For-profit schools ask court to stop new rules

For-profit schools ask court to stop new rules

WASHINGTON (Reuters) – A group of for-profit schools sued the U.S. government on Friday, seeking to overturn three rules that are part of a federal crackdown on the sector.

The rules are part of a larger package of new regulations being imposed on for-profit schools, accused of churning out poorly educated students with large debts.

The Association of Private Sector Colleges and Universities (APSCU), which represents more than 1,500 for-profit schools, filed the lawsuit in the U.S. District Court for the District of Columbia. It asked the court to toss out the rules, which are due to go into effect on July 1.

One rule challenged by the suit would stop deceptive advertising by schools, another bars recruiters from being paid based on how many students they enroll and a third requires states to authorize post-secondary schools for their students to be eligible for federal loans.

The lawsuit did not challenge the yet-to-be-finalized and most controversial of the reforms -- the "gainful employment" rule.

That rule would require schools to show that students are paying back federal loans or can do so. Students at schools that fall short would be barred from receiving federal loans, which would cripple many schools.

APSCU members include Career Education Corp, which owns the Sanford-Brown schools; Corinthian Colleges, DeVry Inc; Education Management Corp; ITT Educational Services; and Lincoln Educational Services.

The pending reforms have rocked shares in the sector over the past few months and Friday's suit failed to give the overall sector a lift. The Standard & Poor's education index closed 1.1 percent lower on Friday.

Shares of sector leader Apollo Group, which does not belong to APSCU, fell 2 percent.

Harris Miller, head of the trade group, said the rule barring misrepresentation by the schools was poorly done so that inadvertent misstatements by a single employee would be treated the same as intentional deception.

"We certainly oppose any misrepresentation to any actual or potential students," he said.

The Education Department defended the rules.

"We're confident that the published regulations will do the best job of protecting students and taxpayers," said department spokesman Justin Hamilton in an emailed statement.

Sector analyst Jeff Silber of BMO Capital Markets said the lawsuit was not a surprise since schools had been threatening to file suit.

"But it shows the industry is using all angles to try and fight this. I wouldn't be surprised to see the same strategy used once the final gainful employment regulations are posted," he said in an emailed comment.

The prospect of the rules has already roiled the sector as some schools tighten enrollment standards in a move to push down their loan default rates and increase graduation rates.

On Thursday, Career Education said it would cut about 600 jobs over the next several months and close a culinary school in Pittsburgh because of lower enrollment.

Apollo cut about 700 jobs in late November amid a 40 percent drop in new enrollments at its flagship University of Phoenix. Washington Post's education unit, Kaplan Higher Education, slashed about 770 positions.


I've never heard of the APSCU, I'm looking into them as we speak. I can't fault the three rules, I think they could do some good. Perhaps the way the rules are not written too well and need to be re-worded.

If more people research their school choices because of this, I will view it as a positive.

C

 

I have lived in this space for two years now, including regular meetings with the ED (just so you know DOE is department of energy, the department of education goes by ED), I have been to the government training and am a certified FSA administrator (as all CEO's of schools using FSA are required to be), I have gone through ED FSA audits, done quarterly reports, and so on, and of course I have been on the inside for much of the debate around the new rules..

I think they are fine as written and will help the industry. I also believe the association has the right to challenge them, as that is the American way. I don’t personally think it will do any good, but that is just my 2-cents.

I like the new gainful employment regulations because it shifts for-profit education back to where it should be, and where it is needed and can do the most good, with working adults who, for whatever reason, did not achieve their educational goals as young adults through traditional education channels.

DEL

 

The three rules seem reasonable and fair. I think the gainful employment regulations should extend to more then just the for-profits. Although it is a smaller percentage, the non-profits can do the same. Think of the recent stories of people $100K+ in debt for a BS in Art History or something like that.

 

This seems to be a good move toward helping the consumer, but it seems lacking. I think for-profits serve a good purpose. I have a family member enrolled at one and service has been quite good.

The problem seems to be the ill-informed consumer and pressure tactics used. The rules to keep deceptive advertising and pay based on "how many students can you coax?" seem to be a great start, but they fell short on consumer protection. For example, a known for-profit is $550/credit, in my area at least, for a BS in Business Administration or $66,000 for 120 credits. That's a lot of money! Students don't see the larger picture when they enroll or truly understand the cost of what they are buying, and this seems to be the issue. They graduate with lots of debt and complain. We all know state schools and others are cheaper, but the audience that some of the for-profits targets are not well educated on their choices. If the public had a better understanding of this school compared to that school, the problems would be reduced.

