forprofit

ACICS-Accredited Colleges Meet Federal Deadline

The U.S. Department of Education last month finalized its decision to terminate the Accrediting Council for Independent Colleges and Schools, a controversial national accrediting agency that oversaw Corinthian Colleges, ITT and other failed for-profits.

Before the end of December, all remaining ACICS institutions filed paperwork with the department to retain their federal aid eligibility for 18 months while seeking a new accreditor, the department said this week. The roughly 245 colleges collectively received $4.76 billion in federal aid during 2015.

Ted Mitchell, the U.S. under secretary of education, said in an interview that he was encouraged by the transition process so far for ACICS-accredited colleges.

“The institutions are taking their responsibilities seriously,” he said. “We’re working to make this transition as successful as possible.”

Most of the colleges have begun seeking approval from the Accrediting Commission of Career Schools and Colleges, a national accrediting agency. Michale McComis, the commission’s executive director, said last week that 180 ACICS-accredited institutions have formally initiated the process. He expects that number to grow to 210 colleges by the end of January.

Some experts on for-profit higher education have predicted that substantial numbers of ACICS-accredited institutions will fail to find a new agency home within 18 months. One higher education lawyer said that challenge remains, and that the department had overplayed its celebration of ACICS institutions successfully completing their federal aid extension paperwork.

Mitchell, however, said the process of getting roughly 245 institutions to sign provisional Program Participation Agreements was complex and required collaboration between the feds and ACICS-approved colleges. The agreements include monitoring and reporting requirements the department said are intended to protect taxpayers and students.

In addition, Mitchell said he was confident that well-run institutions among the group “will have the time to secure accreditation.”

ACICS has sued to block the department’s decision to de-recognize the accreditor. A judge last month denied a request from ACICS for a temporary injunction.

It’s unclear if the incoming Trump administration would be able to overturn the department’s move to eliminate ACICS, or if it would seek to try.

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Two For-Profits Must Pay Restitution to Students

A Minnesota judge this week ruled that Globe University and the Minnesota School of Business, two embattled for-profits, must pay restitution to more than 1,200 defrauded students, reported the Star-Tribune.

The state's attorney general, Lori Swanson, had sued the for-profits, alleging they had misrepresented job opportunities for graduates of their criminal justice programs. A court agreed last September, finding the two institutions had engaged in consumer fraud and deceptive trade practices.

Following that ruling, the U.S. Department of Education last month cut off the flow of federal financial aid to the two for-profits.

The institutions said in a statement that they are considering an appeal. In the meantime, they will continue to work with regulators while winding down academic programs.

"The court’s final order was limited to one program -- criminal justice -- which has not been offered for more than two years and which represented no more than 4 percent of the schools’ overall student population at any given time," the institutions said. "We are disappointed that the court’s findings, based on the testimony of only 16 students, have resulted in such significant harm to the education and degrees of tens of thousands of students and alumni."

Note: This article has been updated from a previous version to add a statement from the two institutions.

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ITT Students Seek Recognition in Bankruptcy Lawsuit

A group of five former ITT Technical Institute students have filed a lawsuit in the Southern District of Indiana seeking to be named creditors in the defunct for-profit chain's bankruptcy proceedings.

The lawsuit, filed by attorney Eileen Connor of the Project on Predatory Student Lending at Harvard University, alleges that ITT violated consumer protection laws, engaged in deceptive recruiting practices and enrolled unqualified students to generate revenue from federal and private student loans. It asks to have the case declared a class action and also asks the court to block the for-profit from collecting on private student loans taken out to attend its campuses.

ITT closed its 130 campuses in September, nearly two weeks after the U.S. Department of Education prohibited the for-profit from enrolling new students using federal financial aid. The chain had also been investigated and faced lawsuits from state and federal investigators for years before the shutdown. And its accreditor this summer found it was out of compliance with criteria.

The lawsuit seeks damages for students who allege wrongdoing and aims to strengthen their case for federal student loan discharge.

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Study Finds Variation in Quality of Phoenix Instructors

A study released Monday by the National Bureau of Economic Research (abstract available here) finds variation in the effectiveness of instructors at the University of Phoenix, using a required college algebra course to measure results. The study finds that there is not a relationship between pay and instructor effectiveness. The study concludes that "personnel policies for recruiting, developing, motivating and retaining effective postsecondary instructors may be a key, yet underdeveloped, tool for improving institutional productivity."

