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Betsy DeVos testifies before the Senate Health, Education and Labor Committee confirmation hearing to be next Secretary of Education on Capitol Hill
Report

Betsy DeVos and her cone of silence on for-profit colleges

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Summary

Not all that long ago, Republicans believed that career programs that used billions of federal dollars to train college students in specific job fields ought to be held accountable for ensuring that their programs did, in fact, prepare their graduates for gainful employment. No more.

Authors

D

David Whitman

Speechwriter for U.S. Secretary of Education Arne Duncan (2009-2015)

Author - "Sweating the Small Stuff" (2008)

Senior Writer - U.S. News & World Report (1985-2002)

Education Secretary Betsy DeVos’s recent decision to eliminate Obama administration safeguards protecting students from for-profit career programs that left graduates with poor job prospects and unmanageable student debt is surprising on three counts.

First, most higher education analysts expected DeVos to scale back the Obama administration’s “gainful employment” regulation, not wipe it out. The Trump administration went through the elaborate dance of convening a negotiated rulemaking committee to get input on rewriting the regulation, published eight issue papers on rewriting parts of the rule, and then took five months to allegedly deliberate on what it learned from the committee’s 12 days of meetings1–all before quietly announcing on a Friday in mid-August that they were just abolishing the rule altogether.

“Secretary DeVos’s decision to eliminate the gainful employment rule marks her starkest betrayal of students whose lives are constrained by student debt.”

That decision, which eliminated federal sanctions for the worst-performing career preparation programs, was startling in part because it suggests the secretary of education, after 20 months on the job, is still unaware of, or at the very least blasé about, the well-documented boom-scandal-bust cycle in the for-profit sector over the last 75 years—a cycle sure to continue unless it is checked by effective federal regulation. In the absence of federal standards like the gainful employment rule, poorly performing for-profit programs will resume taking advantage of hundreds of thousands of vulnerable students anew. In her seeming indifference to the past, Secretary DeVos has given new life to George Bernard Shaw’s adage, “We learn from history that man can never learn anything from history.”

The second and more costly surprise in Secretary DeVos’s decision is that her elimination of the gainful employment rule marks her starkest betrayal of students whose lives are constrained by student debt. DeVos herself has repeatedly stated that her top priority as secretary is to act on behalf of individual students. She deserves the benefit of the doubt, and the presumption that she genuinely seeks to act on behalf of students in the real world, not in the rhetorical one reflected in op-eds and statements from her press office. Yet not a single college student appears to have asked Secretary DeVos to do away with federal sanctions for the worst-performing college career programs. As a direct consequence of her decision, hundreds of thousands of students will now be trapped in low-performing for-profit programs and burdened with unaffordable, life-limiting debts, in some cases for decades to come. Most of those students are minority students, single mothers, veterans, dislocated workers, or working adults—presumably just the kind of vulnerable students that DeVos would like to protect from career programs that mislead students about their future job prospects and the ease of paying off their federal student loans.

The third and final surprising aspect of Secretary DeVos’s decision is that she abandoned traditional conservative principles of holding institutions accountable for their performance with taxpayer dollars. Her elimination of federal sanctions for low-performing programs marks a complete flip-flop from the administrations of Ronald Reagan and George H.W. Bush, which insisted on accountability for federal dollars and regulated outcomes like unfettered student debt in the federal student loan program. In place of those longstanding GOP priorities, DeVos has unexpectedly revived liberal Democrats’ defense of poorly performing for-profit institutions from the late 1980s—namely, that for-profit schools expand educational choice for disadvantaged students, and the poor performance of some programs merely reflects the demographics of their students and not the quality of the programs themselves. Democrats themselves soon abandoned those arguments in the face of overwhelming evidence that recruiting abuses and student debt burdens were heavily concentrated in the for-profit sector, even after taking account of student demographics.

Accountability abandoned: Secretary DeVos’s federal free-money plan

To see just how extreme Secretary DeVos’s flight is from conservative principle (or merely basic precepts of fiscal responsibility), ask this litmus test question: What would it take for a career education program to lose its eligibility for federal student aid? The answer is that under Secretary DeVos’s plan, a for-profit institution cannot lose its financial lifeline—federal student aid—no matter how poorly it performs its mission, spelled out in statute, to prepare students for gainful employment in a recognized occupation. One hundred percent of students can drop out of their career program, all of them deeply in debt, or alternatively not a single graduate could land a job in their field of training, and still the federal government would keep the taxpayer money pipeline of guaranteed federal student loans and Pell Grants flowing unabated to the school. As The New York Times’s editorial page summarized, “Executives in the for-profit education industry will soon be sleeping better, secure in the knowledge that even the worst are no longer at risk of being thrown off their taxpayer-backed gravy train, no matter how epically they fail their students.”2

“Under Secretary DeVos’s plan, a for-profit institution cannot lose its financial lifeline—federal student aid—no matter how poorly it performs its mission, spelled out in statute, to prepare students for gainful employment in a recognized occupation.”

In defending her federal free-money plan for career schools, Secretary DeVos sounds nothing at all like Bill Bennett, Ronald Reagan’s secretary of education, or Sen. Lamar Alexander, when he served as the secretary of education for President George H.W. Bush. But she does sound like Sen. Ted Kennedy, the liberal lion of the Senate in the late 1980s.

Why do away with federal sanctions against ineffective career programs that are little more than debt traps for hundreds of thousands of students at a cost of billions of dollars a year to taxpayers? Among other reasons, Secretary DeVos said she worried that cutting off federal aid to low-performing programs might ensnare some worthwhile programs, reducing career options for minority students. The Obama administration’s gainful employment rule, she wrote, “could significantly disadvantage institutions or programs that serve larger proportions of women and minority students and further reduce the educational options available to those students.”3

Echoing Democrats from the 1980s, Secretary DeVos also felt it was unfair to hold career programs at public community colleges, private nonprofit institutions, and for-profit institutions accountable for saddling students with unmanageable debt in their jobs because traditional college non-career programs—without a statutory mission to prepare students for gainful employment in their field of training—were not held to the same standard. The Obama administration’s rule, she stated, reinforced an “outdated belief that career and vocational programs are less valuable to students and less valued by society, and that these programs should be held to a higher degree of accountability than traditional two- and four-year degree programs.”4

Sound reasonable? Not to fiscal conservatives. DeVos’s abandonment of federal accountability for postsecondary outcomes at career programs stands in marked contrast to nearly all of her Republican predecessors. When Bill Bennett, a conservative icon, was secretary of education, he did not share DeVos’s refusal to impose sanctions on poorly performing career programs or her reticence to single out for-profit schools for abusing the student loan program.

In the latter half of the 1980s—as was the case when the Obama administration promulgated the final version of the gainful employment regulation in 2014—student default rates and government dependency had soared at for-profit institutions, news reports and federal and state investigations had documented widespread recruiting abuses, and some of the biggest for-profit chains were in the process of going bankrupt and closing.5

In response, Secretary Bennett proposed new regulations in 1987 under which more than 2,000 postsecondary institutions would immediately face a hearing to limit, suspend, or terminate their participation in federal student aid programs if their default rate on federal loans exceeded 20 percent. Bennett estimated that 80 percent of the institutions subject to the potential cutoff of financial aid were for-profit schools. “It’s accountability time,” Bennett declared. “The current situation is intolerable.”6

Bennett delivered a blistering attack on for-profit schools, releasing a report in 1988 that showed “extensive evidence” of abuses and predatory practices. Bennett told Time magazine: “The kids are left without an education and no job, and the taxpayer ends up holding the bag for a kid who gets cheated.”

Far from defending for-profit programs for expanding educational choice for minority students, Bennett blasted bad trade school programs for exploiting the disadvantaged. He stated that the “pattern of abuses” documented in the department’s investigation was “an outrage perpetrated not only on the American taxpayer but, most tragically, upon some of the most disadvantaged and most vulnerable members of society.”7

“DeVos’s abandonment of federal accountability for postsecondary outcomes at career programs stands in marked contrast to nearly all of her Republican predecessors.”

Long before Betsy DeVos defended the for-profit sector as champions of minority students, Sen. Ted Kennedy served in that role. Kennedy, the chairman of the Senate Labor and Human Resources Committee, attacked Bennett’s proposal to cut off federal aid to postsecondary institutions with high default rates at a December 1987 hearing. “Many schools with high default rates also serve a very high percentage of minority and disadvantaged students,” Kennedy told Bennett. “I am especially troubled by any proposal that would eliminate large numbers of these schools and their students from the [guaranteed student loan] program.”8

When Kennedy expressed doubts at the hearing about the seriousness of abuses at for-profit schools, an amazed Bennett responded bluntly: “The notion that, in the absence [of the Education Department’s forthcoming report on for-profit schools], one cannot appreciate that there are institutions out there, ripping off kids, is astounding. Everybody knows this, senator; everybody knows this.”9

Bennett didn’t succeed in finalizing his default regulation cut-off before stepping down from office later in 1988. But Lamar Alexander, one of his successors in the George H.W. Bush administration, did succeed—with the support of nearly all Republican lawmakers—in getting a similar default rate cutoff written into law in the 1992 amendments to the Higher Education Act (HEA).10 Under the 1992 HEA amendments, postsecondary institutions lost their eligibility for federal student aid if their student default rates exceeded 25 percent for three consecutive years.11

By 1992, as was the case during the Obama administration, the evidence was overwhelming that the problem of recruiting abuses, institutional use of misleading advertising and exaggerated job placement rates, outright fraud, and unaffordable debt were all concentrated in the for-profit sector.12 And in a shift that seems unimaginable for Secretary DeVos, or in today’s bitterly tribal Washington,13 leading Democrats, including Kennedy, changed their position in the face of that evidence, voting en masse for the 1992 HEA amendments.