For-profits are necessary, most do a good job, and they keep competition alive. If schools, and all of them should be included, had to sit down and show the true total cost, including how much will be loans, some issues may be resolved.

 

I don't think the real problem with for profits and the ability to pay back the loans is with the regionally accredited institutions. I think the big problem are the career schools that charge exorbitant tuition for programs that lead to dead end employment. I'm talking about the NA schools that offer associates degrees in subjects like administrative assistant studies, dental front office, or medical assisting. I just checked the websites of every APSCU member in my city. Each website touted that financial aid was available, but of the dozen or so websites, none of them made tuition information available. I did a quick Google search and found a comment from a former student who mentioned having paid $40,000 in tuition to earn a practical nursing diploma at one of these schools.

 

The only one I have an issue with is being able to prove that their grads are able to get employment. To me that seems stupid for any school to have to prove this. There is simply to many variables as to why someone can't get a job and most of them have nothing to do with the degree a person holds.

I do think something needs to be done because there are people who go 100k into debt for a degree that is almost useless, however I am not sure this is the rules that can help that. How about employing a 1 credit class free of charge to these students to make darn sure that they understand the debt load they will have as well as job potential after graduation. Wouldn't this eliminate some of the problem? Or at least eliminate the ones who cry uncle that they didn't know what they were getting into......

 

I have a friend who is getting a 18k AA degree in Criminal Justice from Daymar College... I posted about her awhile back... Now that is highway robbery but who is really at fault here? The school or the student? If there were not people paying their prices then they wouldn't be in business so obviously people are paying for it...

 

I agree completely. I think they just need to do a better job of outlining the whole procedure. Sit down and show the estimated cost of the degree and what financial aid they will receive. Then show them a huge number that says LOANS under it, that way no one can say they didn't understand the costs.

 

Elsewhere on the board we have a thread asking if complex issues are ever oversimplified in the political world. This would seem to be one of them. eilla's post from earlier today is a good enough example. The issue related to gainful employment is very complicated. I've spent more than a little time thinking about the Penn Foster program for motorcycle mechanics. But I'm not a mechanic and I don't want to be a mechanic. I might just want to learn more about how to work on my bike. So when they ask me if the program led to a job I'll have to say "no" but to me that's not really the point because a job was never the goal.

I don't want schools to take advantage of people but if you're going to create laws you need to think it through. Where does individual responsibility come into the equation?

 

Good point Kizmet. Does the gainful employment rule apply to those who pay other than financial aid? Even so, some may just want to learn a subject and should not be punished for that.

On a side note, motorcycle mechanics sounds like fun.

 

Steve, Harrison Middleton University, as far as I can tell, doesn’t participate in federal financial aid programs, meaning that these new gainful employment rules don’t apply to them.

This is one of the challenges in this space; it seems very difficult for folks to understand the whole topic.

The reason the government is doing this is because when they did their congressional inquiry’s about 6 months ago, they found very poor, let’s say less-then-wonderful, recruiting practices in the very big for profits. Remember, all this FSA money is your and my tax dollars.

Also, as is pointed out when you go through the training to get certified in this space, the point of the government loans is to promote education that is good for the country. Right now getting people employed is good for the country, so focusing education into spaces where people will be employable is a good thing.

Also, and I am a little grumpy so sorry to come off gruff, but let’s not ever suggest that I am commenting on something like the usage of federal money because it supports Aspen’s business model. The fact that I have created a business model there that will comply with upcoming regulations meant to make it harder on for-profits is not a negative if you think it through, it shows we are doing things right. Further, I would never take a position that is good for Aspen but bad for students and taxpayers, that really kind of hits a nerve. I know you didn’t mean it that way, but there was no need to couch a reply to me with that type of caveat..

 

Recently someone accused me of being a socialist by me saying that adjuncting for free should not be allowed. I may come off as a socialist here again. I hate to disagree with my fellow Windward Islanders, because you are one of my online role models, but a healthy dose of government regulations is good for loaning taxpayer money. For profits do not have to rely on government regulated loans. The capitalist in me is recommending that for profits (those against loan regulations) should stop accepting government’s guaranteed loans and start financing their student’s education either thought their own profit or by bank loan etc. Then they should come back in a few years and tell us how great it was not to be accepting government regulated loans.

