An investigation in The Portland Press Herald details questions being raised about the EDMC Foundation and its ties to the for-profit Education Management Corporation, known as EDMC. The article notes that many for-profit entities start tax-exempt foundations, but that the foundations aren't supposed to simply be arms of the business trying to advance the goals of the business. In the case of the EDMC Foundation, the article notes that strong ties between board members and senior officials of EDMC and also the purpose of the foundation. The EDMC Foundation provides scholarships, but only to students who attend EDMC institutions.
“If the Coca-Cola Foundation’s purpose was to give grants to people to buy Coke, that would not be seen by the IRS as an appropriate use of the charity,” said Robert Shireman, a former U.S. Department of Education official in the Obama administration, now a senior fellow at the Century Foundation and a prominent critic of for-profit higher education.
Some quoted in the article speculate that the foundation helped EDMC appear to comply with the 90-10 rule, which requires for-profit colleges to show that 10 percent of their revenues are coming from sources other than federal aid. EDMC officials denied any wrongdoing and said that the foundation's purpose was indeed charitable.
The for-profit chain ITT Technical Institutes, already facing scrutiny over its financial condition, may be in for tough times ahead. In a filing last week with the U.S. Securities and Exchange Commission, the company predicted that its new student enrollments in the last six months of 2016 will be 45-60 percent below levels of the same time period in 2015.
Apollo Education Group, the parent company of the University of Phoenix, is facing a lawsuit from two shareholders who are seeking to postpone or terminate the company's sale, according to a corporate filing posted Thursday.
Earlier this week, Apollo learned that the shareholders had filed a complaint against the company in the Superior Court of Arizona prior to a required 90-day waiting period. That complaint, in addition to requesting terminating the Apollo merger, accuses the company of corporate waste and abuse of control.
In May, Apollo shareholders approved a $1.14 billion deal for the company to be purchased by a consortium of investors.
The U.S. Department of Education introduced a new rule on June 13 that could have an outsize negative impact on historically black colleges and universities.
And no one noticed.
As the former president of Bennett College -- the nation’s oldest historically black college for women -- I have been honored to play a role in increasing the immense opportunities HBCUs have provided to black students and other students of color over the past 150 years.
I have also witnessed the sharp increase of higher education costs, even as the importance of a good college degree continues to grow. Millennials will be burdened with more student loan debt than any other generation before them. According to The Wall Street Journal, cumulative outstanding student debt has surpassed an astounding $1 trillion. Yet with a decline in state and federal support -- states are now spending, on average, 20 percent less per student than they did in 2008, according to one think tank -- colleges and universities are more and more dependent on tuition for their financial stability.
Although HBCUs provide excellent academic opportunities for their students, they do not have the monetary security other colleges and universities enjoy. For example, top-rated HBCU Howard University maintains an endowment of about $660 million, while top-rated non-HBCU Harvard University has an endowment of $36 billion.
This fiscal contrast could become an immediate problem for HBCUs and their students in light of the Education Department’s new proposed rule.
The department recently announced the revised borrower defense to repayment regulation, which would allow students to sue their college or university and default on their loans if they think that the institution misled or defrauded them during the time they were enrolled. The original rule has been around for 20 years and provides essential protections for students who have been defrauded by their educators. The revised rule would greatly expand the criteria for students to sue their educators, with a far lower burden of proof on the student.
While I agree that students must be able to petition their educational providers for student loan forgiveness if they feel they have been defrauded, I worry about the unintended ramifications of such an enormously wide-open regulation. The Education Department has estimated it will have an economic impact of $4.2 billion in tuition repayments and other costs, but that could be just the tip of the iceberg. Institutions could also accumulate mounds of fees, as legal counsels attempt to wade through the vague and confusing regulations -- a cost HBCUs can ill afford.
