The Triad and For-Profits

The Obama administration prods state regulators to tighten their oversight of for-profits, with a focus on job placement rates. But confusion about calculating those rates reigns, and many state agencies are understaffed and outgunned.

March 4, 2016

The Obama administration has been prodding state regulators to tighten up their oversight of for-profit colleges, in part to prevent another fiasco like the collapse of Corinthian Colleges. One focus for the feds is how state agencies track for-profits’ claims about the job placement rates of their graduates.

For example, the U.S. Department of Education wrote regulators in Arizona and several other states last November to gather information on job-placement rate reporting and verification. That caught the attention of many state agencies that monitor for-profits, said agency officials and industry experts.

“We would like to highlight or remind states of the responsibility they have,” a department official, who declined to be named, said in an interview. Those responsibilities include to “better protect students on the front end,” the official said.

The scrutiny is part of a broader push by the White House on what it says is a need for more consistency and rigor by higher education’s regulatory triad, which includes state agencies, accreditors and the federal government. Of the three, state agencies are viewed as primarily being responsible for consumer protection, with accreditors focusing on quality and the federal government on financial aid and money issues more broadly.

Nudges on state regulation, however, have had a lower profile than the administration's attempted crackdown on accreditors.

Last month John B. King Jr., the acting education secretary, and Ted Mitchell, the under secretary, mentioned this effort in a call with reporters. They were speaking about a newly created department enforcement unit that will investigate misconduct at colleges -- nonprofit and for-profit alike -- and seek to resolve student loan debt relief claims that are linked to fraud.

“We do think that a key to making the accrediting system more effective is a better sharing of information,” Mitchell said. “We would include state authorizing agencies in that information loop as well.”

Small Staff, Big Responsibility

Some of the documents that emerge from the department's request to states could be used by the enforcement unit or by a federal interagency task force on for-profits, which has contributed to several investigations and lawsuits.

For example, in January the U.S. Federal Trade Commission, which is represented on the task force, filed a lawsuit against the DeVry Education Group over job placement claims made in advertisements from DeVry University, a large for-profit chain. DeVry is contesting those allegations.

Yet while the Education Department can pull documents and prod state agencies on how they verify information submitted by colleges, department officials said they lack the authority to tell state regulators how to use job-placement data. And state regulators charged with monitoring for-profits face limits themselves, often because they are understaffed and politically outgunned.

For example, Wisconsin’s Educational Approval Board employs six people. But the state agency oversees more than 260 institutions, including for-profits as well as nonprofit colleges that are based in other states.

David Dies, the board’s executive secretary, said sectors like health care and energy get much more scrutiny than higher education, at least at the state level.

“It’s one of the least regulated industries that you have out there,” he said. “The consumer voice is nonexistent.”

Newspapers in Georgia and Florida in recent years have published investigations of the agencies that oversee for-profit in those states. The articles did not paint a flattering picture, with stories of understaffed regulators rubber-stamping approval for poorly performing and sometimes fraudulent colleges.

Calling the Georgia agency “toothless” in a 2014 investigation, The Atlanta Journal-Constitution “found a supposed watchdog agency with shoddy record keeping, antiquated processes and slapdash oversight.” For-profit-college regulation in Georgia has improved since then, according to state auditors.

The Wisconsin agency, however, has been active and even aggressive at times. In 2012 it identified problems at a Corinthian-owned Everest College campus in Milwaukee. The board suspended enrollment at the campus and for Wisconsin students at Everest University’s online arm.

Corinthian shut its Milwaukee campus later that year, just two years after it opened, meaning that Wisconsin avoided some of the problems other states and the department are dealing with in the aftermath of Corinthian’s unraveling in 2015. The state’s attorney general later sued Corinthian, joining legal challenges by many of his peers in other states.

The Wisconsin agency also tried to create minimum standards for colleges’ graduation and job placement rates, which in some ways would have resembled federal gainful employment rules. That effort collapsed. But it almost certainly contributed to an attempt by Scott Walker, the state’s Republican governor, to eliminate the board last year.

Walker eventually backed down, and Dies is still at it.

