Trump Administration—Supporting Oversight of For-Profit Colleges?

It is too early in the four-year term of President Donald Trump to be sure of anything or to take a deep breath of relief.  But last month there was one encouraging sign from the Trump Justice Department.  Contrary to what can only be described as excited anticipation by the operators of for-profit colleges of the rollback by Trump’s people of Obama’s regulations, attorneys at the Department of Justice filed a legal brief supporting one of the Obama administration’s most effective rules to reign in the for-profits—a rule that is unpopular across the for-profit sector.

The Trump administration’s legal brief defends what’s known as the gainful employment rule, which has penalized some of the very worst for-profit colleges and trade schools that depend on federal Pell Grants and federally backed loans for the bulk of their revenue but that fail to provide adequate training to enable their graduates to land jobs or pay off their debts. The gainful employment rule is intended to protect student-borrowers from debts they will never be able to pay off and to to prevent a massive loss of tax dollars when borrowers with untenable debts eventually default.

Here is Suzanne Mettler in Degrees of Inequality, her book (published in 2014) on the problems of for-profit colleges.  Mettler describes the gainful employment rule as perhaps the most highly contested of the Obama administration’s efforts to crack down: “In what turned out to be their most controversial proposal, the so-called gainful employment rule, they set out to limit federal student aid to schools that failed to establish a record of positive outcomes for their students, as indicated by measures of their subsequent earnings relative to their student loan debt and by their loan repayment rates… Defenders of for-profit universities champion them as belonging to the private sector, but in recent years as in the past, they receive nearly all of their revenues from the U.S. federal government.”  Mettler documents the percentage of federal funding at fifteen of the largest for-profits: “Notably, these institutions, with only one exception earned between 60.8 and 85.9 percent of their total revenues in 2010 from Title IV of the Higher Education Act, meaning predominantly student loans and Pell grants… Most received an additional 2 to 5 percent from military educational programs, including the post-9/11 GI Bill.  The sum of these federal government funds added up, as a portion of all revenues collected, to a minimum of 65.8 percent for ITT and a maximum of 93.7 percent for Bridgepoint.  In short, the for-profit schools are almost entirely subsidized by government.” (pp. 165-169)  Two of the institutions Mettler describes, Corinthian Colleges and ITT, have been shut down since her book was published.

Last month, the NY Times‘ Dana Goldstein described the explosive growth of the for-profits that has made this such an important issue: “Some two million Americans are enrolled in for-profit colleges, up from 400,000 in 2000. Those students, most of them working adults getting short-term certificates, are disproportionately nonwhite and female. They graduate with more debt than students who have attended public and nonprofit institutions, and are more likely to default on their loans. It is taxpayers who are financing the expensive and often academically inferior education that for-profit colleges provide. Ninety-four percent of for-profit students pay tuition with federal student loans.”

Everybody predicted that the Trump administration would relax oversight and allow the invisible hand of the market (subsidized substantially, of course, by the federal government’s grants and loans) to work in the for-profit college sector.

But early this week Shahien Nasiripour of Bloomberg reported a surprise: “In late March, the Trump administration offered a forceful defense of the so-called gainful employment rule, the 2015 regulation that threatens to shut off the spigot of normally free-flowing federal funds that sustain career programs if the typical graduate’s annual loan payments exceed 20 percent of her discretionary income or 8 percent of total earnings.”

The Justice Department filed a legal brief, according to Nasiripour, “on behalf of Education Secretary Betsy DeVos,” to respond to a lawsuit by the American Association of Cosmetology Schools, who allege that the gainful employment rule should not apply to graduates of beauty schools because beauticians earn cash tips that they tend to under-report.

Nasiripour quotes from the Trump Justice Department’s brief: “The regulations are intended to protect students and taxpayers by providing warnings about programs with relatively high loan debt compared to the earnings their students could hope to achieve after graduating from those programs.”  The brief says the gainful employment rule protects students, “because it would prevent them from taking on debt that they will not be able to repay, and they could more reasonably evaluate whether they would prefer to enroll in programs that have been more successful in enabling their students to find employment that would allow them to repay their loans.”

It is too early in the four-year Trump administration to know whether federal regulators will continue to enforce the oversight rules put in place by the Obama administration to regulate the for-profit colleges.  In Degrees of Inequality, Mettler explains that of all the rules for for-profit colleges, “the gainful employment rule proved most divisive.” (p. 173)  Mettler describes the extensive and lavish lobbying and months of receiving public comments and re-writing that eventually weakened the rule as it had been originally proposed.

We will need to watch whether the Trump administration maintains its support for federal oversight of the for-profit college sector over time or whether the power of money, marketplace ideology, and intense lobbying will once again prevail. Here is Mettler summarizing the situation: “Their names have changed over time—from proprietary or trade schools to career colleges, and then to for-profit universities—but these schools have, consistently, emerged and grown in pursuit of student aid funds from the federal government… A recent study by economists Stephanie Riegg Cellini and Claudia Goldin confirmed that for-profit institutions that were eligible for Title IV funds charged significantly more in tuition—on average 75 percent more—than those that offered similar programs but were not eligible… Not only has the number of dollars invested in campaigns and lobbying escalated sharply, but also—in the case of the for-profits—industry leaders have learned how to use money strategically to construct winning coalitions.”  (pp 186-187)

And the coalition blocking regulation of for-profit colleges has never been entirely partisan.  It has included powerful members of Congress from both political parties.

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