The new rule has other costs and implications for HBCUs, as well, by requiring institutions to obtain new and costly letters of credit from lenders. HBCUs could be negatively impacted by “financial responsibility regulatory requirements,” which could threaten “their ability to continue their historic education mission,” according to a May 2016 letter from the United Negro College Fund.
My concerns mirror theirs.
According to a Gallup-Purdue University report, black students who graduated from historically black colleges felt more supported, both academically and emotionally, than their black peers at predominantly white institutions. Additionally, HBCUs graduate 18 percent of all African-American undergraduate students and 25 percent of all African-Americans in science, technology, engineering and math fields.
I had the privilege of working alongside many bright young women of color at Bennett who have graduated to become doctors, lawyers, teachers and engineers and have all made significant contributions to the American workforce. And I hope HBCUs can continue to produce such exemplary students of color.
Unfortunately, if this rule is implemented in its current form, opportunities for black students to receive the education they need to compete in the 21st century could decline. HBCUs would be forced to funnel their already limited monetary resources into unnecessary legal counsel instead of into the classrooms where they belong.
The proposed language in the rule is vague, difficult to understand and could cost taxpayers up to $43 billion over the next 10 years. The rule change was doubtless written in reaction to the May 2015 bankruptcy of Corinthian Colleges, a for-profit college system. The federal government may have to forgive millions of dollars in loans Corinthian students now owe. HBCUs are different from for-profit colleges, but the hastily written language of the rule makes no distinction among types of institutions.
We can all agree that students must have strong protections if they can prove they have been defrauded by their academic institution. Those protections already exist, and students should be better informed of their current rights and better empowered to pursue loan forgiveness in the case of legitimate grievances. But that shouldn’t come at the cost of financial instability, especially for HBCUs whose fiscal position is often not as strong as traditionally white institutions. Policy makers should revisit the rule and include HBCUs in the public comment process, which should be extended to take into account an examination of these issues.
I am hopeful that the Department of Education will consider these concerns and invite us to the discussion table before the comment period closes Aug. 1, and will do what’s in the best interest of students, educators and taxpayers. But in the meantime, it’s essential that our community makes our voices heard.
Julianne Malveaux is an author and economist and the founder of Economic Education. She is the former president of Bennett College, America’s oldest historically black college for women.
The Higher Learning Commission announced Thursday it would defer action on a proposed merger agreement from Apollo Education Group -- the parent company of the University of Phoenix.
HLC notified Apollo that it would defer action until the U.S. Department of Education provides a written response regarding the agreement, according to a corporate filing. The regional accreditor will reconsider the merger within 30 days. If the department hasn't responded, HLC can also take up the matter in November.
Apollo is in the process of going private. In May, shareholders agreed to sell the company for $1.14 billion. That sale is subject to review by HLC and the department.
The U.S. House Appropriations Committee on Wednesday released a draft funding bill that would block implementation of federal gainful employment rules and would not back the U.S. Senate's attempt to restore year-round Pell Grant eligibility. The bill also includes $33.3 billion for the National Institutes of Health, which is $1.25 billion above this fiscal year's funding level.
The Obama administration's attempt to regulate vocational programs at colleges based on their graduates' labor-market standards went into effect last year. They apply to for-profit institutions and nondegree programs at community colleges and other nonprofit institutions. The draft House bill would prevent any of the proposed $162 billion for labor, health and human services from being used to "implement, administer or enforce" the final regulations.
Likewise, the bill does not include funding for year-round Pell, which would allow students to use the grants during summer sessions. Congress and the White House backed the elimination of that eligibility in 2011. The House proposal also would cut $1.3 billion from the Pell program, which has a roughly $7.8 billion surplus.
Consumer and higher education groups criticized the House bill, saying it would harm lower-income students. Some, however, also praised the proposed funding increase for biomedical research at the NIH.
"In addition to raiding Pell Grant funds, the draft House bill attempts again to block implementation of the commonsense gainful employment regulation designed to protect both students and taxpayers from career education programs that overcharge and underdeliver," said the Institute for College Access and Success, in a written statement.