During the floor debate on the law, Kennedy stated:

Most of these [increased] defaults [on federal student loans] can be attributed to schools that fail to deliver on their promise to prepare students for the job market. … Unfortunately, we have seen a continuing proliferation in the number of fly-by-night proprietary [for-profit] schools which are more interested in making a profit than training students. Too often, their graduates are unable to find employment and are saddled with a student loan debt which they cannot repay.14

At the bill’s signing, President George H.W. Bush, with Secretary Alexander by his side, praised the new law’s “valuable program integrity and loan default prevention provisions,” and pledged that it would “crack down on sham schools that have defrauded students and the American taxpayer.”15

Bush’s words proved prophetic. By the year 2000, more than 1,000 postsecondary institutions lost their federal student eligibility under the 25 percent default rate cut-off restriction. Just as Secretary Bennett had predicted, more than 80 percent of those institutions, nearly 850 schools, were for-profit schools.16 The loss of federal aid, and even the threat of the loss of federal aid, was a death knell for hundreds of for-profit schools. From 1993 to 1997 alone, 860 for-profit schools closed.17

DeVos and Alexander’s faux equity arguments, and the myth of the regulatory level playing field

Secretary DeVos’s abandonment of her predecessors’ commitment to federal accountability at career schools is not the only GOP reversal on for-profit programs. Today, Sen. Lamar Alexander echoes DeVos’s rhetoric that any accountability measures must apply equally to all postsecondary institutions and not just to postsecondary career or vocational programs, which consist of for-profit colleges, and certificate programs at private nonprofit and public institutions. Alexander applauded Secretary DeVos’s elimination of the Obama administration’s gainful employment rule, which he criticized for having “targeted just one segment of our 6,000 colleges and universities.” “The same rules ought to be applied to all institutions,” Alexander told The New York Times.18

By contrast, when Lamar Alexander had Betsy DeVos’s job, he believed it was appropriate for federal regulators to target postsecondary career programs to reduce abuses in the for-profit sector.

In October 1991, Secretary Alexander wrote the chairman of the House Education and Labor Committee, William Ford (D-Mich.), recommending that Congress eliminate the longstanding link between private accreditation of postsecondary programs and access to federal student aid—but only for “vocational” programs.

“[W]hen Lamar Alexander had Betsy DeVos’s job, he believed it was appropriate for federal regulators to target postsecondary career programs to reduce abuses in the for-profit sector.”

For traditional “collegiate” programs, Alexander favored maintaining the existing accreditation system. By contrast, for vocational programs that “would benefit the most from closer oversight,” Alexander wanted the states, with federal guidance, to set minimum standards for program completion, job placement rates, and other student outcomes.19 The Bush administration supported a bill introduced by Rep. Bill Goodling (R-Pa.) that had a section entitled “Differential Standards for Approval” that explicitly allowed states to “establish different standards of approval for different classes of institutions.”20

As it turned out, Secretary Alexander’s support for differential regulation of career vocational programs and traditional collegiate programs proved largely fruitless. House committee chair William Ford, a longtime labor and lunch-pail liberal, was inalterably opposed to regulating career programs differently than traditional college programs.

Congressman Ford believed that proposals for differential regulation of postsecondary programs were tantamount to the government engaging in “class warfare.”21 As Alexander’s general counsel at the department, Jeffrey Martin, later summed up: “[Alexander’s proposal] went nowhere in the face of the intractable opposition of Representative William Ford. … Chairman Ford believed any regulatory distinctions would amount to unfair discrimination against trade schools.”22

In making the case that all institutions and programs must be regulated exactly the same, Lamar Alexander and Betsy DeVos have not yet gone so far as to appropriate left-wing Democratic rhetoric from a quarter century ago that differential regulation of career schools amounts to “class warfare.” Still, it is worth considering if Secretary Alexander was right the first time in proposing that the federal government might sometimes usefully distinguish in regulating different types of postsecondary programs.

At first glance, the DeVos-Alexander position of uniform regulation of all higher education institutions has intuitive appeal. It appears to establish a uniform standard of institutional equity and fairness on the part of the federal government. But for two reasons, the universal standards argument is much less compelling than it seems.

For starters, it is impossible to regulate all institutions of higher education the same, barring a massive overhaul of federal law.

The Federal Trade Commission, the Securities and Exchange Commission, the U.S. Department of Justice, and now the Consumer Financial Protection Bureau all have laws and regulatory authority applicable to for-profit educational enterprises (e.g., statutes outlawing false advertising, protecting competition in interstate markets, consumer protection laws, etc.) that for the most part do not exist with respect to nonprofit institutions of higher education. To cite one example, publicly held for-profit colleges must make quarterly reports to the Securities and Exchange Commission.

Conversely, federal and state laws allow for-profit educational institutions to operate under less restrictive investment and accountability requirements than nonprofit institutions in a number of critical areas. Most importantly, private nonprofit and public colleges are generally required to reinvest any funds that remain after paying institutional expenses for educational or charitable purposes—i.e., for a public good.

Both the Higher Education Act23 and Section 501 (c)(3) of the Internal Revenue Code conditions tax exemptions and nonprofit status for colleges and universities on operating in a manner such that “no part of the net earnings … inures to the benefit of any private shareholder or individual.”

This private inurement prohibition, or what is sometimes referred to as the “non-distribution constraint” entitles nonprofit educational enterprises to operate as a kind of public trust that can draw on public funding (in the case of public state-funded schools) and tax-free donations and endowments (in the case of private nonprofit colleges).

By contrast, at for-profit colleges, the owner/CEO and the board are expected to personally earn and maximize profits, not only for themselves but also for shareholders of publicly traded companies. Unlike nonprofit institutions, for-profit colleges have unlimited access to private capital markets for both equity and debt financing—a financing advantage that helps to counterbalance for-profits’ lack of state support, donations, and endowments.

In short, it is impossible under current law for the government to create a “level playing field” for for-profit and nonprofit postsecondary institutions—or anything resembling one. For the foreseeable future, each type of institution will continue to have its distinct organizational advantages and disadvantages by virtue of the fact they have explicitly chosen to form a for-profit or nonprofit institution.

The second problem with regulating all postsecondary institutions in an identical manner is tied to lawmakers’ beliefs as to whether very different types of colleges should always and only be judged by the same standards.

“In short, it is impossible under current law for the government to create a “level playing field” for for-profit and nonprofit postsecondary institutions—or anything resembling one.”

Secretary DeVos and Sen. Alexander, for example, might acknowledge the legal impracticality of regulating all postsecondary institutions in a uniform manner under current law, yet might nonetheless insist that the ideal policy goal of formulating new accountability regulations should be that they are universal, applying uniformly to all types of institutions.

Certainly, there is nothing wrong with a well-designed accountability metric that applies to all postsecondary institutions and sets minimum performance standards for access to student aid. A number of Democratic and Republican lawmakers, including Sen. Alexander, are now supporting the replacement of the default rates metric established in the 1992 HEA Amendments with a student loan repayment rate benchmark to create more effective standards for determining institutional access to federal aid. (In the decade that followed the passage of the 1992 HEA amendments, for-profit schools figured out how to game the default rate restrictions by pushing students into taking deferments and entering forbearance status on paying off their student loans, temporarily and artificially lowering school default rates to maintain eligibility for federal student aid. Loan repayment rate restrictions tend to be harder to game than loan default rates).

Still, to argue that universal regulation can succeed, or is preferable in the abstract, is not the same as claiming that differential regulation is inherently unfair. For the latter to be the case, the mission of different institutions should consistently be similar enough that it is fair to judge their student outcomes solely by common federal standards.

Here again the arguments for universal accountability standards look on closer inspection to be a kind of faux equity argument, one often expressed in terms that favor career schools.

For many decades, career school leaders have themselves proudly differentiated their utilitarian job preparation mission from that of traditional liberal arts colleges and research universities. And dating back more than 50 years to 1965, all for-profit programs have been required, under the law, to prepare students for “gainful employment” in a specific job field, along with certificate programs at public community colleges and private nonprofit colleges.

