James.Boswell.Provectus

Congress and the For-Profit Higher Education Industry

(c) 2011, James Boswell, All Rights Reserved

 

Governments have limited attention spans. Moreover, government’s ability to produce proportionate policy responses to information is hampered by the fact that information processing in politics is disproportionate, disjoint and episodic. (Jones and Baumgartner 2005, 20). Because of politics and inefficient agenda-setting, Congress responds only sporadically to any particular problem. (Jones and Baumgartner 2005, 21).

Congressional attention to claims of fraud and abuse by the for-profit higher education industry has been sporadic at best. Senator Sam Nunn (D-GA) conducted investigations of trade schools in the 1970s, but Congress did not take any action against the industry. (Hardie 1991).

From 1989 to 1991, the U.S. Senate Subcommittee on Investigations of the Committee on Governmental Affairs, chaired by Sen. Nunn, studied the rapid escalation of loan default costs in the Guaranteed Student Loan (GSL) program in the 1980s. The Subcommittee focused on fraud and abuse by the for-profit trade schools, which accounted for a disproportionate share of GSL default dollars. The Subcommittee’s report identified several trade school practices that contributed to fraud, abuse, and waste of GSL funds. (Nunn Report 1991).

The Subcommittee concluded that the mechanism on which oversight of schools depends (licensure, accreditation, and certification) provided little or no assurance that schools were educating students efficiently or effectively. (Nunn Report 1991). Sen. Nunn commented to a newspaper reporter that Congress had failed to protect taxpayer dollars, noting that, “Congress doesn’t deserve any blue ribbons here.” (Hardie 1991).

The Nunn Report led to a series of reforms and amendments to the Higher Education Act of 1965. Among them were three key regulations:  the 85/15 Rule,[1] a ban on financial incentives for recruiters tied to the number of students they brought into the school, and the 50/50 Rule.[2]

Subsequent Congresses, however, eviscerated these reforms. In 1998, Congress transformed the 85/15 Rule into the 90/10 Rule, increasing the allowable amount of federal funding to for-profit schools. This percentage increases even more with G.I. Bills, which are not included in that 90 percent.  (Skinner 2005).

In 2002, following attempts at removing the incentive-ban in Congress, the Department of Education opened the door again to financial rewarding of recruiters. The department provided twelve ways, or so-called “safe harbors,” in which schools could provide financial compensation to employees based on performance. (Skinner 2005).

The Higher Education Reconciliation Act of 2005 (which was Title VIII of the Deficit Reduction Act, Public Law 109-171, approved by the Senate on December 21, 2005, the House on February 2, 2006 and signed by the President on February 8, 2006) essentially did away with the 50/50 rule by providing that the quota would not include online courses, a move intended to make it easier for distance education institutions to qualify for federal aid. The idea apparently was that the 1992 restriction was outdated since it could not foresee the rise of the Internet or online education, but in fact the change brought more opportunities to for-profit schools, since they tend to operate extensively using online courses.

Against this backdrop of sporadic charges and retreats, Congress once again has the for-profit education industry on its agenda. Watchdog groups including the New America Foundation have called on Congress to tighten its oversight of for-profit colleges. Additionally, the Department of Education has been accused by these groups of coddling the for-profit higher education sector by continually turning a blind eye to widespread allegations of fraud and abuse at some of the nation’s largest chains of proprietary schools.

The complaints by watchdog groups resulted initially in action not by the legislative branch but by the executive branch. In December 2009, the Obama administration responded to these criticisms by releasing regulatory proposals that aim to strengthen the integrity of the federal student aid programs and prevent unscrupulous for-profit colleges from taking advantage of the low-income and working-class students they tend to enroll. The proposed regulations would require for-profit career colleges to prepare students for “gainful employment” or risk losing access to federal student aid. The proposed rules seek to protect students from taking on unsustainable debt they cannot repay and to protect taxpayers from high loan default rates. (Field 2011a).  U.S. Education Deputy Undersecretary Robert Shireman had long been a critic of the industry and may have been responsible for the proposed rules. (Perez 2010).

