The Partisan Battle Over For-profit Education

When Republicans seized control of the United States House of Representatives in last November’s elections, there was wide speculation that it was a victory for the for-profit education industry. Analysts understood that a Republican House would likely stand in the way of legislation calling for the type of stringent regulations commonly advocated by several Democratic lawmakers.

Sen. Tom Harkin, Democrat from Iowa and chairman of the Health, Education, Labor, and Pensions Committee, held a series of high-profile hearings in 2010, accusing for-profit schools (many of which are predominantly online universities like the University of Phoenix, Kaplan University, and Strayer University) of abusing taxpayer-funded federal student loan dollars for the sake of their bottom lines.

Sector analysts are confident that any standalone legislation calling for further regulation of the for-profit education industry from Harkin and allies in the Senate won’t carry as much momentum as it might have in 2010. "I don’t think that any legislation that’s proposed by Harkin or Dick Durbin (D-Ill.) has any chance even of making it out of the Senate, much less getting through the House," says Trace Urdan, a for-profit education analyst and managing director at investment bank Signal Hill Capital.

While Democrats hoping to further regulate the for-profit education industry may not be able to pass sweeping legislation, they do have a significant amount of leverage thanks to an exemption critical to for-profit schools that expires in July. The schools are currently exempt from a rule that requires at least 10 percent of their revenue to come from sources outside of federal aid. Most major for-profit schools rely on the exemption for survival and will need an extension, or else they’ll be forced to raise tuition prices and risk running afoul of new gainful employment regulations designed to keep the cost of college commiserate with potential earnings, analysts say.

Jarrel Price, an analyst and vice president at research firm Height Analytics feels Senate Democrats, who could stand in the way of this extension, will ultimately concede to the industry because schools like the University of Phoenix, which boasts more than 380,000 students according to the Department of Education, are "too big to fail." However, Democrats won’t concede without making demands of their own, knowing that many for-profit schools would falter without an extension. "Tom Harkin will demand his pound of flesh," says Urdan. What that regulatory pound of flesh might be, is unclear, both analysts say.

Democratic lawmakers have pushed for regulation in hopes of benefiting consumers like Shannon Croteau, who wanted her husband, a truck driver, to scale back his working hours so he could spend more time with her and their three children. However, if he reduced his hours, she knew she would have to go back to school to earn a job that would pay enough to make ends meet. She enrolled in a Kaplan University Online program in paralegal studies in 2008 in the hopes of boosting her income. She claims Kaplan recruiters told her that the program was accredited, but maintains that before she could finish her degree she learned that the program wasn’t accredited in her home state—New Hampshire—and that she amassed more than $30,000 in student loan debt with no degree to show for it. "Financially, it’s a huge, huge impact because now [my husband] has got to work even harder," she says. "[Plus], I couldn’t walk into a paralegal’s office right now and do what they’re supposed to do."

Kaplan maintains that Croteau’s plight is of her own making because of prior debts. "This student incurred a significant part of her debt before she enrolled at Kaplan University, and she reached her federal loan limit," according to a Kaplan University statement. "Although Kaplan cannot forgive loans to the federal government, we have forgiven her financial obligations to Kaplan. As we do with all students, we have tried to work with her to allow her to complete her degree, but she has resisted all of our efforts."

In an effort to ensure that students don’t find themselves in similar situations after enrolling in for-profit programs, the Department of Education will soon offer clear definitions of gainful employment regulations, which are meant to ensure that schools adequately prepare their students for the working world by examining their students’ debt load on graduation, student income, and student loan repayment rates. If a school doesn’t meet benchmarks in each of those areas it risks losing federal student loan funding, which for-profit schools rely on for survival.

A Department spokesperson maintains that the final gainful employment guidelines will be released early this year, but refuses to offer a specific date. While the Republicans in the House can block further legislation, it is unlikely that they will be able to dilute the regulations in the wake of an extended public commenting period on the proposed rules, analysts say. "There will be a significant number of changes to the final rule, but that does not mean that we should expect a broad softening of the rule," says Price of Height Analytics.


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