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[Over the last several months, Higher Ed Watch has examined how many for-profit colleges cook the books on the job placement rates they disclose to prospective students and regulators. In prior posts, we have looked at how the manipulation of these rates is a widespread problem throughout the industry; revealed some of the most common tricks of the trade for-profit schools have used to inflate these numbers; showed how accreditors and regulators have been asleep at the switch as these abuses have been occurring; reported on the Obama administration's unsuccessful effort to curb these practices; and examined how the drive to manipulate these rates comes straight from corporate headquarters and not rogue employees (see here and here). Today, we finish up this series by going back in history to see how this all could have been avoided.]

The origins of the widening job placement rate scandal in the for-profit higher education sector go back nearly 20 years. Had the Clinton administration officials who ran the Department of Education at the time heeded the warnings of Congressional investigators, the Government Accountability Office, and its own Inspector General, the abuses that are being unearthed today could have been rooted out long ago.

The story begins in the early 1990s when a Senate oversight committee headed by Sam Nunn (D-GA) conducted an investigation that uncovered widespread fraud and abuse in the for-profit higher education sector. The Nunn Committee revealed that scores of unscrupulous schools were reaping profits from the federal student aid programs by enrolling people straight off the welfare lines and pressuring them to sign up for student loans they had little hope of ever repaying. Many of these individuals were lured into the schools with false promises about the lucrative jobs they would be able to get after attending these institutions.

When it came to assigning blame for the federal government’s failure to stop these schools from ripping off students and taxpayers, the committee found that there was plenty to go around. However, the panel reserved some of its harshest criticism for the accrediting agencies that had failed to weed out these institutions or even to detect that anything was amiss.

In its final report in May 1991, the committee urged the Education Department to work with the accreditors to strengthen their ability to carry out their oversight responsibilities or strip them of their gatekeeping role entirely. As part of this effort, the committee recommended that the Education Department be required to “develop minimum uniform quality assurance standards” that accreditors would use to evaluate for-profit schools -- including establishing a single methodology for calculating job placement rates. According to the report:

The Department should be responsible not only for formulating those standards, but also for developing and carrying out a meaningful review and verification process designed to enforce compliance with those standards. If the Secretary determines that an accrediting body does not or cannot meet these requirements, recognition should be terminated.

In 1992, as part of legislation reauthorizing the Higher Education Act (HEA), Congress followed up on this recommendation by requiring the Education Department to put in place standards it expected accreditors to meet as part of its evaluation process. Lawmakers also required the accrediting bodies have standards in place for judging a school’s “success with respect to student achievement in relation to its mission, including, as appropriate, consideration of course completion, State licensing examination, and job placement rates.”

When the time came for the Clinton administration officials in charge of the Education Department to write the rules for carrying out the Higher Education Act revisions, they took a very narrow reading of these requirements. Noting that Congress had not explicitly mandated the establishment of uniform standards, they gave accreditors wide latitude to develop their own criteria for judging a school’s “success with respect to student achievement” and for verifying the information that schools would provide them. Department officials explained in the preamble to the regulations that they had to stick “closely to the law” to avoid “regulation driven management.”

Both the Government Accountability Office and the Education Department’s own Inspector General Thomas Bloom objected to the final rules. In blistering testimony Bloom delivered to a House Government Oversight subcommittee in 1996, he accused the Department’s leaders of misinterpreting the intent of Congress:

By requiring the Department to ‘set standards’ for evaluating accrediting agencies in specified areas, Congress was directing the Department to put meat on the bare-bones statutory language in order to ensure that the agencies had meaningful, quantifiable, and enforceable standards for their member schools…the Department’s regulations are not what the 1992 HEA amendments contemplate.

The failure of the Department to set standards and require vigorous enforcement would only lead to more fraud and abuse, Bloom argued:

Without enforceable standards, schools that fall short of their own accrediting agency standards -- even in such basic areas as graduation and job placement -- may continue to be accredited and continue to participate in the SFA [student financial aid] programs. Since what you measure you get, without measurement and enforcement of even these basic standards for student achievement, we cannot assure that vocational trade schools in the SFA program will consistently graduate and place the bulk of their student in jobs for which they were trained.

Bloom’s testimony was prescient. As we’ve previously written, the job placement rates that for-profit colleges are required to disclose to prospective students and report to accreditors are fundamentally flawed. The methodology that career colleges use to calculate the rates vary accreditor by accreditor, making them impossible to compare. And because neither accreditors, state regulators, nor the federal government make much of an effort to verify these rates, schools have found them easy to game (see here for some of the most common tricks of the trade).

At Higher Ed Watch, we believe that the Nunn Committee and the Inspector General were right and that federal officials should develop a single, national standard that for-profit colleges would be required to use when calculating their job placement rates. It would be accompanied by a strict regulatory regime that would more closely monitor schools to ensure that these numbers are not rigged.

The Obama administration tried to move forward with such an effort but bungled it. However, as evidence of widespread abuses mount, we believe that policymakers won’t have any other choice but to revisit this issue.

It’s just a shame that all the damage that has been done to unsuspecting students and taxpayers could have been avoided.

