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For-Profit Universities Sue US Government Over New Regulations

— November 7, 2014

A recent article by Mother Jones titled “Subprime Students: How For-Profit Universities Make a Killing By Exploiting College Dreams” sheds light on the for-profit education racket: “While the for-profit business model has generally served investors well, it has failed students. Retention rates are abysmal and tuitions sky-high. For-profit colleges can be up to twice as expensive as Ivy League universities, and routinely cost five or six times the price of a community college education.” (emphasis added)  Now, a trade group representing some 1,400 for-profit universities is suing the US federal government, calling attempts to regulate the industry “unlawful, arbitrary, and irrational.” (NPR)

First, we should outline how and why the US government is attempting to regulate for-profit universities (University of Phoenix, Everest College, Ashford University, DeVry University, and others).  Last week, the US Department of Education enacted a rule that limits federal student-aid money to schools producing students regularly unable to repay debt.  Basically, the feds have decided to limit student aid for pupils at schools that don’t help students get good jobs, incentivizing enrollment at better schools.  To be sure, for-profit universities are lower quality, higher tuition institutions – this DOE regulation does not target state schools or community colleges, which in fact are quite good at producing young people able to pay off debt.

NPR: “The Department of Education says the regulation could potentially affect up to 840,000 students, and, the trade group says, 3.5 million in the next 10 years. Two million students are currently enrolled in for-profits.”

Because for-profit universities target poor and vulnerable people (using huge advertising campaigns and dubious recruitment techniques), these institutions must rely on federal student-aid dollars.  Thus, push-back to the recent DOE rule is understandable.  The Association of Private Sector Colleges and Universities, the trade group suing the US government on behalf of for-profit schools has done so many times before, usually soon after new regulations are issued.

However, this new DOE rule may stand behind solid logic.  Mother Jones writes, “Graduates of for-profit schools generally do not fare well. Indeed, they rarely find themselves in the kind of work they were promised when they enrolled, the kind of work that might enable them to repay their debts, let alone purchase the commodity-cornerstones of the American dream like a car or a home.”

Concerning the current pending lawsuit, NPR explains that “At issue … are the criteria used to determine whether, and how many, students are struggling. The Education Department is proposing to compare graduates’ student loan debt to their earnings. The schools say such a measure is unfair because how much money students make after graduating is not in their control.”  While the schools are right – postgraduate income isn’t entirely the up to students, a case can be made that it is the fault of the institution.  And as I see, this is the goal of the latest DOE rule: to punish under-performing for-profit universities.

Concerning the questionable-at-best advertising and recruiting practices of many for-profit universities, Mother Jones cites David Halperin, in his new book Stealing America’s Future: How For-Profit Colleges Scam Taxpayers and Ruin Student’s Lives: “‘The University of Phoenix has spent as much as $600 million a year on advertising; it has regularly been Google’s largest advertiser, spending $200,000 a day.’” (emphasis added) This compared to about $700 per year spent on each student’s education.  Staggering, right?

In 2012, the US Senate Health, Education, Labor and Pensions Committee found the top thirty of these institutions spent over $4 billion (just under a quarter of revenue) on advertising and recruitment.

Mother Jones:  “In 2010, an undercover investigation by the Government Accountability Office tested 15 for-profit colleges and found that every one of them ‘made deceptive or otherwise questionable statements’ to undercover applicants. These recruiting practices are now under increasing scrutiny from 20 state attorneys general, Senate investigators, and the Consumer Financial Protection Bureau (CFPB), amid allegations that many of these schools manipulate the job placement statistics of their graduates in the most cynical of ways.”

It doesn’t stop there: for-profit universities target returning veterans.

Though in 2012 President Obama used executive order to insulate returning soldiers from for-profit universities, preying on soldiers with brain damage, explaining, “These Marines had injuries so severe some of them couldn’t recall what courses the recruiter had signed them up for”, this has not entirely solved the problem.

Mother Jones again: “The Iraq and Afghanistan Veterans of America, an organization that offers support in health, education, employment, and community-building to new veterans, put it this way in August 2013: ‘Using high-pressure sales tactics and false promises, these institutions lure veterans into enrolling into expensive programs, drain their post-9/11 GI Bill education benefits, and sign up for tens of thousands of dollars in loans. The for-profits take in the money but leave the students with a substandard education, heavy student loan debt, non-transferable credits, worthless degrees, or no degrees at all.’” (emphasis added)

At many for-profit schools, recruiters are told to “create a sense of urgency” and “poke the pain a bit and remind them who else is depending on them and their commitment to a better future.” (ITT Tech recruitment training manual.)  Other for-profit universities specify their target demographic is “‘isolated,” “impatient” individuals with “low self-esteem.’” (MJ)

As the outcomes of this lawsuit unfold, we at Legal Reader will provide all the updates you need.

See below for a video of comedian John Oliver discussing problems with the for-profit education industry and student loan debt on “Last Week Tonight” two months ago.  Focus on for-profit universities begins about four minutes, fifteen seconds into the clip.

[Note: The inclusion of the above video in this blog post does not constitute endorsement of statements or ideas therein by myself, LegalReader, or our affiliates.]

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