectations and the relationship was short-lived,” a PR representative for Rasmussen said in an email.

Trenda Boyum-Breen, Rasmussen’s chief academic officer, said that the college does not encourage forbearance and deferment for its students, but that students learn about all repayment options as part of the college’s financial advising.

Boyum-Breen said Rasmussen has lowered default rates in part by screening students in advance and turning away about 20 percent of applicants.

Problems: few or many?

Von Kemo initially liked what she heard from recruiters at the Minnesota School of Business about entering a program to become a catheterization lab technician. She said she was promised an internship that would offer valuable training and eventually lead to a job paying between $60,000 and $100,000. But once she’d sunk $75,000 into student-loan debt, she decided she couldn’t risk spending any more at the school. She dropped out.

“I had personal loans. I had federal loans and everything like that,” Kemo said. “I had topped out in federal loans.”

Kemo said she considered contacting the Minnesota Attorney General, her legislators and other authorities. But she wasn’t sure authorities could do anything under current regulations.

Senate Majority Leader Larry Pogemiller
Larry Pogemiller

“As the consumer of any kind of product, when you see people that are peddling things that are not what they say they are, you automatically think it’s illegal, (that) there is no way they are allowed to do that,” she said.

Pogemiller said he is not certain how many for-profit students are in Kemo’s predicament because the state has never fully explored that question. One small study under way has surveyed students at for-profits and some other colleges.

The state office is planning to assign an employee to look for patterns of problems at post-secondary institutions. Currently, the state relies for the most part on complaints students can file through a formal process and on self-reporting by the for-profits.

But Pogemiller stressed that any move toward stepped-up oversight comes down to a question of how to deploy limited state resources. 

“If you’ve got a dollar of public [money], do you put it into student financial aid, or do you put it into watching what the institutions are doing?” Pogemiller said.

Pogemiller also cautioned against going into new regulations full-force until more comprehensive information is available.

“The regulatory function of government needs to be in proportion to what’s necessary,” he said.

Dueling federal bills

On the federal level, bills that would restrict some controversial for-profit practices have been proposed in the Senate. One, introduced by Democratic Sens. Tom Harkin of Iowa and Kay Hagan of North Carolina, would prohibit the use of Pell Grants, federal student loans, the post-911 GI Bill and other federal education funds for advertising, marketing and recruitment. Democratic Sen. Al Franken of Minnesota is a co-sponsor.

A bill that some say is at odds with the Senate bill has been proposed by Minnesota Rep. John Kline, the Republican chairman of the House Committee on Education and the Workforce. The bill would repeal regulations requiring colleges to meet benchmarks related to repayment of student loans and debt-to-income ratios of former students in order to qualify for federal aid, according to the Congressional Budget Office.

Alexandra Sollberger, a spokeswoman for Kline, said the legislation isn’t limited to for-profit colleges and doesn’t weaken regulation.

“The Supporting Academic Freedom through Regulatory Relief Act does not scale back regulations for for-profit colleges,” Sollberger said in an email. “Rather, this legislation aims to eliminate three specific regulations that would have a punitive effect on all institutions of higher education.”

Rep. John Kline
Rep. John Kline

The legislation garnered opposition from veterans’ organizations, unions, non-discrimination organizations and consumer advocates. In a letter to Kline and other members of the Higher Education and the Workforce Committee and a related subcommittee, 40 organizations claimed the bill would hurt students and help schools that use deceptive recruiting practices.

 “The bill would reward institutions that deceive prospective students and provide low-quality, overpriced educational services, when we should instead be rewarding schools that successfully train students for productive careers,” the letter said.

Kline is among Congress members who receive substantial campaign-finance support from the for-profit college industry. Among the higher-education organizations that support the bill is the Association of Private Sector Colleges and Universities, which contributed $5,000 to Kline’s campaign this year, according to Federal Election Commission filings.

All told, Kline received more than $100,000 in political donations from companies, employees and political action committees associated with for-profit colleges between April 1 and June 30 of 2013, according to FEC records. During the 2012 election, Kline was the House’s top receiver of political donations from the for-profit education sector, taking in $209,609, according to the Center for Responsive Politics. Kline’s office did not comment on his political donations.

Democrats also get substantial campaign money from the for-profit education sector.

White House weighs in

In late August, President Obama proposed a plan to address the rising costs of higher education at non-profit and for-profit institutions alike. The plan calls for  a college rating system that would measure the quality of a school’s education and dictate how much financial aid would be awarded.

The plan also would set out more options for students to manage loan debt and would hold colleges and students accountable for progress made toward degrees.

Kline was skeptical.

“While I am pleased the president’s new plan recognizes the importance of promoting innovation and competition in higher education, I remain concerned that imposing an arbitrary college ranking system could curtail the very innovation we hope to encourage – and even lead to federal price controls,” Kline said in a statement in August, shortly after Obama announced the proposal.