... Phoenix's holding company, and Kaplan were among the worst in courting students with slim odds of graduating, said Stephen Burd, a frequent critic of the industry and the editor of Higher Ed Watch, a blog published by the New America Foundation. ...

[Over the last several months, Higher Ed Watch has examined how many for-profit colleges cook the books on the job placement rates they disclose to prospective students and regulators. In prior posts, we have looked at how the manipulation of these rates is a widespread problem throughout the industry; revealed some of the most common tricks of the trade for-profit schools have used to inflate these numbers; showed how accreditors and regulators have been asleep at the switch as these abuses have been occurring; and reported on the Obama administration's unsuccessful effort to curb these practices. Today, in the first of two posts, we will examine one of the most common excuses for-profit schools make when they are caught inflating these rates.]

When Career Education Corporation executives first revealed in August that they had found that “certain” of the company’s health professional schools had engaged in “improper practices” in calculating their job placement rates, they did what for-profit college leaders almost always do when improprieties are discovered on their campuses: they blamed “rogue” employees.

“The actions of a few people have let down others who work hard and responsibly every day on behalf of our students,” Gary McCullough, Career Education’s chief executive officer, said at the time.

But an internal probe of the company performed by an outside law firm has put the lie to these claims. As Career Education officials revealed last week, the lawyers found that the vast majority of the company’s Health Education and Art & Design schools significantly inflated the 2010-11 job placement rates they have been disclosing to prospective students and were about to report to the Accrediting Council for Independent Colleges and Schools (ACICS). “We uncovered that what were going to be reported as placements in a number of cases and a number of places were not genuine placements,” Steve Lesnik, the company’s chairman said during a conference call with financial analysts. Lesnik took over as the company’s CEO last week after McCullough abruptly resigned from his post.

The administration views these changes to the student lending program as a potential political boon, said Stephen Burd, the editor of Higher Ed Watch, a blog published by the New America Foundation, a non-partisan think tank in Washington. ...

A day after Career Education Corporation’s chief executive officer abruptly resigned, company officials acknowledged on Wednesday that a significant number of their schools had cooked the books on their job placement rates. “We have uncovered the fact that what were going to be reported as placements in a number of cases and a number of places were not genuine placements according to our standards as a company,” Steve Lesnik, the company’s chairman, said during a conference call with financial analysts.

We at Higher Ed Watch applaud Career Education for coming clean about abuses that occurred at their institutions over the last year (although it would be helpful to know exactly what happened at these schools). However, we believe that the measures the company is taking to clean up the mess are wholly inadequate, as they leave students and taxpayers on the hook for the company’s misbehavior.

At issue are the rates that for-profit college companies are required to report to regulators and disclose to prospective students measuring their schools’ success in placing graduates into jobs related to their training.

President Obama announced on Wednesday that the U.S. Department of Education will encourage millions of student loan borrowers to convert loans they borrowed through the Federal Family Education Loan (FFEL) program into direct lending. At Higher Ed Watch, we are pleased that the administration is moving ahead with this plan, which aims to help borrowers who are stuck with student loans under both the FFEL and Direct Loan programs.

The initiative, which will get underway in January, will provide some savings to borrowers who take advantage of it by providing them with up to a 0.5 percent interest rate reduction on their federal loans. But the administration's primary purpose is to simplify the repayment process for borrowers who currently have to make payments on their federal student loans to multiple loan servicers each month.

As readers of Higher Ed Watch know, the Democratically-controlled Congress last year eliminated the FFEL program and shifted to 100 percent direct lending. While the transition has gone remarkably smoothly, nearly six million borrowers have found themselves with loans in both programs, creating an administrative burden for these individuals, as well as for colleges and the federal government.

[This is the third and final part of our Higher Ed Watch series looking at what's gone wrong at the for-profit college giant Education Management Corporation. To read the first two posts, click here and here.]

For nearly 40 years, Robert Knutson, the founder of Education Management Corporation (EDMC), built up a for-profit higher education company that was focused on doing “everything we can to ensure that students are successful, and our education process is oriented to the needs of our students,” as he told the Wall Street Corporate Reporter in 2002.

But after Goldman Sachs and two other private equity firms acquired Education Management in 2006 for $3.4 billion, they set an entirely different mission for the company: achieving hypergrowth.

To accomplish this goal, the company’s new owners hired a group of executives from the Apollo Group who had been instrumental in the massive expansion of the University of Phoenix earlier in the decade but had run afoul of federal regulators over the tactics they used to achieve that growth. Despite these troubles, the former Apollo officials brought nearly the exact same playbook to EDMC, according to former Education Management employees, the U.S. Department of Justice, and other press reports.

As the Huffington Post reported last week, this new leadership team created a “cut-throat sales culture” that was “laser focused on hitting mandated enrollment targets.” These executives hired thousands of new recruiters and made sure that they knew that their jobs depended on getting students in the door and signed up for loans, even if they knew full well that the students were unqualified for the work and had little chance of succeeding.

"The drive for numbers has created a recruiting staff that could care less about the well-being or success of the students” they bring in, a recruiter for EDMC's South University told the Huffington Post, in the online publication's words. “They’re wolves; they’re hunters,” the recruiter said. “They have one objective: They’re there to make money and get students.”