These proposals drew sharp criticism from the industry and from its supporters in Congress, and placed the issue of for-profit education regulation on Congress’s agenda. This is an example of Congressional agenda-setting by the executive. As Larocca (1999, 1) has noted, the president is often the “prime mover” of congressional politics.

Since the Obama administration proposed the “gainful employment rule” in 2009, the for-profit industry has undergone significant scrutiny in Congress, primarily in the Senate. At the request of the Senate Health, Education, Labor and Pensions (HELP) Committee, the GAO conducted an undercover investigation of several of the largest industry players. Each of the fifteen for-profit schools visited by the GAO in May and June 2010 allegedly engaged in fraudulent, deceptive or otherwise questionable practices to recruit new students. (U.S. GAO, 2010).

In 2010, the HELP Committee, chaired by Sen. Tom Harkin (D-IA), held three hearings on the issue. On March 10, 2010, Sen. Harkin stated in a HELP Committee hearing that the for-profit education industry is like the subprime housing industry, only worse. (Harkin, 2010).

Not all members of the HELP committee are as critical as Sen. Harkin. During a September 2010 hearing, Republican Sen. Richard Burr called Harkin’s hearings a “witch hunt.” Just before walking out of that hearing, Sen. Michael Enzi suggested the committee’s investigation was unfairly targeting for-profit schools. (U.S. Senate HELP Committee Hearing Transcript, September 20, 2010).

Sen. John McCain used his time to read aloud sections from lobbyist Lanny Davis’s Huffington Post article, essentially calling the committee elitist Ivy Leaguers vilifying underdog for-profit private colleges. Davis (as Sen. Al Franken, D-MN, later pointed out) is a paid lobbyist for several for-profit colleges. “This debate exemplifies the really sharp divisions between our two parties,” McCain said. “And hopefully, maybe in January it seems very clear that maybe we will have a different agenda for this committee and the United States Senate.” McCain accused his liberal colleagues of hating everything with the word ‘profit’ in it. Like Enzi before him, he left the room immediately after delivering his prepared statement. Harkin said he never thought this would dissolve into a political issue between republicans and democrats. “Is he implying politically that if the Republicans take over the Senate, that they won’t do anything about the for-profit sector, that they can just continue on as they’re doing?” he asked. (U.S. Senate HELP Committee Hearing Transcript, September 20, 2010).

The House also has the for-profit education industry on its agenda, and as in the Senate, the focus is on the gainful employment rule proposed by the executive branch. In the House, however, the issue is tied to the budget. In February 2011, as part of the budget battle, the House voted 235 to 189 to bar the Education Department from enforcing the gainful employment rule. House Minority Leader Nancy Pelosi broke ranks with fellow Democrats and the Obama administration and voted with the majority. (Matier and Ross, 2011).

Fenno (1978) would likely contend that the reason for her vote is the fact that some of the biggest recipients of the $32 billion in federal student loans and Pell Grants each year paid to for-profits are in her district, including major Democratic donor John Sperling, founder of the University of Phoenix, the nation’s largest for-profit college.  Campaign finance records show that the 90-year-old Sperling, along with his son Peter and their Apollo Group Inc., have poured about $600,000 into Democratic and Republican campaigns since 2008, including the Democratic Congressional Campaign Committee, where Pelosi has been a major fundraiser. Sperling is also a part-time San Francisco resident, and his family has purchased three mansions in the area worth $62 million. According to published reports, Sperling personally lobbied Congress against the administration’s proposed restrictions. (Matier and Ross, 2011). Other schools in Pelosi’s district that have a big stake in the federal grants rule changes include the Academy of Art University, which is one of the biggest landowners in the city, Art Institute of California, whose Civic Center-area campus is owned by Education Management Corp., a mega-chain operating in both the United States and Canada, and Heald College and Everest College, both of which are owned by the fast-growing Southern California-based Corinthian Colleges Inc. (Matier and Ross, 2011).