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Some For-Profits Exceed Limits on Federal Funding

The U.S. Department of Education on Wednesday released the latest version of an annual report on compliance with the so-called 90/10 rule, which prohibits colleges from collecting more than 90 percent of their revenue from federal aid sources.

The report identifies 17 for-profit colleges that exceeded the limit, up from 14 the previous year. Two of the for-profits, Pat Wilson's Beauty College and United Medical and Business Institute, were out of compliance for two consecutive years and, as a result, have lost their ability to collect federal aid for at least two years. 

Southern Careers Institute, which has seven campuses in Texas, was at the top of the department's list. Federal aid comprised more than 98 percent of the $33 million the for-profit collected in annual revenue.

The department also released a new analysis showing that many more for-profits would exceed the 90/10 limit if dollars from Post 9/11 GI Bill and active-duty military student benefits were counted as federal aid. Nearly 200 institutions collecting a total of $8 billion in federal aid would exceed the 90-percent limit under that scenario, according to the department. 

Democrats in the U.S. Senate have attempted to close the veterans' benefit "loophole" in the 90/10 rule. But the Republican-led Congress is unlikely to back those efforts.

 

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How for-profit institutions can generate better student outcomes and long-term success (essay)

In this year’s presidential election, Trump University brought for-profit colleges into focus, but it should hardly be considered representative of the promise that lies within postsecondary education. To the contrary, for-profit institutions can, in fact, play a valuable role in furthering knowledge and career prospects for a large group of nontraditional students, including military veterans, working adults, single parents and unemployed workers.

The ability of such institutions to effectively deliver on that promise may experience a boost in the coming year under the incoming presidential administration. The stock prices of companies running for-profit colleges rose significantly after the election of Donald Trump. The president-elect is expected to roll back regulations that have negatively impacted hundreds of struggling for-profit schools over the past four years, many of which have been wrestling with falling enrollments and unprofitable operations.

But even though for-profit colleges may be poised to benefit from deregulation under the Trump administration, the potential reduction of regulations governing the sector should not be viewed as a signal that for-profit school operators should pursue taking a passive, business-as-usual approach to managing their operations.

If the goal is to generate better student outcomes and long-term success, as well as attract new financial investment, leaders of struggling postsecondary colleges must be willing to embrace change and move forward with a sensible rethinking of their business models and a restructuring of both their institutional assets and curricula.

Headwinds

Changing demographics are a key challenge for for-profit colleges. The number of eligible enrollments peaked in 2010, and the pool of 18-year-old high school graduates that would typically pursue postsecondary education isn’t expected to rebound until 2021. Enrollments at for-profit colleges have already declined markedly since 2010 as a result of student concerns about job placement and the return on investment of a college degree. In addition, economic challenges mean that students and parents have less discretionary income and ability to pay.

For example, Congress shortened Pell Grant terms from eight years to six years, reduced overall funding for direct-loan programs like Parent Plus, and renewed support for Perkins Loans for just two years. Competition has also heightened. Online offerings from nonprofit colleges have been luring students away from campus-based for-profits. What’s more, for-profit educators have also had to contend with the exit of traditional lenders from the sector. Nontraditional lenders, such as private debt providers, are starting to emerge to fill the gap in financing, but it comes at a price: a higher cost of capital.

However, what has really been putting a choke hold on revenue and cash-flow generation for many for-profit schools -- which typically derive upward of 86 percent of their funding from federal dollars -- has been stiffer government regulation, such as the Obama administration’s gainful-employment regulation that took effect in July 2015. That rule stipulated that for-profit colleges must ensure a student’s annual debt payment does not exceed 20 percent of his or her discretionary earnings or 8 percent of his or her total earnings. Programs that do not meet the gainful-employment thresholds will need to either be discontinued or shortened, which reduces revenue. The stakes got higher in March, when the U.S. Court of Appeals rejected a challenge to the rule brought by the Association of Private Sector Colleges and Universities (which is now called Career Education Colleges and Universities). Industry operators are hopeful that relief comes from the new Trump administration, but no specific changes have been discussed or announced.

In addition, some for-profit institutions shut down due to the U.S. Department of Education declaring them ineligible for Title IV programs, terminating their students’ ability to receive financial aid. In February, for example, the department announced that it denied eligibility to 23 campuses of Marinello Schools of Beauty, leading to the subsequent closing of all 56 of the California-based institution’s schools in five states.

Given all that, it shouldn’t be surprising that the prognosis hasn’t been good for for-profit colleges. Data from the U.S. Department of Education, which analyzed the financial health of 160 private colleges, indicated that 66 for-profit institutions failed the government agency’s financial responsibility test. (The test combines three ratios from an education institution’s audited financial statements: a primary reserve ratio, an equity ratio and a net income ratio.)