Steve Gunderson, the head of the main for-profit trade lobby association, gave voice to the uniform standards argument when he asserted earlier this year, “Virtually everyone in higher education believes that any student who is the victim of academic fraud should be able to seek relief and that students should be able to find gainful employment in their area of academic study.” Gunderson’s ultimate goal was the “development of a common set of outcome metrics for all programs at all colleges.”24

The truth, however, is that many higher education leaders flatly reject the idea that academic programs should be assessed based on whether they enable students to find gainful employment in their area of academic study. The two authors of this paper majored in political science and sociology but did not find or seek jobs in their field of academic study. Research universities like Gunderson’s alma mater, the University of Wisconsin-Madison, generally do not have a mission to prepare students for gainful employment in their area of academic study. Nor is there any mention in the eight goals of the University of Wisconsin-Madison mission statement of preparing students for jobs.

To the contrary, the university’s mission statement emphasizes that “the primary purpose” is “to provide a learning environment in which faculty, staff and students can discover, examine critically, preserve and transmit the knowledge, wisdom and values that will help ensure the survival of this and future generations and improve the quality of life for all.” In 2015, the Republican administration of Wisconsin Gov. Scott Walker sought to rewrite the mission of the University of Wisconsin system to include the charge that the state system should strive to “meet the state’s workforce needs.” After university faculty and others protested, Walker quickly retracted his proposal and claimed it was a mix-up due to staff miscommunication.25

Like research universities, which typically do not provide direct vocational training with “real-world” applications to undergraduates, traditional liberal arts colleges also strive to teach students to think critically, develop a capacity for civic participation, pursue knowledge and truth, and reflect on their role in society—even with the institutional expectation that those analytic and civic skills will one day help prepare students for successful careers of their choosing.

Given these profound differences in institutional mission, should federal regulators hold career programs and non-career programs accountable for their performance under a single set of shared metrics? Should, say, anthropology or music performance majors at a private research university like Vanderbilt (Lamar Alexander’s alma mater) be evaluated by the same career placement standards as the Tennessee Truck Driver Institute?

Much the same question might be asked about holding career programs and Christian colleges accountable according to one set of performance metrics—including programs at Jerry Falwell Jr.’s Liberty University, which states that its mission is to develop “Christ-centered men and women.” Is it appropriate, say, that the Ministry Leadership Fellows Program at Calvin College (the alma mater of Secretary DeVos) be evaluated for its suitability for federal aid by the same career placement standards as, say, the manicurist program at the Michigan College of Beauty?

Behind the Republican flip-flop on for-profits: Follow the money–and the conspiracy theories

When a political party reverses its longstanding position on an issue, the obvious question is why. Today, President Trump’s impact on the party is typically cited as the cause of Republican reversals on issues like trade tariffs and Russia. Yet well before Trump’s election, all but a few Republican lawmakers were already on record staunchly opposing the gainful employment regulation. Two factors instead appear to explain the pre-Trump GOP flip-flop on for-profit colleges.

The first and most important cause of the Republican retreat from accountability was the growing and substantial power of the for-profit college lobby. During the George W. Bush administration, the for-profit sector underwent an unprecedented expansion with the rise of giant for-profit college chains as publicly traded companies.

From 2000 to 2003, publicly traded for-profit colleges were among the highest earning stocks of any industry in the nation. By 2005, the eight largest for-profit college chains had a combined market value of $26 billion. For-profit colleges, which had always had aggressive lobbying operations, started donating much more money to congressional representatives and switched more of their giving from Democrats to Republican lawmakers.26

“The first and most important cause of the Republican retreat from accountability was the growing and substantial power of the for-profit college lobby.”

Traditionally, the for-profit lobby gave more money to Democrats than Republicans. In 1994, for-profit colleges and their trade associations gave more than twice as much to Democrats ($171,500) than to Republicans ($75,000). In 2000, the for-profit lobby gave more to Republican lawmakers than Democrats, and by 2014, when the Obama administration released its final gainful employment rule, the for-profit lobby donated twice as much to Republican lawmakers ($1.17 million) as to Democratic lawmakers ($583,000), a pattern that prevailed in 2016 as well.27

Former CBS News anchor Dan Rather, the producer of a 2018 documentary on for-profit colleges, may have overstated the influence of the for-profit lobby when he claimed, “In so many places, elected officials are basically bought and sold”28 by for-profit colleges and their lobbyists. Still, no one questions that the for-profit industry had become a powerhouse among Republican lawmakers on Capitol Hill, even before Barack Obama’s election in 2008. As Rep. Michael Castle (R-Del.) told The New York Times in 2006, “The power of the for-profits has grown tremendously. … In 10 years, the power of this interest group has spiked as much as any you’ll find.”29

“Traditionally, the for-profit lobby gave more money to Democrats than Republicans. … [B]y 2014, when the Obama administration released its final gainful employment rule, the for-profit lobby donated twice as much to Republican lawmakers ($1.17 million) as to Democratic lawmakers ($583,000), a pattern that prevailed in 2016 as well.”

The second factor accounting for the GOP’s abandonment of accountability for federal dollars at for-profit colleges was the fact that the administration of their Democratic nemesis, President Obama, promulgated the gainful employment regulation.

In a striking illustration of how Republicans and Democrats flipped roles in regulating for-profit schools, President Obama and one of the authors of this report (Arne Duncan), during my tenure as education secretary, justified the gainful employment rule in language that sounded more like Secretary Bill Bennett than Secretary DeVos. I argued, for example, that “while a majority of career colleges play a vital role in training our work force to be globally competitive, some bad actors are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use.”30 Behind closed doors, I made much the same point about the need to distinguish between good and bad for-profit schools. When a career staff member asked at a 2011 employee-recognition event for the Office of Federal Student Aid about the forthcoming gainful employment rule, Inside Higher Ed reported that I told the staff, “We’re trying to walk a fine line to make sure the good actors are supported and bad actors can’t take advantage of people trying to better their lives.”31

President Obama similarly emphasized that while he was “not against for-profit institutions, generally … some schools are notorious for getting students in, getting a bunch of grant money. … Students aren’t getting what they need to be prepared for a particular field. They get out of these for-profit schools loaded down with enormous debt, they can’t find a job, they default. The taxpayer ends up holding the bag”32—exactly the point that Bennett had made to Time magazine a quarter century earlier.

To skirt public debate over whether Obama administration officials might in fact have proposed the gainful employment rule for the reasons we said we did—to protect students and taxpayers from poorly performing career programs—GOP lawmakers, conservative pundits, and for-profit lobbyists concocted a fanciful conspiracy theory that the GE rule stemmed instead from President Obama’s purported contempt for capitalism itself. Republican leaders, the Wall Street Journal’s editorial page, and for-profit lobbyists maintained the gainful employment rule was a result of Barack Obama’s desire to launch an “ideological war” against the for-profit sector because he and his administration objected to for-profit colleges earning profits from educating students.

Steve Gunderson, the head of the chief for-profit trade association lobby, routinely claimed that the Obama administration had launched an “ideological war” against the “very existence” of the for-profit sector. In one 2014 op-ed in The Wall Street Journal, Gunderson insisted that the gainful employment rule “has nothing to do with protecting students from taking on too much debt, ensuring accountability of higher education, or saving taxpayers money”33 (emphasis added).

During the 2012 presidential campaign, Sen. Ted Cruz (R-Texas) told voters that the Obama administration was “trying to drive out of business for-profit colleges and universities. It is targeting them for persecution … because in the Obama dictionary, the word ‘profit’ is a four-letter word.”34 GOP candidate Carly Fiorina also contended that the Obama administration was trying to drive for-profit colleges out-of-business because they “do a very good job educating people at a lower cost.”35

Newt Gingrich, who wrote a book labelling President Obama a socialist, asserted that Obama’s administration was guided by people who “hate the private sector [and are] deliberately setting up a series of rules that are designed to kill the sector. It’s not designed to improve it, or regulate it, it is designed to kill it.”36

Conservative pundits echoed the GOP candidates and lawmakers. In The Weekly Standard, Andrew Ferguson sarcastically asserted that the gainful employment regulation stemmed from the fact that “the proprietaries [for-profit schools] have been making too much money”37 from students and the federal government for their Democratic critics. Breitbart claimed that “there are plenty in the Obama orbit who simply think the words ‘for-profit’ and ‘education’ don’t belong together under any circumstances. They want to snuff out the sector.”38 The Wall Street Journal maintained that the gainful employment rule was a front in “a White House war to kill for-profit private education.”39 Writing in the respected Chronicle of Higher Education, Richard Vedder, a conservative economist at Ohio University, explained in 2010 that “for-profit companies are merely part of the capitalistic Evil Empire that Obama despises. Apollo Corporation, Corinthian Colleges, Bridgepoint Education, Kaplan University—these companies are bad mainly because they are in the business of trying to create wealth for private investors.”40

In short, the conspiracy theories about the Obama administration’s motives for proposing the gainful employment regulations became part of the GOP mainstream before President Trump was elected and emerged as conservatives’ default explanation for dismissing the need for regulation of the for-profit sector. Even Secretary DeVos, speaking to the conservative American Legislative Exchange Council in July 2017, peddled Republican tropes about the gainful employment rule, telling the ALEC convention that the rule was issued “solely to advance the [Obama] administration-wide war on every type of organization they didn’t like”41 (emphasis added).

