Sector Under Siege?

LAS VEGAS -- The annual convention of the Career College Association was just gearing up for the day Thursday when word started circulating that the U.S. Senate's education committee planned to start a series of hearings this month into the increasing flow of federal student aid money into for-profit higher education.

It was a stark reminder -- in case anyone here really needed it -- that the rapidly growing college sector faces a level of federal scrutiny probably unmatched since the early 1990s, when Congress approved a set of changes to the Higher Education Act aimed at reining in perceived abuses of the financial aid programs by what were commonly referred to as "fly-by-night trade schools."

Just how much today's environment felt like déjà vu from 20 years ago depended on whom you talked to here.

To many financial analysts, investor types and others who focus on stock prices or otherwise take a short-term view, the mood was one of steady-state alarm, focused on the cloud of intensified federal regulation that has loomed over the colleges for the last year. Those in this group believe that the for-profit sector has a target on its back, with a coalition of consumer advocates, short-selling investors (who profit if stock prices fall), and ideological government bureaucrats pushing an aggressive, activist agenda.

To some observers who've worked in and around the industry longer, though, the current round of federal scrutiny (in the form of potentially tough new rules) -- while unfair in their eyes -- is a far cry from the 1990s, for a few reasons. First, they argue, for-profit colleges are too embedded in the fabric of higher education, and too essential to meeting President Obama's goals for increasing the country's college completion rates, to be dealt with in a way that would seriously damage their ability to contribute to that effort.

Second, during the purge of the early 1990s, for-profit colleges were singled out for scrutiny, with policies put in place that focused specifically on reining them in. This time around, while some federal policy makers clearly have special concerns about for-profit colleges, higher education leaders in all sectors are feeling (and in many cases bristling at) heightened scrutiny from federal, state and other policy makers who see higher education as underperforming and costing students and taxpayers alike too much.

"I don't know anybody in our sector who doesn't think that the the '92 amendments, and all the trauma they brought about, ultimately had a positive outcome and changed the nature of quality assurance in this sector for the better -- though it was clearly something we resisted at the time," said Elise Scanlon, a Washington lawyer who spent nearly 20 years as an accreditor of for-profit colleges. "Right now it's hard to see what could come out of this round that would make things better for us, but it is clearly part of a push for better information about quality in all of higher education, at a time of increasingly scarce resources."

Mood of the Meeting

By many measures, the advocates for for-profit (or "private sector," as they prefer to call it) higher education who gathered here for the annual meeting of the sector's main advocacy group could be feeling good about where they are. Enrollments in the institutions have grown to nearly 10 percent of all postsecondary students, and the economic downturn of the last year has enrollments booming at the colleges. The exhibit hall at the meeting here was bristling with companies of all sorts seeking to sell their services to the institutions, a reflection of their steady and sturdy growth. Bottom line (as it were), business is booming.

And yet, that very same enrollment growth -- and the fact that it is driven in significant part with Pell Grants and federal student loans -- has given new and added urgency to consumer advocates, federal regulators, and others who believe that the for-profit institutions are charging students too much for an education of inferior quality. (A series of critical news media stories have focused on dubious practices.) Those concerns have been at the forefront of the Education Department's push since last winter to consider a new mechanism for ensuring that vocational programs are helping their graduates find "gainful employment," among other rules aimed at bolstering the "integrity" of the federal financial aid programs.

The department's favored approach, which would judge programs based on a ratio comparing the incomes of graduates to their monthly payments on their student loan debt, has been vehemently opposed by many career college officials, who say that instituting such a policy could force the closure of many programs and potentially cut off access to college for tens if not hundreds of thousands of students in them.

Lobbyists for and leaders of the colleges have been feverishly opposing the gainful employment regulation (as well as some of the department's other expected rules), arguing that department officials do not have sufficient evidence and/or justification to support the approach and urging the Obama administration to reconsider.

They appear to have made at least minor advances in slowing down the department's progress in recent days.

On Friday, the Office of Management and Budget placed a cryptic note in the Federal Register concluding that the department's proposed program integrity rules could have a major economic impact, a designation that requires the Education Department to strengthen the evidence it must provide to justify the need for the regulation. That designation is believed to be a major reason why the Education Department has (according to reports from several sources Thursday, though unconfirmed by department officials directly) decided to hold the gainful employment proposal back from the set of proposed regulations it is expected to release a week from today.

Many Wall Street analysts and other advocates for the for-profit colleges -- eager for any signs that the Education Department may be softening its approach -- cheered that news when several sessions at the CCA meeting were interrupted with it. But others said they believed it would be a mistake to read the potential delay, and the demand that the Education Department provide more information to the budget office, as a sign that the administration is backing away from the debt/income approach to gainful employment specifically, or from tougher regulation of the sector generally.

The other news out of Washington Thursday probably was enough to keep any would-be celebration here in check. In announcing a June 24 hearing (and "a series" of others to follow) by the Senate Committee on Health, Education, Labor and Pensions, Sen. Tom Harkin (D-Iowa), the panel's chairman and long a critic of corporate higher education, cited the rapid expansion of for-profit colleges and of the federal student aid funds flowing to them. "Students at for-profit institutions are borrowing more, and more frequently, than their peers at nonprofit schools, and according to the Department of Education, one in five students who left a for-profit college in 2007 defaulted on their loan within three years," the committee's news release said.

"We need to ensure for-profit colleges are working well to meet the needs of students and not just shareholders," said Harkin. "We owe it to students and taxpayers to make sure these dollars are being well spent.”

For-profit college leaders said they welcomed the chance to tell their story. "Nontraditional students are the new tradition in higher education, and federal student aid is helping millions of working adults get the skills and abilities they need to compete in a global workforce," Harris N. Miller, president of the Career College Association, said in a prepared statement. "For these students to be successful, however, change is needed. Private sector institutions are bringing important innovations to postsecondary education, and we welcome the opportunity for a full and open exchange with the committee. These hearings will give our inclusive educational institutions an opportunity to address myths with facts and figures."

To critics of the colleges who see them as under siege (and appropriately so) from federal policy makers and others, that may sound like bravado. But if it is, it is a view fairly widely shared among those who've seen for-profit higher education survive previous tough scrutiny, as in 1992.

"Back then, lots of people said, 'Oh my god, the world's going to end, it's going to put us all out of business,' " Nancy Broff, a Washington lawyer and former general counsel of the Career College Association, said of the 1992 renewal of the Higher Education Act. "The reality is that this is a very adaptable and resilient group of people and institutions, and they have learned to adapt. And they will this time, too."

Leaders in the sector express confidence that even as federal policy makers seek greater oversight of the institutions, they will avoid steps that could severely impair the colleges' ability to meet Americans' demand for higher education, especially at a time when many public institutions are cutting their enrollments because of budget gaps. The country cannot come close to President Obama's college completion goal without help from the private sector colleges, they say.

"The long-term trend is that we need more [higher education] capacity," said Daniel Hamburger, president and chief executive officer of Devry, Inc. "In the end, I'm confident that smart people will generally find solutions that are in students' best interests."