In a victory for the Obama administration, a federal appeals court on Tuesday rejected a challenge by for-profit colleges of the U.S. Department of Education’s gainful employment rule.
The court upheld the administration’s rewritten regulations that are aimed at holding for-profit colleges more accountable for the earnings and loan debt of their graduates.
A three-judge appeals panel sided with a lower court’s ruling that rejected claims by the Association of Private Sector Colleges and Universities that the rule’s debt-to-earnings metrics were arbitrary and lacked congressional authority.
The appeals court again affirmed that the Education Department had the authority to craft the regulations defining gainful employment with a measure of students’ postgraduate earnings and debt. The court wrote that “it would be strange for Congress to loan out money to train students for jobs that were insufficiently remunerative to permit the students to repay their loans.”
A previous lawsuit by the for-profit college association in 2012 led a federal court to strike down key parts of the Obama administration’s original regulations. That sent the administration back to the drawing board to craft new regulations, which went into effect last July.
“When the first gainful employment regulation was struck down by the courts, we expressed hope that the era of overregulation and litigation would give way to a public-private partnership focused on giving Americans the occupational skills they need to succeed in the workforce," Steve Gunderson, APSCU's president and CEO said in a written statement. "We again call on the department to engage with us in finding ways to enhance both quality and opportunity for all students -- especially those seeking employment skills."
Linda Katehi, chancellor of the University of California at Davis, resigned Monday from the corporate board of the DeVry Education Group, which operates DeVry University. The company just last week announced that she and Ann Weaver Hart, president of the University of Arizona, had joined the board.
Katehi made the decision to quit after facing sharp criticism from consumer groups and a powerful California lawmaker, The Sacramento Beereported. Some of the pushback revolved around news last month that the U.S. Federal Trade Commission is suing DeVry over allegations that the company made false claims about its job placement rates and its graduates' earnings. A spokesman for UC Davis said DeVry approached Katehi before the FTC lawsuit went public.
“I initially chose to accept the appointment because I believed I could contribute to improving the educational experiences of the students attending DeVry institutions, but in light of a variety of other issues that have come to the fore, I have determined that I am unable to serve,” Katehi said in her resignation letter, according to the Bee.
Former students of Mattia College held a protest Monday after the institution announced this weekend that it had shut down, The Miami Heraldreported. Students said there is no one to help them, as they need to continue their education but are finding themselves unsure of their ability to transfer any credit.
The Herald recently reported on a boom in for-profit higher education, prompted by 15 state laws to encourage more for-profit colleges to open. But this boom is now being followed by closures, in part because of tougher federal enforcement of laws about colleges deemed to be a financial risk.
Public Citizen, a consumer advocacy group, filed a petition today with the U.S. Department of Education to demand that for-profit institutions that require students to sign predispute arbitration clauses not be allowed to receive federal funding.
"Taxpayers should not have to subsidize predatory schools that deny their students a day in court," said Julie Murray, an attorney with Public Citizen and author of the petition, in a news release. "The Department of Education should work quickly to protect students and their families from predatory schools trying to immunize themselves from accountability for their wrongdoing."
The petition also urges the department to bar institutions from including arbitration clauses in enrollment or other agreements with students as a condition of receiving federal aid.
Critics of for-profits have argued for years that students who are forced to sign arbitration agreements as part of enrollment are left without much legal recourse when they're defrauded by the institutions.
Grand Canyon University, a for-profit that was exploring nonprofit status but then said that such a shift seemed unlikely, is now moving ahead with a plan to make most of its academic units nonprofit, The Arizona Republic reported. The current plan would involve Grand Canyon selling its academic divisions to a nonprofit entity. But Grand Canyon Education, the for-profit organization that owns the university, would continue to offer support services to the nonprofit entity.