He called the Corinthian affair a “lightning rod” that has captured the attention of regulators and policy makers nationwide. But Dies said it isn’t easy to force the closure of a for-profit, even a controversial one with serious problems. One reason is that for-profits often are vocal and have clout with legislators, Dies said. But that isn’t the only factor.

“If you take action to a shut a school down, there’s collateral damage,” said Dies. “There’s a group of students who can’t finish.”

Confusion on Job Placement

Consumer advocates praised the department for trying to get states to pay closer attention to for-profits and job placement reporting.

“This is a great sign that the department is finally paying attention to an area where for-profit schools have used misleading information,” said Robyn Smith, a lawyer with the National Consumer Law Center. “Most states have largely abdicated that responsibility.”

There are differing opinions, however, on whether the White House push on state regulators and accreditors is long overdue -- or an overreach.

To some regulators, accreditors and for-profit officials, the department’s pressure on its fellow triad members is an attempt to exceed its federal authority. Several of those officials declined to comment on the record, citing a desire to not stick their necks out with an administration that is deeply critical of for-profits and increasingly inclined to act in a coordinated way to crack down on them.

The Education Department is bumping against the limits of federal law with its oversight of accreditors, a fact department officials acknowledged last November by introducing a slate of legislative proposals. One of those requests was for the U.S. Congress to allow the department to “set and enforce expectations regarding student achievement standards in accreditor recognition.”

Mitchell also addressed the job placement issue last month.

“There is no standardized measure of job placement rates. It’s one of the areas in which Congress has indicated their preference for accreditors and states to develop their own standards and articulate their own metrics for things like job placement. So we would like to continue our conversation with accreditors about how exactly they are measuring job placement. We think that we need to make that information public as well,” he said. “It may be an important place for us to talk to Congress about whether it’s time to do something that would be more regular across jurisdictions.”

Some consumer advocates would like states to set minimum job placement thresholds for colleges. For example, the National Consumer Law Center in 2014 released a report arguing for tighter regulation of for-profits at the state level. The report called for “meaningful” minimum performance standards, including rules for job placement rates.

Reaching agreement on how to determine job placement rates has proven to be tricky, however.

Bob Shireman is a former department official who played a key role in the creation of federal gainful employment standards. Shireman, now a senior fellow at the Century Foundation, said the department explored the issue of job placement rates during the 2008 transition under the new Obama administration.

Even for-profit officials at the time said job placement rates were among the best ways to hold vocational college programs accountable, according to Shireman.

The department subsequently attempted to create a methodology for calculating those rates. After producing two reports on the topic, the feds essentially punted to accreditors and states, citing limitations in data systems and available data.

As a result, some states rely on the same job placement rates colleges provide to accreditors. Others created their own reporting and verification methods.

The federal solution to this dilemma created a “little bit too much flexibility,” Shireman said. As a result, he said, little is known about how state agencies monitor job placement reporting, and whether there are consequences when problems are identified.

California’s Bureau for Private Postsecondary Education currently is bulking up its efforts on job placement reporting, with proposed revisions that are slated to be finalized soon. Colleges will need to submit rates on a publicly available “performance fact sheet” if the new rules are approved.

The bureau was created in 2010 as a division of the state’s Department of Consumer Affairs.

“We had a very bumpy start,” said Joanne Wenzel, the bureau chief for the agency, adding that the organization is “just getting to the point where we have the staffing that we needed.”

DeVry has cited uncertainty about job placement rate definitions in its challenge to the FTC’s allegations. The company said it based its advertising claims on a job placement reporting approach that is essentially the same as the method created by a group of 40 state attorneys general as part of a $102 million settlement last year with Education Management Corporation, another for-profit chain. The AGs had accused EDMC of giving false information about the job placement outcomes of its graduates.

“The FTC does not challenge DeVry University's compliance with federal standards because there is no federal or national standard for calculating employment statistics,” the company said in a nine-page written statement. “DeVry Education Group has called for a national standard for all of higher education without success. In the absence of regulation, DeVry University designed a very sound methodology for calculating the employment outcomes of its graduates. Our view was reinforced recently when a task force of 40 attorneys general prescribed a methodology very similar to the one DeVry University has had in place for years, the one that is now being challenged.”


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