On Friday, Secretary of Education Betsy DeVos announced plans to all but do away with Obama era regulations imposed on for-profit colleges to faithfully report on and help secure gainful employment for their graduates.

Under current policy, the DoE measures gainful employment by looking at a college’s graduates’ debt-to-earnings. Regulators look at two metrics: annual earnings rate and discretionary income rate. The first calculates the percent of a graduate’s annual salary that goes to loan repayment. The second calculates the annual loan repayment as a ratio to a graduates’ average earnings “minus 150% of the poverty guideline.”

For both figures, a rate or percentage of 8% is considered passing. Rates in excess of 12% are considered failing. In other words, if a graduated class pays on average more than 12% of their annual earnings in student loans every year, the DoE will remove access to Title IV Federal Aid—the means by which many for-profits take in 90%+ of their total income.

But all this will change. “Students deserve useful and relevant data when making important decisions about their education post-high school,” said U.S. Secretary of Education Betsy DeVos in a statement. “That’s why instead of targeting schools simply by their tax status, this administration is working to ensure students have transparent, meaningful information about all colleges and all programs. Our new approach will aid students across all sectors of higher education and improve accountability.”

DeVos’ proposed rule will now require non-profits as well as for-profits to report debt to earnings statistics, among other metrics. But it will no longer determine eligibility for Title IV funds.

DeVos has allowed for a 30-day period of public comment during which individuals can weigh in either for or against the measure. If nothing changes, the rescission of gainful employment regulations will go into effect July 1, 2019.

Hot Takes, Nuance, and Silence

In the corners of the internet where liberals, educators, and regulators frequent, there was an outpouring of anger and resistance to the rescission.

“Profits before people—@BetsyDeVosEd is back at it,” tweeted Army veteran and Virginia House Democratic Candidate Dan Helmer. “This move will hurt tens of thousands of Americans each year, including many of our troops.”

Many other reactions fell into the ‘this is bad’ category. But amongst think tanks, for-profit industry insiders, and conservative media outlets, there was a more nuanced picture to be painted.

Profits before people — ⁦@BetsyDeVosED⁩ is back at it. This move will hurt tens of thousands of Americans each year, including many of our troops. https://t.co/I1WARL6JbH

— Dan Helmer (@HelmerVA) August 11, 2018

For-Profits Will Now Be Held to Lower Standards than Non-Profits

That’s according to Robert Shireman, a former Obama DoE employee who worked to bring the gainful employment regulations into effect. “Absent the gainful employment rules, even the worst-performing for-profit colleges will be held to lower standards than public and nonprofit schools, which have strict financial controls to prevent the misuse of federal funds,” stated Shireman, who now is a senior fellow at The Century Foundation. “We have reams of evidence documenting predatory recruiting and abuse in the for-profit sector, including 130,000 borrowers who have filed fraud complaints—more than 98 percent about for-profit colleges. But rather than hold those schools accountable, Betsy DeVos is choosing to transfer billions of dollars into the coffers of their investors.”

.@Bob_Shireman: "Absent the gainful employment rules, even the worst-performing for-profit colleges will be held to lower standards than public and nonprofit schools, which have strict financial controls to prevent the misuse of federal funds." pic.twitter.com/nNS7fSFZaX

— The Century Foundation (@TCFdotorg) August 10, 2018

It Doesn’t Matter, the Fight Against For-Profit Education Is Already Over

That’s what Steve Gunderson, president of Career Education Colleges and Universities (a for-profit education trade association), told the New York Times. “The other side should declare victory and go home,” he said. “The reality is every school that has a program that was failing gainful employment metrics — and they knew it couldn’t be fixed — they’ve already closed. The sector today is so much better.”

He also pointed out that, since the regulations went into effect in 2010, nearly half of all for-profit schools have closed and enrollment has plummeted.

Silence

Perhaps strangest of all, this reaction comes from conservative media outlets. While the issue received massive coverage and interest throughout the liberal media, no mention was made of it on Fox News, The Wall Street Journal, Townhall, Breitbart, The National Review or the Daily Caller.

Some insight could be gleaned from the comment section on a Daily Signal editorial that ran mid-July which argued for removing regulations on for-profit education. “Mrs DeVos needs to notify the President and Congress that the Dept of Education is a waste of taxpayer money and all of its responsibility and authority and money needs to be returned to the states where the rightly belong. I.e, close that sucker down,” writes Rvsforever. The vast majority of the 50 other comments reflected similar opinions.