 

Government subsidized industry allows for a distinct competitive advantage …

Why might it be more fitting that the traditional B&M colleges /universities receive government regulated student loan subsidy and not allow those same loan subsidies be also available to accredited for-profit universities?

 

I agree Steve.

Again the not-for-profits (re traditional /entrenched education B&M institutions) persist to be protected via their own cartel to be held “unaccountable” for their performances (e.g. a gainful employment rule); an endeavor to eliminate /lessen targeted for-profit competition (including those non-profit DL /online only institutions) thru Governmental regulatory enterprise. I suppose we should overlook the traditional (non-profit) education institution interest groups who’ve aligned /partnered with for-profit education management organizations (EMOs) similar to Embanet-Compass Knowledge Group’s portfolio of partnered-with universities who actively pursues and acquires traditional colleges /universities for the management of launching, marketing, soliciting student enrollments, etc. for their (traditional) own non-traditionally delivered degree programs (?).

Consider that, as a post-secondary industry, these are the same perpetually entrenched traditional education-minded B&M institutions (oligopolistic bureaucracies?) that for so long disregarded endorsement of non-traditional educational opportunities before technology, consumer demand, and for-profit market competition forced late entry into the unconventional adult post-secondary education market. Traditionalist employ their political lobbing, leverage and power in attempts to eliminate or lessen those pioneering entities that have offered, launched and sustained alternatives to traditional education methodology. Seemingly some self-declared advocates of non-traditional education have joined the traditionalists (excepting their own DL degree programs allied with for-profit EMOs re USC / Embanet-Compass $77K online MPA) as they propose discredit and additional regulation toward those more forward-thinking organizations who have been the true innovators; significantly escalating educational opportunity, demand and access for distance /online learning.

 

Your question is the answer. I will argue that in the for profit model the stakeholders whose benefits are being maximized are the shareholders not the students. Therefore, it should be reasoned that those who enjoyed the greatest reward should be willing to accept the greatest risk. What for profits had been able to accomplish was to socialize the default risk to taxpayers while on the other hand laissez-faired the profit to shareholders. For profits should share the default risk; it seem unreasonable, to ask state schools or NFPs (especially state schools) to share the default risk when there are no profit motive.

 

okydd,

I recognize that a non-profit (NPO) is technically driven by its service mission philosophy rather than by the profit motive; nonetheless the playing field is not necessarily level for the 2 organization types:

1. Perhaps the for-profit owners and/or stakeholders do participate in the greater risk (i.e. capital investment; and the “maximization” can be either profit benefit OR the other potential risk … loss). Not for the non-profit … there is no stock issuance, thus no stockholders, only “asking” e.g. fundraising thru solicitation of donations, grants, etc.
2. Both entities are corporations; a win-win.
3. Limited liability … this applies to all corporations, profit and non-profit.
4. A 501(c)3 corporation (not-for-profit) is exempt from federal and state income taxes, sales and use tax. Also, many non-profits (e.g. Real and personal property of nonprofit schools and educational institutions) do not pay property taxes on real estate they own; … not so for the for-profit C-Corporation.
5. Non-profits, are eligible for both private and government grants … not so for-profit S- (a pass-through entity) or C-Corporations.
6. The U.S. postal service even offers special rates for non-profits.
7. If a 501(c)3 status exists: Any contributions made to the non-profit allow contributors to deduct their contribution from their taxes. For-profit investors certainly can’t deduct their capital investments; and S-Corporation stockholders are limited to a capital loss of $3000 per year and C-Corporation stockholders, cannot deduct losses from personal losses or other ventures the C-Corporation might get into.
8. The so called “halo effect”: The public is more willing to offer money or time or do business with a nonprofit because of a real or “perceived” view that the non-profit organization is founded and operated in the public interest.
9. Zoning freedom: Certain types of non-profit organizations can go into any neighborhood without concern for zoning requirements. Most for-profit organizations have to apply for approval or a variance, or fight the neighbors who don’t want their clients in the neighborhood.
10. Lastly, non-profit organizations can and do make a profit; however the non-profits “profits” must be used solely for the operation of the organization or, in the case of a foundation, granted to other non-profit organizations.

Re “Your question is the answer...” I don’t follow this reply … sorry.