For-Profit Seal of Approval

September 15, 2011

WASHINGTON -- A for-profit-college trade group has released standards of conduct that it hopes will become a Better Business Bureau-style “seal of approval” for colleges that sign them, giving assurance and consumer protection to students. But industry observers say too few for-profit institutions have endorsed the standards from the Foundation for Educational Success to give that seal real power, at least for now.

The foundation drummed up support from a fairly large number of lawmakers for the Tuesday release of the standards, including members of Congress from both political parties, two attorneys general and U.S. Sen. Dick Durbin, an Illinois Democrat who has been a vocal critic of the for-profit sector.

“For-profit colleges signing on to a voluntary code of conduct shows that some in the industry are willing to take a first step towards establishing standards of transparency and accountability,” Durbin said in a written statement. “More needs to be done and those schools which resist even this modest effort tell us all we need to know about their own practices and records.”

Consumer groups generally praised the specific tenets of the five-page “Standards of Responsible Conduct and Transparency,” noting that they go slightly further than expected in some areas. But critics of the colleges also say the standards mostly describe practices already required by law. For example, the standards prohibit bonuses or other incentive payments for admissions or financial aid employees, which are a no-no under recently strengthened federal guidelines.

Perhaps the most noteworthy requirement in the standards is that colleges offer students a trial period of 21 days. Students who withdraw during this “readiness opportunity” period could do so without “incurring any tuition related expenses or debt." While some for-profit providers have taken similar measures, a trial period is far from the norm in the industry.

The foundation was created by the Coalition for Educational Success, a relatively new lobbying group that has been an aggressive opponent of the Education Department’s “gainful employment” regulations. The coalition’s clout has made gains on the primary for-profit trade group, the Association of Public Sector Colleges and Universities, which just saw its chief executive depart.

Institutions representing an estimated 17 percent of the for-profit sector's enrollments have signed the standards, which will be administered by the foundation, says Avy Stein, the coalition’s co-chairman. Kaplan Higher Education Corp. and the Career Education Corp. are the major players that have signed. Adopting colleges have one year to comply with the standards. Those that make the cut will be listed on a foundation-run website for students.

“We’re ready to participate in industrywide self-regulation,” says Andrew S. Rosen, Kaplan’s CEO. “We felt the standards were a great step in the right direction.”

Other large for-profits are mulling the standards. Whether they sign will determine if the effort reaches a critical mass, industry observers say, where nonparticipants or those that can’t meet the bar suffer consequences. Officials from Capella Education Company and the Apollo Group, Inc., which owns the University of Phoenix, confirmed they were reviewing the standards and their enforcement mechanisms.

“We're going to look at it and we understand why they feel they need something like this,” says Mike Buttry, Capella’s vice president for corporate communications, in an e-mail. Capella is not a member of the coalition.

Stein says the foundation felt now was the time to roll out the standards, despite not having yet lined up more participants. “It was not possible to get everybody working on this at the same time,” he says. “We felt the best thing to do was to get them out.”

Stein predicts “rolling adherence” as more colleges come on board. And he says the current list is substantial, with two big players, one prominent “mom and pop” in American Career College, and participants representing much of the private equity stake in for-profits.

Staying in 'Good Graces'

Ed Rendell, the former Pennsylvania governor and Democratic heavy-hitter, is on the foundation’s five-member board of directors, which led the creation of the standards. He was on hand for the unveiling event, and coined the Better Business Bureau comparison.

“If they’re in compliance they’ll stay in the good graces of the foundation,” Rendell said of colleges that adopt the standards.

A former Rhode Island attorney general, Patrick Lynch, will serve as the foundation’s compliance adviser. Stein says he hopes the foundation, which is a separate nonprofit organization, will receive a mix of funding, including grants and donations as well as contributions from for-profit signatories. Lynch’s job will be to review audits that will be required annually for the “seal of approval.” The audits must be conducted by an independent audit firm.

Colleges that fail the annual review will lose their "good standing" and will presumably be yanked from the foundation's student protection website. How, and if, such a removal would be publicized remains unclear.

Stein acknowledges that many of the standards’ requirements are already covered by various regulatory bodies that oversee for-profits. But he says the standards are an attempt to put key student protections in one place, and that several aspects go well beyond what regulators currently require. In addition to the 21-day trial period, Stein says one of the strongest standards is for all admission and financial aid employees to successfully complete a compliance course every year, and that new hires must pass the course before interacting with students.

The codes of conduct hit several areas that have been problematic for some for-profits, such as the ban on incentive compensation and a required disclosure to students of information about transferability of credit and loan counseling.

Stephen Burd, editor of Higher Ed Watch, a blog published by the New America Foundation, has been a frequent critic of the for-profit industry. He says the standards are “stronger than I would have thought,” and he congratulated the coalition on his blog for “finally acknowledging that there have been abuses in the sector that have put students in harm’s way."

However, Burd and other for-profit critics say publicity is the standards’ main gain, until more colleges sign on.

“This is pretty thin soup,” Lauren Asher, president of the Institute for College Access and Success, says of the codes of conduct.

David Halperin, director of Campus Progress, says the true test will be if for-profits can meet the standards, and if the enforcement mechanism will have teeth.

“For some for-profit schools it would be a radical and useful change to live up to these standards,” he says.

Kaplan already exceeds them, says Rosen, who points to the “Kaplan Commitment” program, which includes a five-week trial period for students. But he says Kaplan will devote attention to complying with the foundation’s codes. That will cost money, Rosen says, which will be a factor for other colleges that are considering the standards. (He predicts more will.)

“You have to run the numbers,” he says. “It is expensive.”

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