Bad Actors, Bit Players?

Multi-state investigation of for-profits includes review of institutional loans and recruiting of veterans. But finding common targets is a problem, and investigators have yet to take on a major for-profit.

March 21, 2012

WASHINGTON – States have taken the lead in pursuing problems at for-profit colleges, at least while federal legislation grinds to a halt during an election year. But blockbuster results like the $206 billion tobacco settlement of 1998 are unlikely, said the leader of a joint investigation by 23 state attorneys general.

Jack Conway, Kentucky’s attorney general, said the diffuse nature of the for-profit industry, which ranges from tiny barber colleges to publicly traded corporations and colleges owned by hedge funds, had made it hard for attorneys general to join forces on specific cases.

“We’re sharing information but we’re having some difficulty finding common targets,” Conway said during a hearing held Tuesday by the U.S. Senate Judiciary Subcommittee on Administrative Oversight and the Courts.

That doesn’t mean that Conway and other AGs have a shortage of colleges to investigate and, in some cases, slap with serious lawsuits.

He described bankruptcy settlements he secured with the shuttered Decker College and Barkley School of Law. And Lisa Madigan, attorney general of Illinois, told senators about a lawsuit she filed in January that accuses Westwood College of a range of deceptive business practices.

Conway gave a few clues about where the group might be headed. It is investigating aggressive recruiting of veterans by for-profits, he said, including colleges that had allegedly misled wounded troops returning from Iraq and Afghanistan. Conway has met with the Consumer Financial Protection Bureau and Holly Petraeus, who has been leading the bureau’s servicemember protection office.

The two attorneys general also said they are reviewing abusive lending practices by for-profit colleges, which have increasingly offered institutional loans. The so-called 90/10 rule requires that colleges receive at least 10 percent of their revenue from sources other than federal student aid. And as Conway said, some for-profits use institutional loans to offset federal money.

That piece of the multi-state investigation relates to the nominal purpose of yesterday’s event. Sen. Dick Durbin, an Illinois Democrat, called the hearing to discuss legislation to allow student borrowers to declare bankruptcy on debt owed to private lenders, including institutional loans. But as is true of many higher ed-related discussions initiated by Congressional Democrats these days, the event became more a broad-ranging critique of for-profit colleges, with Westwood getting the worst drubbing. (Durbin and Madigan distributed video of a joint statement about Westwood, and Durbin has often criticized Westwood, which has a visible presence in his hometown of Chicago.)

“The reason this is being addressed by the attorneys general is because we don’t have the political will to address it.”
--U.S. Sen. Dick Durbin

Durbin repeatedly called criminal justice degrees from Westwood “essentially worthless,” because the college lacks regional accreditation. And Madigan said Westwood enticed prospective students with the promise of careers in law enforcement, even though major police departments in the state do not recognize those degrees and will not hire Westwood graduates.

Tuition for a Westwood criminal justice degree is $70,000, Madigan said, and the program's average student debt level is $55,000. More than 800 current and former Westwood students have contacted her office with complaints.

It’s been a rough month for Westwood, which last week agreed to a $4.5 million settlement with Colorado’s attorney general over accusations that it inflated job placement rates, among other claims.

A spokeswoman for the college, which is owned by Alta Colleges, Inc., said in a written statement that Westwood had made recentenhancements to ensure that students have all the information they need to make educated enrollment decisions.” Those changes include a 30-day trial period, during which students can take classes without financial obligations, as well as a pledge to provide money to eligible graduates who cannot find employment after graduation.

Westwood and the defunct Decker may have made for compelling “bad actor” exhibits during the hearing. But neither are (or were) big players among for-profits. If the multi-state investigation does not turn up a more impressive scalp, it will disappoint the industry’s many critics.

However, Conway’s group may be less likely to go after a for-profit with a lawsuit that crosses state lines. That’s because attorneys general concentrate on their own states, for good reason. Conway said his office takes on colleges that draw the most complaints from Kentucky residents. And so far, his seven investigations have focused on colleges with a heavy Kentucky presence. But a branch campus of a national chain could be a target.

Durbin said the multi-state investigation was in the best position to take on potential abuses in the industry.

“The reason this is being addressed by the attorneys general is because we don’t have the political will to address it,” he said of his Congressional colleagues.

The four senators who attended the hearing, all of whom are Democrats, asked the attorneys general how they could help.

Conway said information some for-profits use with students -- like job placement rates -- doesn’t match up with what they submit to accrediting agencies. State investigators need some help from the federal government in understanding what for-profits need to provide to accreditors, he said. And Madigan cited a need for stronger whistleblower protections for students at both the state and federal levels.

Both attorneys general said they were committed to moving forward with the multi-state investigation. The information sharing has been worthwhile, they said, and combating fraud and other abuses at for-profits is a top priority.

“We are looking at student loans as really the next predatory lending issue,” Madigan said.


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