The GOP claims that Barack Obama and Obama administration officials established minimum standards for student debt burdens at career programs because of their personal animus against profit-making colleges had no grounding in any statement from an Obama administration official (and were directly contradicted by numerous statements to the contrary).42 Far from being haters of capitalism, it is no small irony that some progressives’ chief criticism of the administration was that we were too supportive in K-12 education of market-based solutions like charter schools and the use of competitive grants in place of formula funding. (During our first year in office, Randi Weingarten, president of the American Federation of Teachers, famously labelled K-12 education policy under the Obama administration as “Bush III.”)

Nevertheless, the GOP rhetoric about the Obama administration’s “ideological war” against profit-making colleges didn’t turn out to be just alarmist rhetoric from advocates looking to rally lawmakers to their cause. It had two damaging long-term consequences.

The first was that Republican lawmakers felt obliged for the next decade to adopt a see-no-evil hear-no-evil approach to problems in the for-profit sector. During the eight years of the Obama administration and now extending into the Trump administration, virtually every GOP leader has avoided genuine public discussion of problems and abuses in the for-profit sector, including any acknowledgment that unaffordable student debt and recruiting abuses are disproportionately concentrated at proprietary schools.

In 2010, Rick Hess of the conservative American Enterprise Institute think tank (and an industry proponent) observed that it was “absolutely a no-brainer that the proprietary higher ed sector is rife with sleazy operators.”43 But no-brainer or not, Hess’s observation seems to have eluded GOP leaders. Republican senators so opposed even investigating abuses at for-profit schools that they walked out of a 2010 Senate hearing on the subject, claiming the Democratic-led committee was conducting a “witch hunt.”44

“During the eight years of the Obama administration and now extending into the Trump administration, virtually every GOP leader has avoided genuine public discussion of problems and abuses in the for-profit sector.”

Ever since the onset of the Obama administration, it has become taboo for Republicans not only to acknowledge widespread abuses in the for-profit sector, but also to publicly discuss policy solutions to address the sector’s shortcomings. In January 2017, just days before Donald Trump took office, the veteran higher education reporter and analyst Stephen Burd of New America observed that GOP “lawmakers continue to refuse to acknowledge there have been any problems” in the for-profit sector. Burd presciently predicted that “this incredibly disturbing level of denial means that history will probably repeat itself, with the Trump administration and Republican Congressional leaders trying to take the reins off this often-unscrupulous industry all over again.”45

As a consequence of the GOP’s self-imposed cone of silence, Republican policymaking on the for-profit sector has largely been taken over by the for-profit sector itself. To cite one example, when House education committee chair Virginia Foxx (R-N.C.) got her chance to draft legislation reauthorizing the Higher Education Act, her bill adopted the Voldemort-approach to regulating for-profit colleges, asserting in effect that the 1965 statutory requirement for career programs to prepare students for “gainful employment” had become the phrase that must not be spoken. In keeping with the recommendations of trade association head Steve Gunderson, Foxx’s 2017 committee bill (which has failed to pass the House) would have barred the secretary of education from promulgating or enforcing “any regulation or rule with respect to the definition or application of the term ‘gainful employment’ for any purpose under the Higher Education Act of 1965.”46

Meanwhile, at the Education Department, in a classic case of what economists refer to as “regulatory capture”—or what Trevor Noah, host of “The Daily Show,” labeled “Swamp-economics 101”47—Secretary DeVos appointed key executives and lobbyists from the for-profit sector itself to oversee investigations of for-profit schools and to help rewrite regulations affecting for-profit schools, including the gainful employment rule.

The August 2018 notice of proposed rulemaking (NPRM) in which Secretary DeVos eliminated the gainful employment rule reads like a textbook example of regulatory capture of a government agency by the industry that the federal officials are supposed to be regulating. The NPRM repeats numerous talking points from industry lobbyists—in fact, it is difficult to identify a single sentence in the 88-page announcement to which an industry representative might object.

The NPRM is especially notable for its painfully thin and seemingly predetermined use of “research-based” evidence for eliminating the GE rule.48 It cites only one 2006 study by name, co-authored by Urban Institute researcher Sandy Baum that the NPRM asserts undermined “the validity of using the regulations’ debt-to-earnings rates measures to determine continuing eligibility for title IV [federal student aid] participation.”49

“The [notice of proposed rulemaking] that eliminates the gainful employment rule repeats numerous talking points from industry lobbyists—in fact, it is difficult to identify a single sentence in the 88-page announcement to which an industry representative might object.”

The NPRM noted the Obama administration used the Baum study to help develop the two debt-to-earnings benchmarks in the GE rule for maintaining federal aid, although it failed to note that Baum’s study was only one of a number of studies used to derive the gainful employment debt-to-earnings benchmarks.50 As the NPRM highlighted, Baum and her co-author had stated that one of the two GE benchmarks, commonly used to assess eligibility for mortgages, had no “particular merit or justification”51 as a benchmark for manageable student debt. Still, the NPRM failed to note both that the next sentence of Baum’s paper stated that the mortgage debt benchmark was not “an unreasonable number” for assessing student debt, and that a federal court in 2015 had already flatly rejected a claim from the Association of Private Sector of Colleges and Universities that the use of the mortgage debt standard for assessing student debt was either “arbitrary” or “inapt.”52

Unfortunately for Secretary DeVos, Baum herself quickly posted a rebuttal to the NPRM, writing that DeVos and the department had “misrepresented my research, creating a misleading impression of evidence-based policymaking. … [The 2006 study] in fact presents evidence that would support making the GE rules stronger.”53 In an interview with Inside Higher Ed, Baum suggested that the fix was in, with DeVos and department officials working backwards to find evidence to support their predetermined conclusion to kill off the GE rule. “There’s no way I can know whether they twisted this research purposely or whether they don’t get it,” Baum told the trade publication. “I think they start from the perspective that their goal is to do away with this regulation.”54

The fact that Baum’s research suggested the need for a stronger gainful employment standard was not a secret in the research world. Eight months before the department had released its NPRM, a December 2017 study by New America analyst Sophie Nguyen had projected that if Baum’s more demanding standards were used in the GE rule, the number of career education programs that would have passed the debt-to-earnings tests would have fallen from 6,600 programs to 4,000 programs.55

The NPRM similarly cited a 2016 research study on “education deserts”—locales with no nearby colleges or universities or only one community college—to make the case that low-performing career programs that left students with high debt burdens shouldn’t lose their federal aid eligibility because student program choice would be diminished if there were no nearby lower cost and lower debt programs.56 Once again, the principal author of the study that the department cited, University of Wisconsin-Madison professor Nicholas Hillman, wrote the department to say that the NPRM’s assertion “is inconsistent with my research and should not be used as a justification for eliminating GE rules. … My research would defend keeping GE rules intact to protect consumers, especially those living in education deserts.”57

Ordinarily, researchers are proud to see their findings used to inform the design of federal regulations. It is never a good sign of regulatory integrity when the authors of research studies immediately refute the department’s use of their studies and accuse the department of misrepresenting their research. But that’s not the whole story of the regulatory capture of the department reflected in the elimination of the GE rule—when Secretary DeVos rescinded the rule she also took to repeating old industry talking points that contain fundamental factual errors about the GE rule.

At her contentious confirmation hearings in January 2017, Betsy DeVos had echoed the calls of conservatives to root out fraud in all sectors of higher education when first questioned about regulation of the for-profit sector. “What I do not want to do,” DeVos stated, “is discriminate against or be intolerant of an institution of higher education simply because of its tax status.”58

At her confirmation hearing, the nominee may not yet have realized that the GE rule did not discriminate against programs based on their tax status. In fact, a third of the 8,700 career programs subject to the GE rule debts-to-earnings tests for maintaining federal aid were at tax-exempt public or private nonprofit institutions.59 (The GE rule applied to institutions based solely on whether they ran career education or gainful employment programs, as defined by law. One of the programs that failed its initial GE test in January 2017 was the prestigious and tax-exempt American Repertory Theater Institute, which offered graduate students a two-year master of liberal arts degree at Harvard University’s Extension School).