The bill will be considered by a House subcommittee today.
On Wednesday 120 House Democrats sent a letter to the Appropriations Committee in which they opposed cuts to the Pell program.
"Rescissions, cancelations or funding level cuts will worsen the funding outlook for Pell Grants and make it harder to strengthen the program through reauthorization of the Higher Education Act, which Congress is expected to tackle in the coming months and years," they wrote. "Any current surplus balance reflects Congress’ intent and commitment to make college more affordable for millions of students through updating the Pell Grant program."
The American Federation of Teachers released a report Wednesday examining ways the Education Department can handle failing for-profit institutions.
"Students routinely leave for-profit institutions worse off than when they enrolled," said Randi Weingarten, president of the AFT. "They're ripped off financially and academically, which is a toxic combination. This report addresses how the department could develop stronger regulations for for-profit colleges, facilitating early intervention the moment it discovers financial trouble and limiting liabilities faced by students and taxpayers."
The report, "Regulating Too-Big-to-Fail Education," describes six ways the department can better regulate these institutions. The department should limit provisional certification and close a loophole that allows the agency to extend that status beyond three years. So if an institution hasn't become financially responsible after those three years, the department should eliminate the provisional certification and mandate an additional 50 percent letter of credit.
The report also advised that the department should create enforcement mandates that would automatically trigger a 10 percent letter of credit requirement. A group of federal agencies would also help the department to decide what type of event qualifies as a trigger.
A third recommendation in the report is for the department to restrict institutional spending for those colleges that fail to show financial responsibility and prohibit the institutions from creating new programs or opening new campuses.
AFT also recommended that institutions post letters of credit from their owners instead of being allowed to pay banks to post on their behalf. Finally, the report recommends calculating the letters of credit on actual risk. These letters of credit are calculated based on an institution's most recent year of revenue. AFT recommends that the department require letters of credit that accurately reflect the expense of closed school discharges and borrower defense claims over multiple years.
As Donald Trump and his supporters have sought to change the subject from Trump University, they have seized on reporting from Inside Higher Ed and other news outlets about Bill Clinton's ties to Laureate Education, which paid him $16.5 million in the honorary role of chancellor of Laureate International Universities from 2010 to 2014.
But the Republican presidential candidate's backers have also suggested -- incorrectly, it seems -- that Hillary Clinton directed tens of millions of dollars in State Department funds to the for-profit higher education company. "As secretary of state, Hillary Clinton laundered money to Bill Clinton through Laureate Education, while Bill Clinton was an honorary chairman of the group. Clinton's State Department provided $55.2 million in grants to Laureate Education from 2010 to 2012," Trump's campaign said in a statement Tuesday. "This is yet another example of how Clinton treated the State Department as her own personal hedge fund, and sold out the American public to fund her lavish lifestyle. Laureate made money by racking up student debt on vulnerable students."
The statement is factually wrong on several accounts. The State Department has not made any grants to Laureate. The statement appears to be conflating grants that the State Department made to the International Youth Foundation, a nonprofit group focused on preparing young people worldwide for work, whose president and CEO, William S. Reese, tried to correct the record in a recent letter. Reese noted that Douglas S. Becker, Laureate's founder and CEO, is the chairman of the foundation's volunteer Board of Directors -- he did not "run it," as some news reports suggested. Reese also pointed out that the organization received more grants during the administration of President George H. W. Bush than it did while Hillary Clinton was secretary of state.
An analysis of key actions 10 institutional accrediting agencies took over five years found a "highly uneven and inconsistent system of sanctions." The report from the Center for American Progress, which has previously chided accreditors for their oversight of poor-performing colleges, found that national accreditors are more likely to sanction their member colleges, but that regional agencies keep institutions on sanction for longer periods of time. The group recommended "clearer, common rules of the road about sanction terminology, definitions and use."