A trade group which represents some 1,400 for-profit colleges and universities sued in federal court on Thursday to force the U.S. Department of Education to rescind regulations designed to prevent the schools from taking billions in federal aid if they also stick students with thousands of dollars in loan debt and meagerly marketable, dead-end degrees.
The gainful employment rule is, like so much federal regulation, complex. Basically, though, the rule compares earnings to debt payments for graduates of for-profit schools as well as certificate programs at traditional nonprofit and public schools. Schools run afoul of the regulations if graduates can’t get jobs which pay enough so that loan payments don’t exceed 8 percent of their total annual earnings or 20 percent of their discretionary income.
Schools which fail to meet these income-to-loan levels risk losing access to taxpayer-subsidized student loans and taxpayer-funded grants.
The 77-page lawsuit makes many claims. “The new gainful employment rule imposes arbitrary new metrics on private sector schools,” it argues. Also, the “arbitrary and capricious” debt-to-income measurement depends on factors schools can’t control such as “students’ choices of what jobs to pursue, the state of the economy and the job market in the relevant industry, and students’ individual financial circumstances.”
Additionally, the lawsuit observes, “private sector schools consume far fewer taxpayer dollars than their public and non-profit counterparts.”
At the same time, for-profit colleges rely very, very heavily on federal cash and their chief executive officers bring home obscenely high salaries.
For example, the CEO and president of Devry Education Group, Daniel Hamburger, made $5,680,939 in 2013, according to Salary.com.
Edward H. West, president and CEO of Education Management Corporation, made $6,025,304 in 2013, according to Salary.com.
Kaplan Higher Education received $1.46 billion from federal loans and grants in 2010 — nearly 86 percent of its 2010 revenue. Nevertheless, the company refused to divulge the compensation its executives receive during a U.S. Senate inquiry, according to Republic Report.
Scott W. Steffey, president and CEO of Career Education Corporation, made $4,837,992 in 2013, according to Salary.com.
A long, absolutely scathing U.S. Senate report entitled “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success” lays out the appalling behavior by several large for-profit education colleges including Kaplan and Career Education Corp., which operates 83 campuses in the United States including Le Cordon Bleu, Brown College, Sanford–Brown and a host of others.
As one example among hundreds concerning for-profit colleges, Career Education Corp.’s training document called “Telephone Tips” instructed recruiters to “NOT GIVE TOO MUCH INFORMATION” and “create a sense of urgency” during calls with prospective students. (The actual document contains the capitalization.)
Career Education Corp. reached a $10 million settlement agreement in 2013 with the New York attorney general over charges of gross deception. The huge for-profit company admitted that only 24 percent to 64 percent of graduates were able to find meaningful jobs. The company had touted an inflated rate of 55 percent to 80 percent.
Opinions about the lawsuit vary widely.
“The gainful employment regulation is nothing more than a bad-faith attempt to cut off access to education for millions of students who have been historically underserved by higher education,” said Steve Gunderson, president of the Association of Private Sector Colleges and Universities, Association of Private Sector Colleges and Universities, the trade group which filed the lawsuit.
Dorie Nolt, an Education Department spokeswoman, disagreed.
“We’re confident that the department is within its legal authority in issuing gainful employment regulations that will protect students and taxpayers’ investments by bringing more accountability and transparency to career training programs,” she told NPR.
Independent policy analyst Barmak Nassirian suggested that the case is really about “the right of an agency to question its entitlement to free federal money.”
Nassirian also predicted that the new Republican-dominated Congress will likely overturn the gainful employment rule.
“I think ‘gainful’ is as good as dead politically,” he told NPR.
In July, pressure from the Obama administration caused Corinthian Colleges, one of the largest post-secondary education companies in North America, to shut down. (RELATED: Obama Administration Kills Corinthian Colleges)
For-profit colleges in the United States currently enroll about two million students. (RELATED: Why Are The Clintons Hawking A Seedy, Soros-Backed For-Profit College Corporation?)