Yet in the absence of being surrounded by an industry echo chamber, it is difficult to understand how the secretary of education, 20 months after her confirmation hearing, could prominently repeat the same basic error in her August 2018 press statement rescinding the GE rule. As part of her plan to eliminate the GE rule’s federal sanctions and disclosure requirements for poorly performing career programs, Devos proposed as a substitute that all colleges provide additional information for students on program performance that enterprising and stat-savvy students could find on a college website or the already existing College Scorecard, a web-based comparison tool. “Instead of targeting schools simply by their tax status,” she stated, “this administration is working to ensure students have transparent, meaningful information about all colleges and all programs.”60

Had Secretary DeVos read and tracked her own notice of proposed rulemaking, issued the same day as her press statement, she would have seen that Table 2 of the NPRM showed that the GE rule did not target schools based “simply on their tax status,” but rather that that a third of the 8,650 career programs that would have been subject to the GE test in 2015 were at tax-exempt institutions.61

The inexorable cycle of for-profit regulation: It’s déjà vu all over again

As one of the authors of this report (David Whitman) has documented in a series of five history papers for the Century Foundation,62 the regulatory chronology and storyline of proprietary schools has repeatedly followed the same cycle since the 1944 enactment of the landmark GI Bill of Rights. That cycle can be summarized as follows: Initially, generous federal student aid programs, with few strings attached, spawn dramatic growth in for-profit colleges; rapid growth in the for-profit sector then leads to institutional abuses of students, government aid programs, and media exposés; the scandals and abuses subsequently prompt Congress and the administration to adopt regulatory and legislative reforms that force the for-profit sector to retrench—all while industry leaders initially deny problems exist and then subsequently promise that the abuses and bad old days of the past will never return. Within a few years, as the worst abuses fade, federal agencies and Congress ease restrictions on federal monies for for-profit schools, and the cycle begins anew. The stages of this historical cycle could be likened to the for-profit sector’s own version of Elisabeth Kubler-Ross’s five stages of grief as exposure, outrage, action, denial, and acceptance.

When history keeps repeating itself, so many times and so precisely, it cannot be mere coincidence. The for-profit history cycle exists for good reason—namely, because it is driven by the laws of economics and human behavior. When government provides businesses with an opportunity to procure a substantial pot of government money to educate people for careers with few strings attached, profit-making businesses and enterprising business owners will make the most of the opportunity. If the government provides minimal regulatory and legislative guardrails to protect consumers in such a market, a significant number of those businesses will seek to maximize profits by underinvesting in curriculum, teaching, and job placement in favor of marketing and recruiting more students to secure more federal student aid.

“The for-profit history cycle exists for good reason—namely, because it is driven by the laws of economics and human behavior.”

Inevitably, a number of for-profit companies, even if a minority of the sector, will use deceptive advertising, make exaggerated job placement claims about their programs, and use predatory sales tactics to boost their federal take and profits. A smaller number will commit outright fraud to maximize their federal revenues. Nothing is particularly surprising in this pattern, or a testament to deficient personal character in for-profit executives. Businesses, like people, respond to powerful financial incentives. Not all or even most for-profit programs shortchange students. But it is an inescapable truth of history that for-profit colleges face and often succumb to perverse financial incentives to boost profits by cutting corners in educating students.

One obvious implication of this cycle is that abuses in the for-profit sector will not clear up of their own accord because of the invisible hand of market forces—the market incentives to misrepresent programs and mislead students are just too powerful. One of the author’s (Arne Duncan) successors as secretary of education in the Obama administration, John King, concluded, as I did, that “self-regulation of the [for-profit] sector did not work. Efforts at a ‘code of conduct’ never went anywhere. Transparency is important, but we cannot pretend information alone can overcome the sophisticated marketing operations many of these schools employ.”63

“Not all or even most for-profit programs shortchange students. But it is an inescapable truth of history that for-profit colleges face and often succumb to perverse financial incentives to boost profits by cutting corners in educating students.”

It bears underscoring that the for-profit college sector, which gets about 70 percent of its revenues from the federal government, is no free market paragon. Not only are market price signals in the sector skewed by a heavy dependency on third-party payments (that is, taxpayer dollars), the market is also plagued by information asymmetries that vitiate the forces of genuine competition. The sellers in this market (for-profit colleges) have much more and much better information than the inexperienced and easily misled buyers (the students). If anything, the for-profit higher education sector provides a classic illustration of market failure—precisely the situation in which government regulation is needed to protect consumers.

During the last 75 years, many federal regulations of the for-profit sector have been fatally undermined by loopholes and industry resistance. But it is only by imposing regulations and laws with meaningful consequences and sanctions that Congress and the executive branch have periodically succeeded in curbing abuses and incentivizing quality education and innovation. When done well, that ugly word—regulation—has been both the salvation of and provided the necessary guardrails for the for-profit sector.

There is little question where Secretary DeVos and the for-profit sector now stand in this historical cycle. Within a week of the election of Donald Trump, who founded a predatory for-profit college himself,64 relieved industry leaders were already promising, once again, that the abuses in the sector were a thing of the past. After spending most of the eight years of the Obama administration denying that the for-profit sector had serious problems, Steve Gunderson declared at his November 2016 annual summit of leading CEOs of for-profit colleges that “there wasn’t even a debate among the 50 CEOs in the room when they said, ‘We are never going back to where we were.’”65 When Secretary DeVos suspended the gainful employment rule several months later, Gunderson conceded that the GE regulation had done some good after all by pre-emptively shutting down bad programs, but stated that it was no longer needed. “Those who advocated for GE should declare victory and go home,” he told Inside Higher Ed. “The reality is that the worst examples that drove them to advocate for the gainful employment rule—those programs no longer exist.”66

Meanwhile, Secretary DeVos has embraced the idea that relying on the forces of the free market is the best way to solve the problem of low-performing career programs saddling students with unmanageable student debt. She says her plan to require colleges to publish more detailed information by program on post-graduation earnings and other outcome measures on college-related websites would “inform student enrollment decisions through a market-based accountability system.”67

While greater transparency about program outcomes is to be welcomed, some of the new changes proposed by the Trump administration to the College Scorecard seem likely to reduce transparency about the comparative performance of for-profit programs.68 But even if that does not prove to be the case, no research suggests that transparency alone, in the absence of meaningful sanctions, will have anything more than a marginal effect at best on student enrollment decisions, primarily for upper-income students at selective institutions. More troubling, a mountain of evidence shows that transparency alone is unlikely to have any effect at all on the enrollment decisions of disadvantaged students, in part because of market failures in the for-profit sector.69

Unlike mere transparency, accountability entails consequences. Yet buried on page 72 of DeVos’s NPRM, the department itself states that it “does not attribute a significant budget impact [over the next decade] to disclosure requirements absent substantial evidence that such information will change borrower or institutional behavior.”70 In other words, Secretary DeVos is touting a market-based “accountability system” that her own notice of proposed rulemaking has declined to project will change the allocation of a single federal dollar over the next decade.

History tells us it is not anyone’s guess how this movie ends—it ends with hundreds of low-performing for-profit programs resuming to gorge on taxpayer dollars, while they load up disadvantaged students with loan debt and worthless degrees.

The for-profit college cult of victimization—and its real victims, students and taxpayers

Ultimately, the most tragic consequence of conservatives’ abandonment of federal accountability at career programs is the devastating personal toll it will take on hundreds of thousands of hopelessly indebted students.

The GOP storyline that the Obama administration waged an “ideological war” to destroy the for-profit sector didn’t just short-circuit conservatives’ willingness to address the problems of the industry. More perniciously, that narrative gave conservatives license to think of low-performing for-profit schools not as victimizers of students and taxpayers, but rather as victims of anti-business crusaders in the Obama administration.

“Ultimately, the most tragic consequence of conservatives’ abandonment of federal accountability at career programs is the devastating personal toll it will take on hundreds of thousands of hopelessly indebted students.”

Without the ideological underpinnings of that narrative, Secretary DeVos and former for-profit executives at the department could never have helped draft an NPRM to rescind the gainful employment rule that was entirely dominated by an analysis of whether the GE rule treated institutions fairly, rather than assessing whether low-performing institutions were treating students and taxpayers fairly. As the Urban Institute’s Sandy Baum wrote in her rebuttal to Secretary DeVos’s misrepresentation of Baum’s research:

[The Trump administration expressed objections in the NPRM to] blaming institutions for the outcomes of their students, in light of the reality that students’ characteristics, in addition to their educational attainment levels, contribute to their earnings levels. But these [GE] rules are in place not to accommodate institutions, but to diminish the number of students who spend time and money in programs that have almost no chance of helping them meet their goals and to protect taxpayers from being left holding the bag when such students are unable to repay the loans they took to enroll in these programs.71

It is a telling sign of the Trump administration’s dedication to defending the interests of the for-profit industry that its decision to eliminate the gainful employment rule is one of its few deregulatory rollbacks that the administration itself projects will cost taxpayers billions of dollars. According to the Trump administration’s estimates, eliminating federal sanctions for low-performing career programs will cost the federal government $5.3 billion in student loans and Pell Grants over the next decade that poorly performing programs would otherwise have lost.72

Since virtually all of that restored federal funding will go to the worst-performing programs at for-profit schools, Secretary DeVos’s elimination of the GE rule means that the administration estimates that taxpayers will be providing $5 billion over the next decade to lousy for-profit programs.

While many of the worst for-profit programs will reap tens of millions of dollars due to Secretary DeVos’s action, hundreds of thousands of students at those programs will be worse off, stuck in programs that leave them with unmanageable debt and poor job prospects, instead of being encouraged or compelled to look for better-performing programs.

