Why the Department of Education cannot be trusted, Part II

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Federal regulators are unelected officials given the power to make law in the form of regulations. But that power is not unlimited. It is checked by a statute called the Administrative Procedure Act (APA), enacted in 1946. The APA requires fairness, open-mindedness, transparency, and a level playing field by unelected regulators before their proposed “rules” can become law.

Unfortunately, since the early months of this administration, Department of Education (DOE) Secretary Arne Duncan has presided over a process of formulating the so-called “gainful employment (GE) regulation” that has consistently violated the principles of fairness and transparency underlying the APA. The GE regulation is aimed almost exclusively at for-profit career college programs. Indisputably it would have its greatest impact on minorities, lower-income people, and working families and women, i.e., those young people who predominantly attend these institutions and rely on Title IV student loans to finance their degrees.

Here are at least five indisputable facts about the DOE process Mr. Duncan has presided over. We’ll let the reader decide whether they show what we see: a process led by people who already had their minds made up to single out for-profit career colleges and colluded with those sharing their bias, including short-sellers, often behind closed doors, to achieve a pre-determined result:

(1) At the outset, the DOE misleadingly announced the scope of the informal rule to be applicable to all sectors of the industry — for-profit as well as public and private sectors — when, all the time, the true intent was to apply the rule virtually exclusively to for-profit programs with students dependent on federal student loans.

(2) In late 2009, Secretary Duncan established the “Negotiating Rulemaking Committee,” that is in the position to influence and sometimes outright determine the substance of the final regulation. For that reason, the committee is required under the law to be fair and balanced. Yet, in fact, it was ludicrously stacked against career colleges. Out of 32 members and alternates only two — a 16-1 ratio — came from career colleges, despite repeated requests from the career college sector to senior DOE officials for more balance.

(3) According to many discovered emails, senior DOE officials, such as Under Secretary Robert Shireman and senior officials Ann Manheimer and David Bergeron met, emailed, talked on the phone, participated in conference calls, and colluded secretly with short-sellers in career college stocks, i.e., they stood to make a lot of money by a harsh GE regulation, which would inevitably drive down the share values of the public companies that own career colleges.

One of the more famous of these short-sellers is named Steven Eisman — noteworthy for betting against the sub-prime industry before the crash and making lots of money as a result. In one series of emails, Eisman appears to be suggesting talking points to Under Secretary Shireman, and shortly thereafter, Shireman gave a harsh public speech condemning career colleges, including naming specific public company-owned colleges. (Whether Mr. Eisman had shorted the colleges Mr. Shireman had called out, one would think, would be the subject of an S.E.C. inquiry).

(4) Various emails show senior DOE official Manheimer meeting and corresponding with Ansal Desai, a notorious career college short-seller. In one email string, Ms. Manheimer, who is supposed to be a fair and neutral regulator, asks Desai and other anti-career college advocacy groups for negative anecdotes about career colleges. To date, no email has been discovered in which Ms. Manheimer asks career college representatives for positive anecdotes. This, in and of itself, should be disqualifying for Ms. Manheimer to be involved in senior policymaking on the GE regulation.

The discredited GAO study relied on by DOE

(5) The DOE for months used an undercover GAO study that concluded that there was systemic fraud in the for-profit career college sector in order to justify its earlier decision to target virtually exclusively for-profit career colleges for the GE regulation, even though there are instances of fraud and abuse at private and public universities as well.

DOE now knows — as does everyone else — that the GAO report was biased and probably contained intentional distortions (which, if so, could constitute criminal fraud by the investigators and those complicit in colluding with them. GAO has allegedly investigated this matter and turned over the results to Congress).

For example, after pressure from the career colleges to release the transcripts of interviews from the GAO’s so-called “undercover study,” the GAO five months later — quietly on the Thanksgiving 2010 weekend — released a “revised” report. That report admitted that transcripts of tapes had been distorted in the first report — with such gross errors that simply couldn’t be explained away as inadvertent. The GAO conceded (though quietly over Thanksgiving weekend) 15 significant “errors” in transcribing the taped undercover interviews, all of them corrected in the second published version.

Fact: every one of the 15 errors admitted by the GAO were to the prejudice of for-profit, career colleges; not one in their favor.

Could every one of those errors have been inadvertent? You can’t flip a coin and get heads 15 times. Yet DOE persists in referring to the GAO “study” as the rationale for targeting almost exclusively career colleges for the GE regulation — and not applying it to not-for-profit private and public universities.

Given the discrediting of the GAO study, moreover, there is now no credible evidence — none — that there is systemic fraud at for-profit colleges or that they are any worse in anecdotal incidents of recruiting abuses than not-for-profit private colleges or public colleges.

Mr. Duncan has not once criticized or repudiated the GAO conclusions of systemic fraud. To the contrary — he has repeated them, ignoring all the evidence of distorted and biased reporting by the GAO investigators.


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This progressive Democratic administration proudly celebrates the values of fairness and transparency in rule-making. Yet Secretary Duncan has presided over one of the most biased and compromised regulatory efforts in our memory under Republican or Democratic administrations over the last 30 years.

This is one of the many reasons why so many House Democratic liberal and minority members in February voted to block issuance of the GE regulation, including former Speaker and now Democratic Minority Leader Nancy Pelosi, Rep. Debbie Wasserman Schultz, now chair of the Democratic National Committee; and leading members of the Congressional Black Caucus, such as Congressman Alcee Hastings, Congressman Ed Towns, and Congressman Bobby Scott.

We ask Secretary Duncan: Why not hit the pause or “reset” button and re-evaluate the GE regulation — not only its policy, which would hurt minorities and working people so disproportionately to the rest of the population; but the process that you have allowed to take place — biased, unfair, non-transparent, and apparently profiting short-sellers who have been secret participants.

Why not, Mr. Secretary? Your priority when you came to Washington was your important K-12 program. Why are you letting ideologues outside and inside the department who seem to think the words “for profit” are inherently evil endanger your important K-12 program?

Lanny Davis is a Washington attorney and represents the National Black Chamber of Commerce (NBCC). Harry Alford is President of the NBCC.