Apollo Education Group, Inc., which owns the University of Phoenix and is a major player in for-profit higher education, this morning announced a deal to be sold to a consortium of investors, including the Vistria Group, funds affiliated with Apollo Global Management and Najafi Companies, for $9.50 per share. The deal is a $1.1 billion transaction. When the deal closes, Tony Miller, chief operating officer and partner of the Vistria Group and former deputy secretary of the U.S. Department of Education, will become chairman of the Apollo Education Group board.
“The Apollo Education Group Board of Directors reviewed strategic alternatives and believes this transaction is in the best interest of all shareholders and strongly supports our transformation efforts,” said a statement from Greg Cappelli, chief executive officer of Apollo Education Group. “This new structure will allow Apollo Education Group the flexibility and runway it needs to complete the transformational plan at University of Phoenix, which will enable us to serve our students more effectively during a period of unprecedented volatility within our industry. We will also continue to expand our international operations and remain committed to driving principles of operating excellence.”
Apollo has faced increased scrutiny from federal and state regulators, and the company has been shrinking. Corporate filings released last month, when Apollo announced it might be sold, revealed Apollo’s first-quarter revenue is down to $586 million compared to $714.5 million a year ago. Enrollment also continues to decline. Total enrollment is at about 201,000 students, compared to about 267,000 last year.
The press release says the Vistria Group is based in Chicago and is a "private investment firm focused on investing in middle-market companies in the health care, education and financial services sectors." The firm's website is private.
At a time when many in for-profit higher education make no secret of their dislike of the current administration, which has pushed for much tougher regulation of the sector, Vistria is well connected to the Obama administration. It is led by Martin Nesbitt, whom Fortune in 2014 called a "close pal" of the president's. Nesbitt also leads the foundation planning the Obama presidential library. Miller, the Vistria official who will lead the new Apollo board, held his Education Department position during the first Obama administration.
Officials at Marinello Schools of Beauty announced Thursday that they are shutting down campus operations. This decision follows the U.S. Department of Education's announcement Monday that the institution lost the ability to participate in the federal student aid program.
“Despite Marinello Schools of Beauty's long history of compliance with regulatory requirements, the Department of Education has delayed funding to our students for over two months without specifying allegations of wrongdoing or even allowing us to respond. Repeated attempts to get the most basic information from the Department of Education about their potential concerns were rebuffed. We repeatedly informed the department that its actions could lead to the closure of the schools and it refused to provide any information about its concerns. This complete lack of due process has caused Marinello irreparable harm,” said Joe Hixson, a spokesman for the institution, in an email.
The department's investigation into Marinello alleged that the for-profit knowingly requested federal aid for students based on fabricated high school diplomas, while also “underawarding financial aid to students and charging students for excessive overtime.” The department gave Marinello until Feb. 16 to dispute the findings of their investigation, but also notified Marinello that its participation in federal aid programs would end Feb. 29.
“Without providing Marinello any time to refute or defend these untrue accusations, the department chose to cut off funding to our students at 23 schools, none of which has ever been found to have any curriculum or instructional deficiencies by our nationally recognized accreditors or the states in which they operate. We intend to appeal this decision and believe we have done nothing wrong and will defend ourselves vigorously. We object strongly to the lack of due process the department has afforded, which in turn has put our operations at risk. If the department is convinced of its position then it should have provided us with due process to contest its findings,” Hixson said.
In a news release from the for-profit, Marinello officials said they would work on transfer options for the approximately 4,300 students affected by the closure. Marinello campuses in California, Nevada and Utah will close today, while campuses in Kansas and Connecticut will close Friday.
Denver-based Westwood College announced Wednesday it will shut down in March, according to a CBS affiliate.
In November, Westwood, which has 14 campus locations nationally, announced it would stop enrolling new students. The decision came after the college made an agreement with the Illinois attorney general's office to wipe out $15 million in student loans.
In 2012, Westwood settled with the attorney general of Colorado for $4.5 million for deceptive marketing. In 2009, the college agreed to a $7 million settlement with the U.S. Department of Justice related to a complaint about filing false claims for federal student aid.