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Kentucky Showdown

November 3, 2011

Kentucky has become an unlikely battleground in the fight over for-profit colleges. From his office in Frankfort, Jack Conway, the state’s attorney general, is investigating seven for-profits, attempted to join a whistleblower lawsuit against Educational Management Corporation and is leading a group of attorneys general from 22 states in a joint inquiry into potential abuses in the industry.

Conway says his goal is consumer protection, an appropriate focus for Kentucky’s top law enforcement official. But an attorney general is also a politician, and Conway, a Democrat who lost a U.S. Senate bid last year, has made his crackdown on for-profits a campaign issue. (Conway is shown above, center, at a press briefing on unscrupulous business practices affecting members of the military.)

The industry is apparently taking him seriously, and scores of administrators from at least eight for-profits have donated to Conway’s opponent in next week’s election -- one group of them allegedly at the behest of their employer.

One donor is Frank Longaker, president of National College of Kentucky, Inc., which Conway’s office has sued for allegedly misrepresenting job placement numbers. Longaker has said Conway is waging an “assault on for-profit education,” and Wednesday paid for an advertisement in the Lexington Herald-Leader that was fiercely critical of Conway

High-profile investigations by attorneys general, however, sometimes fizzle, particularly after an election. For example, many in higher education say the broad inquiry of student lenders led by New York’s former attorney general, Andrew M. Cuomo, who is now governor, earned more publicity than results.

Observers point to one sign that Conway’s efforts may be losing steam already, at least the multi-state investigation: Greg Zoeller, Indiana’s attorney general, has already dropped out of the Conway-led group of AGs. In a June letter to the state’s Commission on Proprietary Education, Zoeller called the effort “informative,” but said he decided to withdraw after four months. “Our participation with the working group has largely run its course by now.”

In an interview with Inside Higher Ed, Conway vowed to continue aggressively pursuing for-profits, assuming he beats Republican challenger Todd P’Pool next week. And he said the multi-state group already has far more participation than it needs, noting that 10 states would be plenty.

"We’re in it for the long haul,” Conway said of the group.

Conjuring Big Tobacco

Both sides of the for-profit divide say Conway, who has been in office since 2007, is sincere in his concern about what he sees as fraudulent and deceptive actions by some in the industry.

Patrick Lynch, Rhode Island’s former attorney general, is working with for-profits by overseeing compliance of a recently-launched industry attempt at self-regulation. Lynch calls Conway a “great leader among the attorneys general,” and praises him for his approach to for-profit investigations. “He seems to be using a scalpel versus a sledgehammer,” Lynch said, adding that Conway gets the difference between quality for-profits and those that break the rules.

If re-elected, Conway will almost certainly continue to go after for-profits in Kentucky. But a bigger question is how far the multi-state group might push with potential legal pursuits of the sector. Such broad collaborations between state attorneys general are rare, and can result in industry-altering settlements, most notably the $206 billion tobacco agreement of 1998.

Conway mentioned that historic settlement when discussing the for-profit working group, noting that such a “global resolution” is a possibility. “Once a group of attorneys general get together we can get the attention of industry,” he said. “We have some common targets among the states.”

Even so, a tobacco-style effort is highly unlikely. Several observers said they were skeptical the group would mount any major multi-state legal challenges that involve large for-profit colleges. And while financial analysts said Conway and the other AGs pose a threat to the industry’s overall viability, the federal government remains its biggest worry.

Capitol Hill has had an active hand in the group’s work, as several of the participating AGs have met with Senators Dick Durbin and Tom Harkin and their investigative staffs. Both lawmakers have been prominent critics of the industry, particularly Harkin. And despite the overall industry wariness about possible federal action, any moves in Congress beyond hearings are unlikely, given the strong support of for-profits by Republicans who control the U.S. House of Representatives. So some of the focus on for-profits has shifted to the states.

Lynch said there is no evidence that the working group was moving forward with any formal filings. “A multi-state can be an action or it can be just a group of people who are gathering to see if an actions needs to be taken,” he said.

The industry’s primary trade group, the Association of Private Sector Colleges and Universities, declined to comment for this story. But when news of the multi-state efforts surfaced in May, a spokesman for the association told the Huffington Post that its work with the Conway-led group will “demonstrate that there is no systemic, sector-wide issue here.”

Conway agrees, for the most part. “We’re not going to say it’s systematic,” he said. “In fact it’s a minority.” So far, the group has mostly shared information, he said.

He has been careful to say that his investigations have uncovered a relatively small number of colleges that may have violated consumer protection laws. But while his office is only investigating seven colleges, he said the total of 141 for-profits operating in Kentucky “seems like a very large number for a state of 4.5 million people.”

Conway also said for-profits could benefit from a national discussion on improving consumer protection, such as how colleges can do a better job of providing information to prospective students. For example, Conway's lawsuit against National claims the college exaggerated the job placement success of its graduates. Placement rates on the college's website were higher than those it reported to an accreditor, Conway said. And National changed its website after the investigation began.

“There’s room for the entire industry to take a look at itself,” he said.

'Behind the Scenes'

Conway’s higher education roots run deep. He was a legal aide to former Governor Paul Patton, who reshaped Kentucky's higher-education system in 1997. He worked with Patton on broad legislation that sought to increase college enrollment while setting ambitious goals for public colleges.