In the first year of data reported under the Obama administration gainful employment rule, 803 career programs, with 116,000 graduates from 2010 to 2012, failed the gainful employment debt-to-earnings test for maintaining federal aid. Virtually all of those programs (98 percent) were at for-profit schools. If the programs had failed the GE test a second year in a row, they would have lost their eligibility for federal student aid.

In addition, another 243,000 students had completed career programs that were in the “warning zone,” which meant they were at risk for losing federal aid if they continued to perform poorly over several years. Thus, all told, career education programs reported that more than 350,000 students “graduated from the worst-performing career education programs with nearly $7.5 billion in student loan debt,” according to a recent analysis by the Institute for College Access & Success.73

“In the first year of data reported under the Obama administration gainful employment rule, 803 career programs, with 116,000 graduates from 2010 to 2012, failed the gainful employment debt-to-earnings test for maintaining federal aid. Virtually all of those programs (98 percent) were at for-profit schools.”

To put the personal impact of that $7.5 billion of student debt in perspective, it is easy to overlook how steep student debts can mar and even ruin the lives of individuals and their families. Debts and defaults on student loans are rarely forgiven. Defaulting on a student loan can ruin an individual’s credit-rating for decades and sometimes for a lifetime, making it difficult to buy a car, hold a job, buy a house, or send a child to a college of their choice.

Even temporary deferments of loan payments are difficult to obtain for borrowers facing health crises. A borrower who contracts cancer, for example, cannot defer loan payments during their treatment.74 And unlike nearly all other forms of debt, students are barred from discharging their student loan debts in bankruptcy.

Making matters worse, many of the victims of low-performing for-profit programs are not just economically disadvantaged individuals, but single parents who are doing all the right things for their families. They are “playing by the rules,” trying to better themselves and the lives of their children by getting career training—only to discover they have graduated from programs that misled them about their earnings potential and the ease of repaying their loans.

“[U]nlike nearly all other forms of debt, students are barred from discharging their student loan debts in bankruptcy.”

Not long after she became Secretary of Education, Betsy DeVos pledged in an op-ed in The Wall Street Journal, “Every decision I make as a secretary of education is considered through a single, focused lens: How does this affect an individual student? When a program isn’t working in the best interests of [college] students, I fight to change it.”75

That’s a standard worth living by. Yet in every respect, Secretary DeVos’s decision to eliminate the gainful employment rule violates that pledge. Not a single student at any college asked Betsy DeVos to do away with student protections against poorly performing career programs—though dozens of student advocacy groups, consumer protection organizations, and civil rights groups asked her to maintain the gainful employment rule or strengthen it to protect students with unaffordable debt burdens.

Far from fighting to change programs that weren’t working in the best interests of students, Secretary DeVos weighed in to send $5 billion in taxpayer money back to the lowest-performing for-profit programs during the next decade.

And far from applying a single, focused lens to her decisionmaking of how department policy affects individual students, Secretary DeVos applied a single, smirched lens, filtered by an anti-regulatory ideology, of how department policy should foster institutional “equity” between for-profit schools and other types of dissimilar higher education institutions. Instead of the federal government preserving minimum safeguards to protect individual consumers, students themselves are to be forced to take the responsibility for ferreting out and analyzing data about the effectiveness of postsecondary programs.

Critics of President Trump frequently note not just the lies but the Orwellian doublespeak in his pronouncements. Yet Secretary DeVos’s decision to rescind the gainful employment rule—announced on a Friday in mid-August while the House was in recess for the month—suggests that the uses of Orwellian rhetoric can be contagious.

In her August announcement, Secretary DeVos maintained in her press statement that her new policy of publishing additional data on program outcomes on a college-related website would “increase accountability of institutions by making it more difficult for institutions to misrepresent program outcomes.”76

It is a bitter irony that Secretary DeVos and President Trump’s Education Department appointees tried to paint Secretary DeVos’s decision to do away with federal sanctions for poorly performing programs as a boost for accountability and as a remedy for stopping institutions from misrepresenting their programs. That irony—and that hypocrisy—is lost on the hundreds of thousands of graduates from career programs left stranded today in debt, without work or in lousy jobs.

For those students, the true victims of ineffective for-profit programs, Secretary DeVos’s repeal of the gainful employment rule shows the Trump administration has the backs of CEOs of for-profit colleges, but has abandoned protecting the single moms, veterans, minority students, dislocated workers, and other working adults who enrolled in subpar career programs on the promise of landing a better job and leading a better life. Sadly, crummy for-profit programs have, and now will continue to prey on vulnerable students, thanks in no small measure to Betsy DeVos. She chose to stand up for for-profit executives but not for students.

David Whitman is the author of a series of five Century Foundation reports on the history of federal regulation of for-profit colleges. From 2009 through 2014, he was Education Secretary Arne Duncan’s chief speechwriter, although he never drafted any of Secretary Duncan’s remarks on for-profit colleges. Whitman attended a selective private liberal arts college and a for-profit massage therapy school—and received an excellent education at both institutions.

Arne Duncan was the U.S. secretary of education from 2009 through 2015. He is a Nonresident Senior Fellow in Governance Studies at the Brookings Institution’s Brown Center on Education Policy. During his tenure as secretary of education, the Education Department promulgated two versions of the gainful employment rule, including the final rule in 2014, which took effect before it was halted and subsequently eliminated by Secretary Betsy DeVos in August 2018.


The Brookings Institution is a nonprofit organization devoted to independent research and policy solutions. Its mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations for policymakers and the public. The conclusions and recommendations of any Brookings publication are solely those of its author(s), and do not reflect the views of the Institution, its management, or its other scholars.