A Ray of Light

All that said, owners of for-profit enterprises may have reason for hope after the new presidential administration takes over in January. But perhaps an even greater cause for optimism is the recently approved $1.14 billion sale of Apollo Education Group, which owns the University of Phoenix, to a group of three private equity firms. As former Deputy Secretary of Education Tony Miller, an investor in the deal, said at the time, “We are excited by the opportunity to build on the transformational work being done by the company. For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices and poor compliance. This doesn’t need to be the case.”

The statement is telling, but more important, it should signal a call to action to owners of for-profit enterprises. When an institution representing one of the largest operators of for-profit institutions has been able to generate interest from a group of institutional investors at a time when regulation has undercut the industry, it illustrates how restructuring can attract new investment.

Indeed, the good news is that for-profit-college administrators can undertake a number of restructuring alternatives, without resorting to filing for bankruptcy, to improve their business operations, maintain accreditation, strengthen financial resources, improve use of campus resources and bolster enrollment. Traditional Chapter 11 reorganization isn’t a viable solution for postsecondary colleges that depend on Title IV funding. But owners and administrators at these institutions can be -- and must be -- willing to be accountable, as well as more open to restructuring, if the goal is not just to survive but also to thrive.

Making the Most of Fixed Assets

The way forward for challenged institutions may not be easy, but they can take a number of practical steps. For starters, for-profit operators can scrutinize and reduce capital expenditures as well as costs for duplicate or unnecessary staff involved in campus administration.

For example, one of the biggest challenges for troubled for-profit colleges is how to use campuses efficiently and manage costs connected to long-term property portfolios. Owners of for-profit institutions should close or put up for sale any facilities that aren’t being used and hire a qualified third-party selling agent to manage the process.

As part of that, leaders of for-profits should recognize the impact of liquidity on campus asset sales. If an institution has limited liquidity, it is not going to command top dollar for the sale of its assets. Therefore, it’s crucial for administrators to improve their college’s liquidity before initiating a formal sales process by improving the efficiency of their Title IV funding operations to receive timely disbursements from the Department of Education.

Long-term leases should also be renegotiated with landlords, with the focus being to secure rent concessions. At campus locations with short lease periods or that are facing imminent shutdown, administrators should not be reluctant to move courses to other facilities off-site. They should also consider holding the same courses online to reduce costs and retain students. Beyond leases, for-profit institutions would be wise to review and renegotiate all types of contracts with major vendors for food service, conference center operations, the bookstore and other services.

When assessing institutional resources, owners of for-profits should also evaluate management and teaching staff. If a number of administrators or instructors are determined to be underutilized, or campuses are expected to close, it’s important to be able to make the hard but necessary decisions to reduce the size of the staff. Most for-profit institutions do not typically cancel programs and reduce faculty members unless they lose eligibility for the program. Or, for example, they might hire more counselors and advisers, when instead they should be more effectively training the employees that they do have to perform better and to foster a culture that encourages students not only to enroll in the institution but also to persist and graduate.

Indeed, in some instances, for-profits should not have expanded but rather should have focused on increasing retention by emphasizing student placements and outcomes, the creating of a high-quality culture, and lowering tuition costs. Strayer University, for example, reduced its expenses significantly and cut its tuition costs by 20 percent by more closely managing its operations.

The fact is that the most effective way for-profit institutions can improve their profitability is to enhance retention among their students. Thus, instead of hiring more instructors and staff, a better use of resources might be investment in data and analytics that can provide thoughtful intelligence about when a student needs help so that the institution can effectively intervene and provide the support that student needs.

Rethinking Curriculum

One of the other most important steps for-profit educators can take to improve student outcomes is to innovate their curricula, particularly programs that are relevant to students’ job placement after they graduate. Course offerings should reflect current trends in education delivery and include high-quality online courses that can strengthen retention and lower campus costs.

In addition, for-profit educators would do well to consider the role local businesses can play in developing new course material. That approach offers a win-win for businesses and pupils alike. Many students are interested in securing employment opportunities in their local community upon graduation, while companies are often eager to use low-cost interns to assist with business projects, as well as scout for future employees. In some instances, some interns are qualified to become full-time employees. Teaming up with corporate partners to develop curriculum also leads to diversification of revenue streams.