As attorney general, Conway’s interest in for-profits was first piqued when he noticed Kentucky was still lagging in its college-going rates, but was simultaneously struggling to meet high student demand for state-funded financial aid. A decent portion of those grants went to students who attend for-profits, he said, which generally charge more in tuition and fees than public colleges.

Then, a few years ago, he intervened in bankruptcies of Decker College and the American Justice School of Law, both for-profits. He secured multi-million dollar loan forgiveness settlements for former students of those institutions.

Conway said his office uses data to identify for-profits with high loan default or student withdrawal rates. The office also looks for misleading advertisements or overaggressive student recruitment. These problems don’t just hurt students, he said, but cost the state money in wasted student aid.

In addition to his lawsuit against National College, Conway recently sued Kentucky-based Daymar College, for allegedly overcharging students for textbooks and misleading them about financial aid. He said the college forced 5,000 students to buy new textbooks at marked-up prices, using their financial aid, rather than allowing them to buy cheaper used books. Conway's office is currently investigating five other as-yet-unnamed for-profits, and has issued subpoenas to those colleges.

Conway went after a bigger fish in August, when his office filed a motion to intervene in a whistleblower lawsuit against Education Management Corporation, one of the largest publicly-traded for-profit college holding companies. Conway attempted to join the U.S. Justice Department and three other states in that suit, which accuses the company of violating federal law by paying some admissions officers with incentives based on the number of students recruited. EDMC is fighting the lawsuit, and recently filed a motion to dismiss it. (UPDATE: A federal judge last month ruled that Kentucky can't join the lawsuit, calling the state's intervention "unwarranted.")

The involvement of the federal government and the states in a whistleblower, or qui tam, lawsuit against a for-profit may encourage more such legal actions, some observers said. Consumer advocates also said Conway has helped elevate awareness of problems with for-profits among regulators and law enforcement in other states. As a result, allegations of fraud at for-profits, or nonprofit colleges for that matter, are less likely to be ignored.

Student borrowers have been a “long-neglected issue at the state level,” said Deanne Loonin, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project. She said Conway and the multi-state group have drawn attention to problems at for-profits and encouraged better coordination between state higher education regulating agencies and attorneys general.

“Some of it is behind the scenes,” she said of the group’s work, such as “getting their state agencies to shape up.”

Marshall A. Hill, executive director of Nebraska’s Coordinating Commission for Postsecondary Education, said Conway has made a difference. He has seen a more focused approach from state regulators and law enforcement in recent months.

In the past, it was difficult to get regulators in some states to pay attention to questionable practices at for-profits, or even to diploma mills, Hill said, adding that those problems “tended to get the back seat.”

But Hill said he remains skeptical that Conway and his fellow AGs will make much progress on broader regulation of the for-profit industry. The federal government would have to take the lead on anything substantial, he said.

For-Profit Donors

With an election next Tuesday, Conway has a big advantage in campaign cash and a double-digit lead in recent polls. But his investigations of for-profits have clearly helped his opponent financially.

P'Pool, a county attorney, has claimed that Conway's office is too politicized, citing the for-profit investigation in particular. And he has charged that Conway has unfairly criticized the industry on the whole.

A scan of P’Pool’s campaign disclosures reveals scores of donations from administrators at for-profits, mostly colleges that operate in Kentucky. Those donors include chief executives of ATA College, Northwestern College, Sullivan University, Harrison College, Herzing College, National College, Daymar College and Bryan College Online (not to be confused with the nonprofit Bryan College). Arthur Keiser, chancellor of Keiser University, a formerly for-profit institution in Florida that recently became nonprofit, gave to P'Pool's campaign during the primary election.

Sullivan executives in August allegedly encouraged more than 100 university employees to contribute to P’Pool’s campaign. Conway recused himself from an ensuing investigation, in which his office named a special prosecutor to determine whether university officials violated state election laws. A former admissions officer reportedly said employees were told to vote for and give money to P'Pool.

Grover Potts, Jr., a lawyer for Sullivan, declined to comment for this story, but has previously said that Sullivan did nothing coercive, according to the Lexington Herald-Leader. A.R. Sullivan, the institution's chancellor and co-founder, has called the investigation a "re-election sham."

Conway’s pursuit of for-profits has also landed him some key support, however, such as an endorsement from the Lexington newspaper, which cited his efforts to protect Kentuckians who have been “financially victimized” by for-profits.

He is also rubbing shoulders with some big names on the national stage, like Holly Petraeus, the wife of Gen. David Petraeus, who is working with the Consumer Financial Protection Bureau on military affairs. Conway and Petraeus (speaking in photo above) shared a stage at an August event at Kentucky’s Fort Campbell. During the visit, Conway said he talked with enlisted soldiers and officers about common financial problems.

“The number one complaint we heard was about for-profit college recruiters,” he said.

The use of Pentagon tuition aid at for-profits is a hot issue, which Petraeus recently weighed in on with a New York Times op-ed. Conway’s participation at the Fort Campbell event is a signal that he’s engaged in an emerging front of for-profit regulatory battles.

But for now, Conway has high hopes for the multi-state group. He said the attorneys general continue to share intelligence on the for-profit industry, which can help speed up regulatory efforts and investigations in individual states.

While most of the resulting investigations will likely involve minor players in the for-profit sphere, he said the large, publicly-traded companies won’t get a free pass. That's because some of those institutions “have probably crossed the line” with aggressive recruiting of students. Conway promises that his interest in for-profits won't wane, perhaps even if he loses next week.

"I am in this to try to right a wrong that’s been done to some students,” he said.

 

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