Cover Image: Wikimedia Commons.

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In February, President and CEO of Career Education Colleges and Universities (CECU) Steve Gunderson along with his Director of Government Relations Michael Dakduk, penned an article for Career Education Review. CECU is a lobbying firm representing the interests of for-profit education.

The authors write, “At the sector’s peak in 2009/10, we enrolled nearly 3.7 million students. The latest available data shows enrollments are down by nearly 1.5 million students.² Even higher education journalists began to take notice of the previous administration’s war against our sector. In an article describing the legacy of President Obama’s policies in higher education, editors at Inside Higher Ed wrote, ‘The colleges themselves argued that Obama and aides at the department with close ties to consumer advocates wanted to destroy the industry. They may have a point, as in recent years the (Obama) administration’s stance appears to have shifted from going after ‘bad actors’ among for-profits to a more globalized enmity.’”

According to Gunderson and Dakduk, the sentiment of the former administration has seeped into the public consciousness. And that’s bad.

For-Profit Education Faces a Different Threat

At this point, there are ample data that suggest the for-profit education sector in the U.S. doesn’t just have a few bad apples; it’s primarily comprised of them. But that argument is as old as the lobbyist rhetoric that allowed fraudsters to grow their industry by 225% between 1998 and 2008.

Many old guard for-profit educators (logically) blame the Obama administration for taking them down. By that reasoning, Trump, or at least Betsy DeVos—who has numerous investments in the for-profit sector—should be able to right the ship. (Gunderson and Dakduk begin their article writing “In November of 2016, the for-profit sector collectively breathed a deep sigh of relief.”)

But the for-profit education sector as we know it might just fall to a different enemy: itself.

When most people say ‘for-profit education,’ they mean institutions of higher education that can receive Title IV funding. These are your Phoenix, DeVry, and Strayer Universities, along with many others. But using the term for its basic meaning, it denotes far more than that.

Silicon Insurgencies

Sure there have always been vocational training programs, but in the past three to five years, there have been two explosions in for-profit education.

The first has been MOOCs. Initially offered with the true sense of ‘open,’ many MOOC providers have pivoted to for-profit models. Two leaders in this category, Udacity and Coursera, have been particularly successful. The former has achieved certified unicorn status while the later is close behind. While enrollment growth slowed in 2017, many millions of learners continue to sign up for at least one MOOC every year. Compared to the reported 40% decrease in for-profit college enrollment, we know where we’re going to put our chips.

The second explosion has occurred with coding bootcamps. These programs train coding noobs to be employable developers in a matter of a few months. In terms of time in class per dollar spent, these guys might match for-profit college price points. Their impact is still negligible compared to other for-profits. They educated just over 22,000 learners in 2017 and grossed $266 million. Still, their growth and success are undeniable. In 2013, they educated just 2,178 students.

Both MOOC-providers and coding bootcamps have seen success educating learners quicker for less money.

Growth Without the Help of Federal Student Loans

What’s more, these companies are arguably healthier for the U.S. economy. The reason? Students can’t take out a federal student loan to pay for them. They’re far more affordable and most learners simply pay out of pocket.

That’s not how it goes with for-profits. A 2012 senate report issued by a committee led by Senator Tom Harkin found that a whopping 96% of students at for-profit colleges paid tuition in full or in part with federal loans.

The explosion of for-profit universities occurred during a time when the availability of federal student loans was also drastically increasing. Opposed to non-profit institutions, which take 40% of their income at most from tuition and fees, for-profits receive over 90% of their gross revenue from what students pay.

Yes, liberal government policies took for-profits down, but they also made their explosion possible in the first place.

A quick scan of for-profit SEC filings will reveal negligible year-over-year growth or even a good deal of red ink. For the old guard of for-profit education to resume their spot on top, two things will need to happen. They’ll need to come abreast to the practices of the MOOC-providers and coding bootcamps, and they’ll need to be able to secure federal loans for their students taking these programs. Unsurprisingly, Gunderson and Dukdak call for this exactly in their article: “Reauthorization [of the Higher Education Act] must reflect this change as a growing number of adults seek postsecondary education in shorter terms and in less than 4-year BA programs. We need short-term Pell grants.”

The for-profit education industry of the last decade was never healthy. It’s time to move on.

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Last week, Bridgepoint Education made a big announcement. The for-profit education company said it would separate from its two colleges, Ashford University and University of the Rockies. Those two for-profit institutions will consolidate under Ashford and restructure as a non-profit.

