Crackdown on For-Profits

Sacramento has upstaged Washington as the hot spot for policy debates over for-profit higher education.

While federal scrutiny over for-profits continues, some of that energy has shifted to states. And a recent flurry of activity in California has many observers wondering if the Golden State will be where advocates for tighter regulation of the industry make their next play.

What’s clear is that California has serious money problems, and lawmakers are looking for cost savings wherever they can find them. That includes spending on Cal Grants, likely the nation’s most generous state-based financial aid system. With a maximum annual grant of $12,192, state spending on the program has swelled to $1.6 billion from $915 million over the last eight years.

There also may be good reasons to take a hard look at some for-profits. The California Bureau for Private Postsecondary Education, which was created two years ago, has already closed down several for-profits. The agency last week shuttered the Bay Area-based Institute of Medical Education after allegedly finding operational, accreditation and financial problems at the college. And under a new law, dozens of for-profits have loan default rates that are too high to qualify for the primary state aid program.

Amid this backdrop the California Student Aid Commission today begins a public hearing on whether the grants should cover all colleges' online degree programs. The commission says it is in a fact-gathering mode. But for-profits have plenty to worry about in California, given the budget crisis and a proposal by Governor Jerry Brown to cut Cal Grant award levels for students attending for-profits and private colleges.

The commission has used aggressive language to describe the goal of the hearing, citing in a press release concerns by some “about the quality of education that students may receive in what many see as an emerging ‘Wild West’ of higher education – a frontier where anything goes and not much is regulated.”

There are plenty of sheriffs looking to tame for-profits in California. In addition to the commission and regulation-minded lawmakers, San Francisco’s city attorney recently requested information from Education Management Corp. about student recruiting practices and job placement reporting at the Art Institutes of San Francisco and seven other Art Institutes in California, according to a corporate filing from the company.

The state is also home to tenacious consumer advocates. Among them is Robert Shireman, who oversaw the U.S. Department of Education’s pursuit of for-profits during the gainful employment push and now leads California Competes, a nonprofit focused on higher education and workforce development.

For-profit-college officials, for their part, are watching the developments with interest but generally staying mum until they see what emerges.
Shireman testified last week at a hearing hosted by the California Legislature on for-profit regulation. He held up $15,000 in cash to emphasize a point about the problem of incentive compensation for student recruiters (and later said he was escorted away by the sergeant at arms to help ward off any would-be muggers).

Joining Shireman at that hearing were representatives from the Institute for College Access and Success and Public Advocates Inc., who called for stronger state oversight of for-profits and criticized the Cal Grant money flowing to the sector.

Students at for-profits in the state receive an average grant of $6,900, said Debbie Cochrane, a program director at TICAS, and a collective $105 million in Cal Grant aid, which eats into the pie for students who attend California's public and private universities.

“The combination of relatively weak oversight – including virtually no oversight for a few recent years,” Cochrane said in her written testimony, “and an unusually generous state grant program have made the state an attractive place for for-profit colleges to do business.”

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