A Republican-authored House amendment to block the secretary from implementing the gainful employment rule cleared the House over the “no” votes of a number of Bay Area Democrats, including Reps. George Miller, Barbara Lee, Anna Eshoo and Jackie Speier. The amendment never reached the Senate, but some Pelosi allies in Washington contend that her support has given cover for the GOP to continue pressing to include the amendment in the final budget package. Pelosi spokesman Drew Hammill stated that “the leader heard from advocates on both sides of this issue, including the Art Institute of California, Heald College and Everest College – all in San Francisco.” (Matier and Ross, 2011).

Rep. Pelosi is a prime example of a legislator who was strategically selected by lobbyists. Hall and Deardorff (2006) describe lobbying as a form of legislative subsidy, a matching grant of policy information, political intelligence, and legislative labor to the enterprises of strategically selected legislators. The industry lobbyists were aware that her district includes heavy hitters in the for-profit education industry. The objective of their strategy was not to change Pelosi’s mind, but to assist a “natural ally” in achieving their own, coincident objectives. (Hall and Deardorff 2006, 69).

MCs are also now pressing their views on this agenda outside the legislative process. Over one hundred MCs signed a letter to President Obama urging the Education Department to withdraw the regulations. (Field 2011a). This end-around letter, signed by prominent Republicans such as House Education and Workforce Chairman John Kline (MN) and a number of veteran Democrats including Reps. Alcee Hastings (FL) and Robert Andrews (NJ), argued that the rules would hurt the most at-risk students. The legislators contended that the gainful employment regulations “. . . go against the very goals of federal education programs. Rather than opening the doors of opportunity for education and employment, they slam them shut on women, minorities and individuals from working families.” (Hastings 2011).The group urged the executive branch to work with Congress to develop policies that would “truly protect taxpayers’ funds and measure and improve educational quality across all sectors of higher education.” (Hastings 2011).

The debate also includes Wall Street power brokers, proof of the significance of the topic. Among the influential opponents of for-profit colleges is Steve Eisman, the equity trader who predicted the subprime mortgage crisis and profited by short selling those stocks. Eisman testified before the HELP Committee about his concern that the for-profit college industry boom, driven by easy access to federal loans, could be as destructive to the American economy as the mortgage meltdown. The for-profit industry responded that Wall Street traders such as Eisman are attacking these schools to depress their stocks so the short sellers can make more money. The Education Department inspector general is looking into those charges at the request of two Senators. (Roth 2011).

The debate also includes other Wall Street players that now own for-profit colleges. For example, Goldman Sachs has a financial interest in the Pittsburgh-based Education Management Corp., which runs for-profit colleges. Its board chairman is former Maine Gov. John McKernan (R), the husband of Sen. Olympia Snowe (R-ME). (Roth 2011).

The Association of Private Sector Colleges and Universities, which represents for-profit schools, spent $247,000 in federal lobbying in the first quarter of this year, more than double what it spent for the same period of 2010. (Roth 2011). As part of its lobbying effort, the group has retained the Podesta Group, led by Tony Podesta, an influential Democratic fundraiser. The association has been joined by others who have put together all-star teams to lobby on the issue. For example, Kaplan University, which is owned by the Washington Post Co., paid $110,000 to Akin Gump Strauss Hauer & Feld in the first quarter of this year to lobby on the issue, and $90,000 to Ogilvy Government Relations. Vic Fazio, a former Democratic Congressman from California, is a leader on the Akin Gump team, while GOP operative Wayne Berman leads the Ogilvy effort. The Washington Post Co. has also retained the Democratically connected firm of Elmendorf Ryan to make its case. (Roth 2011).