The companies still need the blessing of WASC Senior College and University Commission, the U.S. Department of Higher Education, the IRS, and state regulators to complete the merge.

Classes and degrees for currently enrolled students will not be significantly affected by the restructuring.

Though pressed repeatedly by Denver Post reporters, spokesman Nolan Sundrud did not explain with any specificity why the two companies chose to merge into a non-profit.

CEO and president of Ashford University, Craig Swanson said, “We believe returning to nonprofit status will allow us to better serve students and to be judged and measured as colleges and universities should be: on our ability to foster student learning,” according to the Post.

Meanwhile, Bridgepoint Education will transition into an online program management company. Ashford University will be its first client. The San Diego-based company is no stranger digital education tools. It also owns Waypoint Outcomes, which offers educational and grading software. Both Ashford University and University of the Rockies have existing online degree frameworks as well.

The Result of a Long Slide

Bridgepoint Education has reported a steady decline in revenue for the past five years. After taking in over $750 million in 2013 with a net profit of $46 million, they reported a net loss of $70 million in 2015. As of last year, they’re back in the black, but their gross revenue has fallen to around $450 million, a 36% decrease from five years ago.

“This transformation marks the next phase in the missions of both Bridgepoint and Ashford University and is a strategic decision that leadership has been considering and thoughtfully evaluating for quite some time,” said Andrew Clark, CEO and president of Bridgepoint Education, in a statement.

Trends in For-Profit Education?

The news is the latest in a string of recent for-profit education mergers. In October, Capella Education Co. and Strayer Education Co. merged in a $1.9 billion deal.

Before that, Purdue University purchased Kaplan Inc. for $1 in order to acquire its online framework. Phoenix University has also recently closed numerous campuses.

Many involved in the industry don’t know quite what to make of these recent upheavals. On the one hand, it appears the Obama-era effort to hold for-profit education to a greater accountability seems to have successfully shutdown or hamstrung companies conducting fraudulent practices.

Regulators under the former administration found that students studying at for-profits made up only 11% of the college-going population, yet they accounted for 46% of those who had defaulted or were 9 months late on their federal loans.

Many believe this has led the ongoing decline in enrollment in for-profit education, which is now in it’s sixth year. But then again, enrollment nationwide is down. Just about the only jumps can be seen in online programs.

The current administration, however, has taken a far more dovish stance toward for-profit educators. Education Secretary Betsy DeVos has taken a particularly pro-business attitude toward education, calling for a more open education market which, in her opinion, will give parents greater freedom of choice for their children’s education. She has rolled back Obama stipulations that allow students who attended fraudulent for-profit schools to receive a forgiveness on their student loans.

Despite years of falling enrollment, for-profit stocks have rallied since the 2016 election. The passage of the new tax bill has also done nothing but good for their bottom lines.

But it may be too little to late. Many MOOC-providers turned-for-profit educators have been eating away at the marketshare. Companies like Udacity offer shorter and cheaper microdegree packages, while Coursera made waves this week announcing a full bachelor’s degree in computer science.

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During her tenure so far, U.S. Education Secretary Betsy DeVos has made it her mission to walk back regulations placed on the for-profit education industry. This week, it was revealed that she wants to take that mandate a step further by making it more difficult for students defrauded by online and in-person for-profits to forgive their federal debt.

Politico obtained a draft of a proposal on Wednesday by the Department of Education proposal that would place a higher burden of proof on individuals seeking compensation from certain for-profit institutions who were found to practice illegal and predatory behavior against their students.

The proposal seeks to put in place more stringent standards for students who can claim loan forgiveness. DeVos has, in the past, cast defrauded students as opportunists who just had to “raise his or her hands to be entitled to so-called free money.”

DeVos Wants a Higher Burden of Proof and More

If the proposal is enacted, it will play out in several different ways. To begin, it will still allow students whose alma mater misrepresented their graduates’ success or their institutions offerings to receive loan forgiveness. But the new proposal will not provide relief for students whose colleges breached their student contract.

Students will also have half the time to claim loan forgiveness—three years to be exact, compared to the former six.

In addition, DeVos wants to make it tougher for students to receive loan forgiveness by imposing a higher burden of proof on those defrauded. Under the former administration’s policy, students only needed to demonstrate a “preponderance of evidence.” The new proposal asks that students show “clear and convincing” proof of wrongdoing.