In retrospect, what’s happened at EDMC should not have come as a surprise. As Goldie Blumenstyk of the Chronicle of Higher Education wrote soon after Goldman’s purchase of EDMC, “When private equity funds do the buying, they do so with an overriding strategy in mind: Acquire the college or company, often with a lot of borrowed money, find ways to make it bigger and more profitable, and sell it at a higher price, either to other private investors or through a public offering."

“Since most private-equity funds are organized as limited partnerships with 10-year lifespans,” she added, “they hope to pull off these sales in five to seven years.”

In other words, firms that do these types of deals are not invested in the long-term health and well-being of the corporations they purchase. Instead, their mission is to build the companies up as fast as they can so they can sell them off and make a killing.

There was a time not so long ago that Education Management Corporation (EDMC) was considered to be one of the better for-profit higher education companies in the business. The arts schools that it had run since the early 1970s were generally well regarded, and the company seemed to be focused on its long-term success, rather than just its quarterly profits.

Today, EDMC is the target of a multibillion dollar lawsuit brought by the U.S. Department of Justice and half a dozen states, accusing the publicly-traded company of defrauding the federal government by defying a federal law that prohibits colleges from compensating recruiters based on their success in enrolling students. Meanwhile, attorneys general in four states -- Florida, Kentucky, Massachusetts, and New York --are investigating the company, as is the Department of Education’s Inspector General

Among other things, EDMC has been accused of pumping up its enrollment numbers by aggressively recruiting unqualified students, loading them up with debt, and failing to help them find gainful employment in the fields in which they trained. The company has also been charged with cooking the books on the job placement rates that it discloses to students and reports to accreditation agencies and state regulators.

Despite all of this scrutiny, EDMC has been among the most resistant for-profit higher education companies to reforming its practices -- going so far as to quit a lobbying coalition it started after that group began developing a voluntary code of conduct for its members to follow.

So what happened? That question can be answered in two words: Goldman Sachs.

[Over the last two months, Higher Ed Watch has examined how many for-profit colleges cook the books on the job placement rates they disclose to prospective students and regulators. In prior posts, we have looked at how the manipulation of these rates is a widespread problem throughout the industry; revealed some of the most common tricks of the trade for-profit schools have used to inflate these numbers; and showed how accreditors and regulators have been asleep at the switch as these abuses have been occurring. Today, we continue our series by reporting on the Obama administration’s unsuccessful effort (so far) to curb these practices.]

As part of the Obama administration’s Gainful Employment regulations, for-profit colleges and other vocational schools are required to disclose to prospective students more-detailed consumer information about the programs they offer. The aim of this effort is help students make better-informed decisions about the postsecondary educational programs they are considering.

But at least in one area, the information that prospective students are getting is fundamentally flawed. That’s because the job placement rates that for-profit higher education companies are required to disclose under the new rules are the same ones they report to accreditors and state regulatory agencies. As we wrote last week, the methodologies that career colleges use to calculate these rates vary state by state and accreditor by accreditor, making them impossible to compare. And because neither accreditors nor state regulators put much of an effort into verifying these rates, the schools don’t seem to have any qualms about gaming them.

It wasn’t supposed to be this way. Obama administration officials had an opportunity to establish a standard methodology for career colleges to use when calculating these rates, but they appear to have bungled it. And it isn’t clear whether they will get another shot at it anytime soon.

Are colleges trying to kill the Pell Grant program? It sounds like an absurd question. But after reading the results of a recent survey that Inside Higher Ed conducted of nearly 500 college admissions directors, we think it's a fair one to ask.

As readers of Higher Ed Watch well know, the Pell Grant program is in the midst of a major budget crisis. The White House and Congress have struggled mightily over the last two years to try to keep the current $5,550 maximum Pell Grant in place. And the program’s funding problems are only going to get  more severe at the end of the 2013 fiscal year, when the supplemental Pell Grant funds that Congress provided in this summer’s budget ceiling legislation run out.

Obama administration officials and the program’s supporters in Congress have been willing to sacrifice many student benefits they have previously supported (with the latest victim expected to be the interest subsidy payments that the government makes on federally subsidized loans during the six-month period after students leave college) because they remain committed to the program’s core mission: eliminating the cost barriers that all too often keep low-income students from attending college.

But do the nation’s public and private four-year college leaders share this commitment? They certainly say they do. The results of the IHE survey, however, suggest that many of them are just paying it lip service.

Stephen Burd, editor of Higher Ed Watch, a blog published by the New America Foundation, has been a frequent critic of the for-profit industry. He says the standards are “stronger than I would have thought,” and he congratulated the coalition on his ...

Earlier this week, we wrote about the tricks of the trade that for-profit colleges use to inflate the job placement rates they report to prospective students and regulators.

But here’s one we haven't heard before. According to an article that ran in the Los Angeles Times yesterday, the University of Antelope Valley, a for-profit college in Lancaster, CA, has offered to pay companies to employ their graduates. Under the deal, local employers can receive $2,000 for each graduate they hire this month, as long as the former students are placed in jobs related to their field of study.