Last summer, the heads of two private equity firms that have financial stakes in for-profit colleges launched the Coalition for Educational Success to fight against restrictions on their schools. To lead its lobbying efforts, the coalition hired Penny Lee, a former adviser to Senate Majority Leader Harry Reid. The coalition originally hired Lanny Davis, former general counsel for President Bill Clinton, to be its advocate, but it dropped him after news reports that Davis was representing Ivory Coast President Laurent Gbagbo, who has been accused of violating human rights. Davis, however, is now working with the National Black Chamber of Commerce, which issued a news release attacking the Education Department for its regulations on for-profit colleges. (Roth 2011).

This paper has argued that the executive branch placed regulation of the for-profit education industry on Congress’s agenda. Unlike the subject of unemployment, this issue was not raised in response to any public outcry. As a subject of public opinion, defined as global policy preference of the American electorate (Stimson, Mackuen Erikson 1995), the for-profit education industry has received scant focus, which is not surprising given the fact that the economy, the health care debate and foreign affairs dominated the national discourse in 2009 and 2010.

There was a spike in media attention to the industry in 2010, but the attention was motivated by the executive and legislative activity, not the other way around. As King, Bentele and Soule (2007, 138) have written, “few would contest that hearings both draw attention to an issue and are an important part of the agenda-setting process.”

As Sen. Nunn commented over a decade ago, Congress may not deserve a blue ribbon for its oversight of the for-profit education industry. Sen. Harkin observed, “It is the obligation of Congress and federal regulators to provide effective government oversight and regulation of federal financial aid dollars.”  Harkin called some for-profits “federally subsidized marketing machines” that are abusing the system. If the abuses are reaching crisis proportions that compare with the mortgage meltdown, as some industry critics, including Harkin, have asserted, is this the result of a failure of Congressional oversight?

McCubbins and Schwarz (1991) distinguish between two forms of Congressional oversight: police-patrol oversight and fire-alarm oversight. The history of Congressional oversight of the for-profit education industry from the 1970s through the present supports McCubbins and Schwarz when they contend that “Congressmen tend to prefer fire-alarm oversight to police-patrol oversight.” (McCubbins and Schwarz 1991, 167).

They further suggest that “A perfectly reasonable way for Congress to pursue its objectives is by ensuring that fire alarms will be sounded . . . enabling Congress . . . to step in whenever executive compliance with congressional objectives is called into question.” (McCubbins and Schwarz 1991, 176). The uproar over the proposed gainful employment rule certainly qualifies as a fire alarm, but true to form, Congressional response has been disjoint and episodic. (Jones and Baumgartner 2005). The Senate HELP Committee is investigating, and both houses of Congress are using the proposed rule as a bargaining chip in the bigger debate over the budget, as the industry vigorously lobbies to bar implementation of the rule.

Instead of framing this issue as a dispute between the executive and legislative branches, it is more productive to frame it as an opportunity for the branches to work together to develop sound public policy. Congress and the presidency are at their most powerful when they work together. When Congress and the president combine their constitutional and legal authority in pursuit of a shared goal, they represent the power of the federal government at its zenith.

All indications are that the gainful employment rule will go into effect in 2012 as planned. Whether Congress will accept the rule as a sufficient response to the alleged industry fraud is a question that cannot yet be answered. However, given the limited attention span of Congress, combined with the fact that this issue was placed on Congress’s agenda by the executive branch, together with the aggressive and targeted industry lobbying, it is probable that Congress will not take any legislative action in this policy area, at least not before the next fire alarm sounds.

 

 

References:

Fenno, Jr., Richard F. 1973. Congressmen in Committees. Boston: Little Brown.

Fenno, Jr., Richard F. 1978. Home Style: House Members in Their Districts. Boston: Little Brown.

Field, Kelly. 2011a. “Opponents of ‘Gainful Employment’ Rule Take Fight to White House,” Chronicle of Higher Education, January 24.

Field, Kelly. 2011b. “Secretary of Education Promises ‘Thoughtful’ Gainful Employment Rule in Next Couple of Months,” Chronicle of Higher Education, April 5.

Gandy, Oscar H. 1982. Beyond Agenda Setting: Information Subsidies and Public Policy. Ablex Publishing.