Deputy Director of higher education policy at New America Clare McCann told Politico that “They’ve made it almost impossible for borrowers to meet the misrepresentation standard by requiring them to demonstrate the intent of the school especially when students don’t have the power of discovery.” Individual students, in other words, likely will not have the financial capabilities to hire the legal help to prove wrongdoing.

“They took every dial and dialed to the far extreme,” McCann continued. It really tries to make [the regulation] as useless as possible.”

The draft will be presented in a second round of negotiations next week.

The Problem with For-Profits

During former President Barack Obama’s tenure, his administration found that about 97% of students who enrolled in for-profits took out federal loans. Roughly half of those students would later default on that loan payment compared to 7% at non-profit private colleges and 11% at non-profit public universities.

When this was discovered, regulators imposed heavy penalties on the most egregious perpetrators. Corinthian Colleges and ITT Technical Institute closed outright under the weight of severe penalties, while several others, including DeVry and Phoenix Universities, had to pay heavy fines. The former government also stipulated that institutions need to faithfully report their graduates’ professional success and provided an avenue for students who had attended the for-profit offenders to seek compensation.

This last mandate is what Secretary DeVos now seeks to curb.  She has already suspended the Obama-era policy mandating that institutions represent their graduate success rates. She has also appointed a former dean of DeVry University to head up her anti-fraud team. DeVry paid a $100 million settlement to the federal government in 2016 for defrauding their students.

While for-profit deregulation seems by and large to be a project for DeVos, the head of her administration also has (or had) some skin in the game. While it was hardly the most widespread, Trump University might have been the most notorious and egregious for-profit “college.” The institution did not settle with the federal government because New York Attorney General Eric Schneiderman got to it first.

Schneiderman’s 2013 petition against Trump University reads, “Through their deceptive and unlawful practices, respondents intentionally misled over 5000 individuals nationwide, including over 600 New Yorkers despite repeated warnings from the New York State Education Department. In the end, Trump University made $40 million in revenue.”

In the end, Trump University was forced to pay $25 million in settlements.

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On Monday, Capella Education Co., a pioneer in the online class, announced that it will be merging with Strayer Education Co. in a $1.9 bn deal. When the dust settles, the resulting company will be one of the country’s biggest for-profit educators.

The merger will comprise of a stock-for-stock exchange. Strayer shareholders will control 52% of the new entity while Capella shareholders will get the rest. Both companies are publicly traded and, following the deal, Strayer’s shares rose 7% while Capella’s gained 27%.

Both players have years of experience in education geared towards adult learners. Capella University, the institution named after its parent company, was established in 1993 out of Minneapolis and currently offers 142 online graduate and undergraduate specializations along with 25 certificate programs.

Strayer University is over 100 years old and, with dozens of campuses throughout the U.S., offers on and offline courses, primarily in business. Current enrollment between the two schools totals over 80,000.

Regulatory uncertainty

Among established for-profit educators lately, it’s been a question of band together or die alone. In September, the Phoenix New Times reported that the University of Phoenix, which at one time counted 500,000 students, will close 20 different campuses once current students finish their programs.

If that gives you deja vu, don’t worry, you’re not crazy. In 2012, the country’s one-time biggest for-profit university closed 100 campuses and laid off 800 staff.

One of the significant causes of this had been the Obama administration’s campaign against for-profit educators cashing in on federally-issued student loans. In 2008, when President Barack Obama took office, about 1 in 10 federal student loans were issued for people entering for-profit universities or colleges. At the time, among those who defaulted on their federal loans or were at least 9 months late on payment, 44% were from for-profit graduates.

Responding to hundreds of accounts of suspected fraud, the White House passed sweeping regulatory changes. What became known as the gainful employment policy mandated that, for colleges to receive federal loans under the Higher Education Act Title IV, it must adequately prepare students to enter the job market after graduation. The regulations caused the immediate closure of two of the country’s biggest for-profit educators: Corinthian Colleges and ITT Technical Institutes.

But the Trump administration has been far more lenient. In June, the Education Department under Education Secretary Betsy DeVos froze orders that would have provided a means for students who were defrauded by for-profit institutions to gain some kind of compensation or have their loans forgiven. DeVos also delayed the rule that institutions make public their graduates’ debt and earnings by one year in July.

That’s big news for both Capella and Strayer. In 2012, Senator Tom Harkin (D-Iowa) released a report for the Senate Education Committee which found that a staggering 79% of Capella’s cash flow came from Title IV payments.