Footnotes

  1. An overview of the department’s negotiated rulemaking process on the gainful employment rule can be found at: https://www2.ed.gov/policy/highered/reg/hearulemaking/2017/gainfulemployment.html
  2. Editorial Board, “The DeVos School for the Promotion of Student Debt,” New York Times, Aug. 26, 2018.
  3. Department of Education, “Program Integrity: Gainful Employment, Notice of Proposed Rulemaking,” Federal Register, Vol. 83, No. 157, Aug. 14, 2018, p. 40171.
  4. Ibid.
  5. David Whitman, “The Reagan Administration’s Campaign to Rein In Predatory For-Profit Colleges,” The Century Foundation, Feb. 13, 2017.
  6. Ibid.
  7. Ibid.
  8. Problems of Default in the Guaranteed Student Loan Program, Hearings before the Subcommittee on Education, Arts and Humanities, Senate Committee on Labor and Human Resources, 100th Cong., 1st Sess., S. Hrg. 100-635, Dec. 11 and 18, 1987, p. 13.
  9. David Whitman, “The Reagan Administration’s Campaign to Rein In Predatory For-Profit Colleges,” The Century Foundation, Feb. 13, 2017.
  10. David Whitman, “When President George H.W. Bush ‘Cracked Down’ on Abuses at For-Profit Colleges,” The Century Foundation, March 9, 2017.
  11. In addition to the financial aid cut-off for schools with high default rates, the 1992 HEA amendments contained over a dozen provisions that primarily targeted for-profit schools. Congressman Tom Coleman (R-Mo.), the ranking Republican member on the House Education and Labor Committee, boasted during the floor debate that the bill had “nearly 100 provisions” to strengthen controls over schools and colleges to “end waste and abuse and minimize loan defaults.” Congressional Record—House, March 25, 1992, pp. 6853-6855.
  12. David Whitman, “When President George H.W. Bush ‘Cracked Down’ on Abuses at For-Profit Colleges,” The Century Foundation, March 9, 2017.
  13. When he was a Republican lawmaker from Wisconsin, Steve Gunderson, who now heads the main for-profit college trade association, lauded the 1992 HEA amendments as “the most important piece of legislation that Congress will consider during this session.” In recent years, Gunderson lobbied fiercely for eliminating the Obama administration’s sanctions against low-performing career programs. But in 1992, Gunderson’s view was that committee members on both sides of the aisle had drafted the new law and its federal aid sanctions to respond, among other problems, to “the challenges in the area of program integrity, especially in the area of guaranteed student loan defaults.” Congressional Record—House, March 25, 1992, p, 6858.
  14. Congressional Record—Senate, Feb. 20, 1992, p. 2756.
  15. David Whitman, “When President George H.W. Bush ‘Cracked Down’ on Abuses at For-Profit Colleges,” The Century Foundation, March 9, 2017.
  16. Stephanie R. Cellini, Rajeev Darolia, Lesley J. Turner, “Where Do Students Go When For-Profit Colleges Lose Federal Aid?” National Bureau of Economic Research, NBER Working Paper 22967, Dec. 2016, pp. 5, 10, 12, 25, 28. From 1991 to 2000, 1,028 postsecondary institutions lost their Title IV eligibility due to the high default rates; 844 of those schools, or 82 percent of the total, were for-profit institutions. Supplementary administrative data tallies provided by Professor Cellini in a Sept. 19, 2017 email to David Whitman. The administrative data on the number of schools sanctioned for exceeding the default rate restrictions does not take account of schools that successfully appealed their sanctions.
  17. “Reauthorization of 1998 Higher Education Act,” Exec. Summary, Recommendations for reauthorization, Office of Inspector General, U.S. Department of Education, p. 15, available at: http://www2.ed.gov/about/offices/list/oig/auditrpts/reauth98.html
  18. Erica L. Green, “DeVos Ends Obama-Era Safeguards Aimed at Abuses by For-Profit Colleges,” New York Times, Aug. 10, 2018; Erica L. Green, “With Legislation Stalled, DeVos Moves to Wield Deregulatory Power,” New York Times, May 31, 2018.
  19. David Whitman, “When President George H.W. Bush ‘Cracked Down’ on Abuses at For-Profit Colleges,” The Century Foundation, March 9, 2017.
  20. See the Summary and Text overviews of “H.R. 2716—Integrity in Higher Education Act of 1991” at Congress. gov, available at: https://www.congress.gov/bill/102nd-congress-/house-bill/2716
  21. David Whitman, “When President George H.W. Bush ‘Cracked Down’ on Abuses at For-Profit Colleges,” The Century Foundation, March 9, 2017.
  22. Jeffrey C. Martin, “Recent Developments Concerning Accrediting Agencies in Postsecondary Education,” Law and Contemporary Problems, Vol. 57, No. 4, Autumn 1994, p. 140.
  23. Section 101(a)(4) of the Higher Education Act provides funding under Title IV to entities that are “a public or other nonprofit institution.” Section 103(13) of the HEA defines institutional eligibility for Title IV aid as aid that is offered to either public or nonprofit corporations where “no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual.”
  24. Steve Gunderson, “Reforms That Will Stand the Test of Time,” Chronicle of Higher Education, Feb. 8, 2018.
  25. Scott Bauer, Associated Press, “Walker backs off removing ‘Wisconsin Idea’ from UW Mission,” San Diego Union-Tribune, Feb. 4, 2015; Valerie Strauss, “How Governor Walker tried to quietly change the mission of the University of Wisconsin,” Washington Post, Feb. 5, 2015.
  26. David Whitman, “The GOP Reversal on For-Profit Colleges in the George W. Bush Era,” The Century Foundation, June 7, 2018.
  27. The Center for Responsive Politics website OpenSecrets.org can be searched by industry (“For-profit Education”) and by election year for “For-Profit Education: Money to Congress.” The data cited here come from the publicly reported figures compiled on the center’s website. In the 2016 election cycle, the for-profit education sector gave $1.3 million to GOP candidates for Congress, and $633,500 to Democratic candidates for Congress.
  28. Jillian Berman, “Dan Rather on for-profit colleges: ‘It’s hard to find anything more outrageous than this,’” MarketWatch, Dec. 28, 2017.
  29. Sam Dillon, “Online Colleges Receive a Boost from Congress,” New York Times, March 1, 2006.
  30. Quoted in Goldie Blumenstyk, “Education Dept. to Delay Issuing ‘Gainful Employment’ Rules Opposed by For-Profit Colleges,” Chronicle of Higher Education, Sept. 24, 2010.
  31. Kelly Field, “Secretary of Education Promises ‘Thoughtful’ Gainful Employment Rule in Next Couple of Months,” Chronicle of Higher Education, April 5, 2011.
  32. “Remarks by the President at Town Hall at Binghamton University,” Office of the Press Secretary, White House, Aug. 23, 2013.
  33. Steve Gunderson, “Making ‘Profit’ a Dirty Word in Higher Education,” Wall Street Journal, Nov. 12, 2014. Emphasis added.
  34. Senator Ted Cruz, R-Texas, Holds a Town Hall in Council Bluffs, Iowa, Federal News Service, Oct. 23, 2015.
  35. Quoted in David Halperin, “GOP Candidates Compete in For-Profit College Primary,” Huffington Post, July 8, 2016.
  36. World Wide Videos, posted on Facebook, “Newt Gingrich and Steve Gunderson discussing threat posed to higher education, 8/16/16,” video available at: https://www.youtube.com/watch?v=jqJOmmEFbFs
  37. Andrew Ferguson, “Obama’s Crusade Against Profits,” Weekly Standard, July 5, 2010.
  38. Brian Darling, “For-Profit Education Under Assault,” Breitbart, Sept. 25, 2010.
  39. “Education’s Obamacare,” Wall Street Journal, March 21, 2014.
  40. Richard Vedder, “Is Obama at War with For-Profit Universities?” Chronicle of Higher Education, Aug. 30, 2010. Columnist Jonathan Chait wryly observed in March 2011, “If you have been following your dispatches from the alternative universe of the conservative movement, you have recently learned that the Obama administration has singled out a new industry to crush beneath its jackboot. … It sounds like some kind of right-wing 1950s B movie—‘His only crime was to make money!’” Jonathan Chait, “The Diploma Factories,” New Republic, March 24, 2011.
  41. “Remarks from Secretary DeVos to the American Legislative Exchange Council,” Press Office, U.S. Department of Education, July 20, 2017.
  42. Here are two lengthy excerpts of statements that I made as secretary of education about my intentions for the gainful employment rule. Readers may judge for themselves as to whether they demonstrate an ideological bias against the for-profit sector or a hostility to the operation of the market.

    One of the first times I was questioned by Republican lawmakers about the initial draft gainful employment rulemaking was in March 2010. I responded:

    “We are by no means wedded to any one direction. We want to make sure students are not being abused or taken advantage of, but we don't want to be heavy-handed. ... Placement is important to us, graduation rates are important to us, default rates are important to us, and you want to let the free market play. You also, at the ends of the free market, want to make sure bad actors aren't taking advantage of folks who are really working to try and improve their lives. I am a big believer in competition, and I think the market will play here, and bad actors will lose business." Building a Stronger Economy: Spurring Reform and Innovation in American Education, Hearing before the House Committee on Education and Labor, 111th Cong., 2nd Sess., Serial No. 111-48, March 3, 2010, p. 20.

    Four years later, with the benefit of multiple briefings on the gainful employment rule, I knew a lot more about career education programs but was still not declaring an ideological war against the for-profit sector. At a 2014 White House briefing, where I briefed reporters on the draft of the Department’s second version of the gainful employment rule, the exchanges with the White House press corps went as follows:

    “Question:
    What do you say to some of your critics who would argue that ultimately this [gainful employment rule] could wind up hurting some students by depriving them of the chance to get a higher learning opportunity?
    Secretary Duncan: So I think I said six or seven times we want more opportunity, not less; we just want those to be high-quality opportunities. And again, many, many programs—the majority of the programs [75 percent] pass these [gainful employment] metrics. We want to see them grow, we want them serving more people. We need this sector to do well. We need more people--often, these folks who are struggling, trying to make their way up the economic ladder, this has to be a path to the middle class. So we want to expand opportunity, but it’s got to be high-quality opportunity. When that opportunity is leading to massive debt, when that opportunity is leading to massive default rates, that’s not the opportunity any of us can proud of, that’s not fair to people trying to climb the economic ladder, it’s not fair to taxpayers, and, frankly, it’s abusive.
    Question: And, Mr. Secretary, so you’re issuing a “buyer beware” warning, basically, about for-profit colleges?
    Secretary Duncan: No. I wouldn’t even say “buyer beware.” We just want much greater information out there. These are hardworking [people]--often single moms with two and three children trying to do the right thing. People going back to work, who want to go back to work who have been laid off. We just want them to know what graduation rates are, what’s my earning potential, what are debt rates, and just having clear information out there. We want to see good actors, great programs grow and expand to serve more folks, but where the wrong thing is happening for both people and taxpayers, we have a real problem with that…. Again, there are many players who are doing a fantastic job, doing it the right way, really helping people get real skills that lead to real jobs.
    Question: In the for-profit sector?
    Secretary Duncan: Absolutely. Advanced manufacturing, IT jobs, health care jobs, green energy jobs. We just want to see more of those. … we just want good players, good actors to grow and thrive, and want bad actors to, frankly, go away.” Press Briefing by Press Secretary and Jay Carney and Secretary of Education Arne Duncan, 3/14/2014, Office of the Press Secretary, White House, 2014.