Gerber, Elisabeth R., and John E. Jackson. September 1993. “Endogenous Preferences and the Study of Institutions.” American Political Science Review 87(3): 639-56.

Hardie, Ann. 1991. “Nunn Urges Overhaul of Trade School Student Aid,” The Atlanta Journal-Constitution, May 20. A4.

Hastings, Alcee. “Proposed Rule Links Federal Student Aid to Loan Repayment Rates and Debt-to-Earnings Levels for Career College Graduates.” http://www.politico.com/news/stories/0411/53109.html (Accessed April 17, 2011).

Jones, Bryan D. and Frank R. Baumgartner. 2005. The Politics of Attention: How Government Prioritizes Problems. Chicago: University of Chicago Press.

King, Brayden G., Keith G. Bentele, and Sarah A. Soule. 2007. “Protest and Policymaking:

Explaining Fluctuation in Congressional Attention to Rights Issues, 1960-1986.” Social Forces 86: 137-163.

Krehbiel, Keith. 1991. Information and Legislative Organization. Ann Arbor:

University of Michigan Press.

Larocca, Roger. 1999. Presidential Agenda Setting in Congress. Ph.D. thesis, University of Chicago.

McCubbins, Mathew and Thomas Schwarz. 1984. “Congressional Oversight Overlooked: Police Patrols versus Fire Alarms.” American Journal of Political Science 28: 165-179.

Matier, Philip and Andrew Ross. 2011. “Pelosi Joins GOP to Keep Aid Going to For-profit Colleges,” The San Francisco Chronicle, April 10.

Perez, Erica. 2010.  “For-profit Education Stocks Rally on News that Critic is Leaving D.C.,” California Watch, May 18.

Roth, Bennett. 2011. “For-Profit Colleges Field Team of Top Lobbyists,” Roll Call, April 29.

Skinner, Rebecca R. 2005. Institutional Eligibility and the Higher Education Act: Legislative History of the 90/10 Rule and Its Current Status. CRS Report for Congress, January 19.

Skinner, Rebecca R. 2005. Institutional Eligibility and the Higher Education Act: Legislative History of the 90/10 Rule and Its Current Status, The Library of Congress, Congressional Research Service, January 19.

Stimson, James A., Michael B. Mackuen, and Robert S. Erikson. 1995. “Dynamic Representation.” American Political Science Review 89: 543-565.

U.S. Congress. Senate. Health, Education, Labor and Pensions Committee. 2010. Chairman Report: “The Return on the Federal Investment in For-Profit Education: Debt Without a Diploma.”

U.S. Congress. Senate. Health, Education, Labor and Pensions Committee. 2010. Chairman Report: “Benefitting Whom? For-Profit Education Companies and the Growth of Military Educational Benefits.”

U.S. Congress. Senate. Health, Education, Labor and Pensions Committee. 2010. Chairman Report: “For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices.”

U.S. Congress. Senate. Health, Education, Labor and Pensions Committee. 2010. Bridgepoint Education, Inc.: A Case study in For-Profit Education and Oversight.” 112th Cong., 10 March.

U.S. Congress. Senate. Permanent Subcommittee on Investigations of the Committee on Governmental Affairs, Abuses in Federal Student Aid Programs, S. Rep. 102-58 (1991) (“Nunn Report”).

U.S. Department of Education. “Proposed Rule Links Federal Student Aid to Loan Repayment Rates and Debt-to-Earnings Levels for Career College Graduates.”  July 23, 2010.

U.S. Government Accountability Office. 2010. “For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices.”

 

 

 

 

[1] To qualify for federally-funded student aid, colleges and universities could have no more than 85 percent of their revenue come federal aid programs. The other 15 percent had to come from the school itself or student dollars.

 

[2] Colleges and universities—for-profit and not—were required to have no more than 50 percent of their coursework offered through correspondence, meaning no more than half of their classes could be offered online or through the mail.