In 2010, the Senate Education Committee found that Strayer sourced 84.9% of their total revenue from the federal government.

A more recent Senate report found that 96% of students enrolled at a for-profit institution took out a federal loan. That figure was only 13% at community colleges and 48% at four-year public colleges.

Headwinds are dying

Since the Trump administration assumed power, for-profit stocks have surged. Strayer’s has gone up by 49%.

It remains unclear whether or not the for-profit university business will see the same success of the late aughts. While the business came under fire from the previous government, many derivatives, offering massive online open courses (MOOCs), Nanodegrees, and other vocational programs have sprung up. With the success of institutions like the Khan Academy or coding bootcamps, it appears that many students prefer a concentrated and accelerated program—accredited or not—to a traditional university experience, especially when it will sink them deep in debt.

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For years, coding boot camps have drawn ire regarding their success rates. Many have inflated their job placement numbers or cooked their books using other recipes to misrepresent their success.

Earlier this month, the Flatiron School, a Manhattan coding boot camp, reached a settlement deal with the state Attorney General’s office.

Attorney General Eric Shcneiderman announced that the institution had agreed to pay $375,000 to the state for “improperly” marketing and advertising their job success rate and operating without a license.

As Edsurge and others reported, the news is ironic. The Flatiron School had, before the settlement, prided themselves in their accountability and unbiased reporting of their graduates’ success. They were the first coding boot camp to release a credible report back in 2014. In 2015, they collaborated with “Coder-in-Chief” former President Barack Obama to agree on a metric to assess their efficacy.

“With our 2017 online and NYC reports,” the company announced before the settlement, “we continue to be the only school to fully abide by these standards for transparency.”

Based on this history, it seems strange that New York State would target the Flatiron School. But here’s the thing that nobody is talking about: they also operated for years without a license.

Rules and regulations

“[F]or-profit coding schools must comply with state requirements, including obtaining a license before operating,” said Attorney General Schneiderman. For-profit education licenses in New York are distributed by the State Education Department (SED).

According to Shneiderman’s press release, “In order to obtain a SED license, a non-degree granting career school must meet a number of criteria, including using an approved curriculum and employing a licensed director and teachers. The school must also demonstrate financial viability.”

New York residents, at least, can rest assured that their elected officials are keeping half an eye on the online for-profit.

Coding boot camps and the state of the union

But there’s little indication that the same could be said for other states.

Regulation of the for-profit education industry has traditionally been carried out at the state level. The 10^th Amendment states that “powers not delegated to the United States by the Constitution … are reserved to the States.” The federal government did begin to regulate somewhat in the ‘60s under President Johnson, but compared to other industries, measures are significantly light.

The for-profit education industry has undergone turbulence lately with a downturn in traditional colleges like the University of Phoenix and the explosion of online non-accredited degree providers.

Some sources expect the global eLearning market to grow at a CAGR of 17.81% between 2017-2020 into a mutli-trillion dollar industry. It’s true, coding boot camps only make up a portion of the market, but many other entities provide a similar product.

Online educators like Udacity and Coursera are both valued at around $1 bn. Many MOOC providers and their analogues are also for-profit entities and need to obtain a license.

Despite this success in the industry, regulation is still left up to states.

Policy trends

The Obama administration made several efforts to protect students from dubious for-profit institutions. The U.S. Department of Education recently imposed sanctions on two chains—Corinthian Colleges and ITT Tech—both of which folded soon after.

But the former administration never switched their focus to entities like coding boot camps or other types of online educators.

The settlement with the Flatiron School marks the first stab in the attempt to oversee the operations of the multitudes of for-profit educators that have sprung up in recent years.

In terms of regulation on a national level, it isn’t hard to see which way the wind is blowing. The Trump administration has made their commitment to deregulation clear time and time again.

Education Secretary Betsy Devos has begun work to dismantle many Obama-era regulations. The examples are numerous. For one, Devos appointed Julian Schmoke Jr. to lead the watchdog team that checks for evidence of fraud in higher education. Schmoke is an industry insider and former dean of DeVry University, whose parent company reached a $100 m settlement with the government over allegations that the company overstated their own job success rates.

If regulation of the industry is left up to the states, then online for-profits should have little difficulty getting around them. They will be able to found their businesses in the state with the most lax regulations and reach anyone around the world.

Until the federal government steps in, nobody will be able to ensure education quality or successfully implement certain standards.

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