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For-Profit Debate Redux

July 22, 2011

WASHINGTON -- To many observers, the debate over how and whether the Obama administration would regulate for-profit colleges seemed to end with the release of the final “gainful employment” rule in June.

But in the Senate, debate about the for-profit sector marches on, driven by Senator Tom Harkin. The Iowa Democrat held a roundtable discussion with some for-profit college critics -- and the leaders of two private-sector colleges, including DeVry Inc.-- on Thursday, a three-hour forum that seemed to indicate that he would pursue additional legislative regulation of for-profit colleges.

The discussion centered around four questions: what should constitute success for a for-profit college, how much information students should receive before enrolling, whether the institutions should be held to tougher standards and whether there were other ways to align incentives for better performance.

Harkin, a persistent critic of for-profit colleges who held a series of hearings on the subject over the past year, returned to a frequent argument: that the sector consists of “good actors” and “bad actors,” with the latter abusing federal financial aid funds and producing students who carry thousands of dollars in debt but have little to show for it. But he emphasized that this meeting was meant to be a roundtable discussion, where for-profit boosters and critics could trade ideas on what should be done.

Perhaps unsurprisingly, few points of agreement emerged, except that any regulation should be “outcomes-based” -- a term that seemed to mean different things to different participants.

The two for-profit college representatives, Daniel Hamburger, the president and CEO of DeVry, Inc., and Hayes Batson, the president and CEO of the Regency Beauty Institute, a chain of cosmetology schools based in Minnesota, argued that regulations needed to be less complicated and burdensome.

“I find it difficult from day to day to tell you what our completion rate is,” said Batson, noting that between Regency’s accrediting agency and the federal government, the rate is measured in seven different ways “I guarantee you from a consumer’s perspective, it’s impossible.”

The for-profits’ critics noted that the final “gainful employment” regulation was eased significantly from its initial position, which would have put up to 55 percent of programs under increased scrutiny. Additional oversight of the sector is needed, they said.

A major focus of the discussion was on policies on recruiting veterans: the Higher Education Act requires at least 10 percent of an institution’s funding to come from sources other than federal financial aid, a stipulation known as the 90/10 rule. But veterans’ educational benefits, such as those provided under the Post-9/11 GI Bill, are counted separately from federal financial aid programs, meaning that veterans can be valuable for colleges because they fall into the 10 percent. For each veteran a college enrolls, nine students can be enrolled who rely on other financial aid programs, such as Pell Grants and federal student loans, said Holly Petraeus, a leader in the Office of Service Member Affairs for the Treasury Department team establishing the Consumer Financial Protection Bureau.

“For every one GI Bill or tuition assistance recipient you recruit, you can get nine other students in your Title IV category,” Petraeus said, referring to the section of the Higher Education Act that provides for student financial aid. “I think military folks are seen at this point like a dollar sign wearing a uniform in the for-profit model. They’re seen as cash.”

The for-profit representatives pushed back on that contention, saying that (in Regency’s case) their 90-10 ratio was 80-20, including many self-financing students and that (at DeVry) serving veterans had been important to the institution for years. But they said that a reevaluation of the 90-10 rule might be in order, given the recent increased focus on outcomes.

“I go back to the purpose for which it was intended, and I understand it was a proxy for ‘Is this a quality program?’ " Hamburger said. But quality is now measured in terms of outcomes, he said.

The chances of any new regulation of for-profit colleges coming out of Congress soon are slim: the House of Representatives has already come out forcefully against the Education Department’s previous regulations, including the "gainful employment" rule, and would almost certainly oppose further regulation. But Harkin indicated that he intended to keep pressing.

“It almost seems to me that there are some in the sector, not all, that quite frankly don’t want to change anything, that are quite happy with the way it is right now,” he said, referring to the Association of Private Sector College and Universities’ suit against the gainful employment rule. “They’re making great profits and they’re not being held accountable.”

 

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