  43. Jennifer Epstein, “Congressional Chaos?” Inside Higher Ed, Nov. 10, 2010.
  44. Elizabeth Dias, “A Senate Spat Over For-Profit Education,” Time, Sept. 30, 2010; Barbara Mantel, “Career Colleges: Do They Take Advantages of Low-Income Students,” CQ Researcher, Vol. 21, Issue I, Jan. 7, 2011, p. 2.
  45. Stephen Burd, “How the G.O.P. Became For-Profit College Abuse Deniers,” New America foundation, Education Policy, EdCentral blog, Jan. 16, 2017.
  46. Sec. 104, Regulatory Relief text of Congresswoman Foxx’s PROSPER Act, pp. 31, 33. Steve Gunderson recommended that HEA reauthorization should “delete the words gainful employment from the law.” Steve Gunderson and Michael Dakduk, “Career Education: Then and Now,” Career Education Review, Feb. 14, 2018.
  47. A video link to the May 16, 2018 Daily Show segment can be found at Lee Moran, “Trevor Noah Skewers Betsy DeVos with Fake For-Profit University Ad,” Huffington Post, May 17, 2018.
  48. The National Student Legal Defense Network has submitted a Petition for Correction and Disclosure to the Education Department, alleging that Secretary DeVos’s Notice of Proposed Rulemaking for rescinding the gainful employment rule is so methodologically shoddy and filled with erroneous factual claims that it violates the Information Quality Act, rendering meaningless the public comment period on the NPRM. The petition and an overview of the evidence-based shortcomings in the NPRM is contained in the 14-page letter from Robyn Bitner, General Counsel, National Student Legal Defense Network to the Director of the Information Collection Clearance Division and the Principle Deputy Assistant Secretary Office of Management, U.S. Department of Education, Sept. 5, 2018.
  49. Department of Education, “Program Integrity: Gainful Employment, Notice of proposed rulemaking,” Federal Register, Vol. 83, No. 157, Aug. 14, 2018, p. 40168.
  50. For a list and quotations from the multiple citations of other studies, apart from the Baum study, that cite the 8 percent test in Obama administration draft and final rules on gainful employment, see “Attachment 1: Excerpts from prior rules regarding the 8 percent test” in Robert Shireman’s September 13, 2018 comment on the Education Department’s NPRM rescinding the gainful employment rule, Docket ID ED-2018-OPE-0042.
  51. Sandy Baum and Saul Schwartz, “How Much Debt is Too Much? Defining Benchmarks for Manageable Student Debt,” The College Board, 2006, p. 3.
  52. Association of Private Sector Colleges & Universities v. Duncan, U.S. District Court, District of Columbia, 110 F. Supp. 3d 176, June 23, 2015, p. 197.
  53. Sandy Baum, “DeVos misrepresents the evidence in seeking gainful employment deregulation,” Urban Wire blog, Urban Institute, Aug. 22, 2018.
  54. Andrew Kreighbaum, “Researcher says DeVos misrepresented her work to justify repeal of student loan rule,” Inside Higher Ed, Aug. 23, 2018.
  55. Sophie Nguyen, “Why the Department Shouldn’t Weaken the Gainful Employment Metrics,” New America foundation, Dec. 6, 2017.
  56. Department of Education, “Program Integrity: Gainful Employment, Notice of proposed rulemaking,” Federal Register, Vol. 83, No. 157, Aug. 14, 2018, p. 40171. The NPRM’s discussion of education deserts is extremely tortured. It is difficult to ascertain why the department believes it is unfair to apply the GE rule’s debt-to-earnings metrics to poorly-performing career programs in locales with no or few educational options. The confusion appears to result from the department’s refusal to identify career programs that fail the debt-to-earnings tests as low-performing programs that leave students with unmanageable debts. Instead, the NPRM refers to these failing programs as “more expensive” programs that “could result in higher debt” but that may offer sterling amenities like a personalized learning environment, better learning facilities, and convenience.
  57. Comment from Nick Hillman, Associate Professor, University of Wisconsin-Madison, School of Education, “Subject: Program Integrity—Gainful Employment, Docket ID: ED-2018-OPE-0042,” Sept. 2018.
  58. Josh Mitchell and Gunjan Banerji, “For-Profit Schools: Trump Delays Enforcing New Rules, Lifting Shares,” Wall Street Journal, March 12, 2017.
  59. “Education Department Releases Final Debt-to-Earnings Rates for Gainful Employment Programs,” Press Release, U.S. Department of Education, Jan. 9, 2017; “Press Call to Announce for Debt-to-Earnings Rates for Gainful Employment Career Training Programs,” Transcript of Press Call, U.S. Department of Education, Jan. 9, 2017, pp. 5, 10. Available at: https://www2ed.gov/news/av/audio/2017/01092017.pdf
  60. “U.S. Department of Education Proposes Overhaul of Gainful Employment Regulations,” Press Release, U.S. Department of Education, Aug. 10, 2018.
  61. Department of Education, “Program Integrity: Gainful Employment, Notice of proposed rulemaking,” Federal Register, Vol. 83, No. 157, Aug. 14, 2018, p. 40178.
  62. The five Century Foundation papers by Whitman are “Truman, Eisenhower, and the First GI Bill Scandal,” Jan. 24, 2017; “Vietnam Vets and a New Student Loan Program Bring New College Scams,” Feb. 13, 2017; “The Reagan Administration’s Campaign to Rein In Predatory For-Profit Colleges,” Feb. 13, 2017; “When President George H.W. Bush ‘Cracked Down’ on Abuses at For-Profit Colleges,” March 9, 2017; and “The GOP Reversal on For-Profit Colleges in the George W. Bush Era,” June 7, 2018.
  63. John King and Arne Duncan, “Trump administration is putting profits over students,” The Hill, July 18, 2017.
  64. David Whitman, “A Lesson from Trump University’s Predecessor,” Atlantic, Feb. 6, 2017.
  65. Alia Wong, “What a New Trump Administration Hire Could Mean for For-Profit Colleges,” Atlantic, Aug. 31, 2017.
  66. Andrew Kreighbaum, “Delay by DeVos means reprieve for poor-performing programs,” Inside Higher Ed, July 7, 2017.
  67. Department of Education, “Program Integrity: Gainful Employment, Notice of proposed rulemaking,” Federal Register, Vol. 83, No. 157, Aug. 14, 2018, p. 40168.
  68. When the Education Department updated the web-based College Scorecard consumer tool at the end of September 2018, it eliminated data from the Scorecard that allowed students to compare how the net price, graduation rate, student loan repayment rate, and typical earnings of a college’s graduates compared to the national median.

    The previous version of the Scorecard had a visual heuristic that enabled students to quickly see whether a college’s costs and outcomes were above or below national averages. The old Scorecard also included a threshold earnings data benchmark, showing what share of former students earned more than the typical high school graduate--a measure that the department also eliminated.

    Department officials asserted that the Scorecard’s comparative national data had been eliminated because it could mislead students who enrolled in less selective programs about the educational quality of their programs. They contended that students instead should use the Scorecard to individually compare institutions that serve similar students and have similar admissions criteria. Not surprisingly, the department’s position echoed the arguments of for-profit representatives, who have long claimed that seemingly mediocre or “below average” programs in the sector are often in fact exceptional performers, once their program selectivity and the demographics of their students are taken into account.

    Department appointees have also touted forthcoming data additions to the College Scorecard, including program-level reporting of median earnings and debt of graduates (not just college-wide reporting), as well as the addition of similar outcome measures for the first time for graduate programs. Nevertheless, even some supporters of Secretary DeVos’s decision to rescind the gainful employment rule criticized the department’s elimination of national comparative data from the Scorecard. “This is a step in the wrong direction. It’s absolutely ridiculous,” said Daniel Elkins of the Enlisted Association of the National Guard of the United States. Quoted in Andrew Kreighbaum, “Changes to College Scorecard anger veterans’ groups,” Inside Higher Ed, Oct. 8, 2018. Also see Andrew Kreighbaum, “College Scorecard Drops National Comparison Data,” Inside Higher Ed, Oct. 1, 2018; Delece Smith-Barrow, “Change is on the way for the College Scorecard,” Hechinger Report, Oct. 5, 2018; and Clare McCann, “College Scorecard Cuts the Context,” New America, Education Policy blog post, Sept. 28, 2018.

  69. See the research studies cited in Matthew Chingos, “America’s Education ‘Deserts’ Show Limits of Relaxing Regulations on Colleges,” New York Times, Aug. 14, 2018, and Sophie Quinton, “Feds Say Marketplace Will Expose Bad Colleges, But States Find It’s Not So Easy,” Stateline, Aug. 22, 2018.
  70. In the version of the NPRM published in the Federal Register on Aug. 14, 2018, the department’s statement that it does not attribute a significant budget impact to its new program disclosure requirements over the next decade appears on p. 40180.
  71. Sandy Baum, “DeVos misrepresents the evidence in seeking gainful employment deregulation,” Urban Wire blog, Urban Institute, Aug. 22, 2018.
  72. Department of Education, “Program Integrity: Gainful Employment, Notice of proposed rulemaking,” Federal Register, Vol. 83, No. 157, Aug. 14, 2018, p. 40180.
  73. “How Much Did Students Borrow to Attend the Worst-Performing Career Education Programs?” Institute for College Access & Success, Aug. 2018.
  74. Rebecca J. Ritzel, “Give Cancer Patients a Break on Student Loans,” New York Times, Sept. 22, 2017.
  75. Betsy DeVos, “Treating Students as Customers,” Wall Street Journal, May 19, 2017.
  76. “U.S. Department of Education Proposes Overhaul of Gainful Employment Regulations,” Press Release, U.S. Department of Education, Aug. 10, 2018.
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