For-profit institutions can also augment their traditional sources of revenue by offering contracted education and training services to corporations. For instance, Strayer University has reportedly teamed up with Fiat Chrysler to provide education programs for its work force, including employees of the company’s auto dealerships. By engaging in such contracted services, for-profits can help train and educate new student groups and also use any additional revenues to invest in new programs and support services for their students.

One thing is certain: unless for-profit educators engage in more hands-on restructuring of their institutions, they won’t be able to serve the large number of nontraditional learners that turn to them to advance their careers. The demise of more for-profit colleges would not be a good outcome for millions of students -- or for America’s future job growth in years to come.

Joseph R. D’Angelo is a partner at the investment banking and advisory firm Carl Marks Advisors. He has extensive experience in the education sector, particularly in working with underperforming businesses and advising on restructuring matters.

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DeVry, FTC in $100M Settlement of Advertising Suit

DeVry Education Group and DeVry University agreed to settle a Federal Trade Commission lawsuit regarding the for-profit institution's use of employment statistics in advertising.

The company will pay $49.4 million to the FTC and forgive $30.4 million in institutional loans that were issued before Sept. 30, 2015. The for-profit will also forgive $20.2 million in outstanding DeVry accounts receivable balances for former students. DeVry also agreed to have specific data to support any future advertising related to graduate outcomes and educational benefits.

In a statement from the company, DeVry denied all allegations of wrongdoing. "Student services and access to federal student loans are not impacted by the settlement, and at no time has the academic quality of a DeVry University education been questioned. DeVry Group is pleased this matter is reaching resolution, particularly as its institutions implement recently announced student commitments and as we continue our focus on investments that directly support our students' success," the statement said.

In October, DeVry reached a settlement agreement with the U.S. Department of Education over a charge of unsubstantiated job placement claims in recruitment and advertising materials. The issue related to a DeVry claim that since 1975, 90 percent of its graduates were employed in their field of study within six months of graduation. The FTC lawsuit was related to the same claim and another DeVry assertion that its graduates had 15 percent higher incomes one year after graduation on average than did the graduates of all other colleges or universities.

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Bill seeks to guarantee veterans are career ready

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Spending bill contains provision aimed at blocking veterans from attending institutions where path to a job isn't assured.

Education Secretary Drops Recognition of Accreditor

In an expected move, John King Jr., the U.S. secretary of education, on Monday made the Education Department's final decision to terminate its recognition of the Accrediting Council for Independent Colleges and Schools (ACICS). The council is a national accreditor that oversees 245 institutions, many of them for-profits, which enroll roughly 600,000 students and collectively received $4.76 billion in federal aid last year.

ACICS had accredited many Corinthian College locations as well as ITT Technical Institute. King, citing "pervasive compliance" problems, followed through on a federal panel's decision to nix the council for failing to protect students and taxpayers from fraudulent and underperforming colleges. The council had appealed that decision, which the department backed previously and confirmed with King's decision this week. In a written statement, ACICS said it would "immediately file litigation seeking injunctive and other relief through the courts."

The colleges accredited by the council have 18 months to find a new accreditor or risk losing access to federal aid. Many have been scrambling to be accredited by other agencies, particularly by the Accrediting Commission of Career Schools and Colleges.

In the meantime, the department on Monday said it was adding new conditions for ACICS-accredited colleges to remain aid eligible. Those measures include monitoring, transparency, oversight and accountability requirements. The department said the conditions "establish triggers tied directly to milestones in the accreditation process to ensure that institutions not on track to receive accreditation from a federally recognized accrediting agency within 18 months are subject to progressively stronger student and taxpayer protections."

Council-accredited colleges have 10 days to agree to the new conditions or they will no longer be able to receive federal aid. The colleges must submit teach-out plans as part of the department's terms.

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Chamber of Commerce's Views on Accrediting Suit

The U.S. Chamber of Commerce filed an amicus brief in the D.C. Court of Appeals this week arguing that the Consumer Financial Protection Bureau doesn't have the authority to investigate college accreditors.

The CFPB is appealing a D.C. District Court decision that blocked its efforts to investigate the Accrediting Council for Independent Colleges and Schools and, specifically, how the agency approves for-profit colleges. Since that defeat, the Department of Education group that oversees accreditors recommended shutting down ACICS. But the CFPB in October filed an appeal arguing it had "ample authority" to oversee accreditors for violations of federal consumer protection laws.

The chamber argues in its brief that the accreditation process for for-profit colleges has "no connection to a transaction with a consumer for a consumer financial product or service, the bureau's contrary protestations notwithstanding."

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