Dear Commons Community,

In the wake of the recent attention to practices at the University of Phoenix and Corinthian Colleges, the New York Times has a page one article questioning why the US Department  of Education continues to approve billions of dollars for students attending for-profit colleges accused of fraud.  As reported:

“When the Obama administration agreed this summer to erase the federal loan debt of some former students at Corinthian Colleges, a for-profit school that filed for bankruptcy in the face of charges of widespread fraud, education officials promised to “protect students from abusive colleges and safeguard the interests of taxpayers.”

But the Education Department, despite a crackdown against what it calls “bad actors,” continues to hand over tens of millions of dollars every month to other for-profit schools that have been accused of predatory behavior, substandard practices or illegal activity by its own officials or state attorneys general across the country.

Consider the Education Management Corporation, which runs 110 schools in the United States for chefs, artists and other trades. It has been investigated or sued in recent years by prosecutors in at least 12 states. The Justice Department has accused the company of illegally using incentives to pay its recruiters. And last year, investors filed a class-action lawsuit, contending that the company engaged in deceptive enrollment practices and manipulated federal student loan and grant programs.

Students waited for information in April after Corinthian Colleges announced it would shut down Everest College in City of Industry, Calif.   Education Management nonetheless received more than $1.25 billion in federal money over the last school year.

The career training and for-profit college industry has been accused in recent years of preying on the poor, veterans and minorities by charging exorbitant fees for degrees that mostly fail to deliver promised skills and jobs.

Despite stepped-up scrutiny, hundreds of schools that have failed regulatory standards or been accused of violating legal statutes are still hauling in billions of dollars of government funds. They include tiny beauty schools with staggering loan default rates and online law schools with dismal graduation records and no bar association accreditation. Without government funds, which account for the overwhelming bulk of revenue, few of these institutions could attract students or stay in business.

The continuing flow of money illustrates the quandary facing federal education officials. On one hand, they have moved forcefully to try to protect taxpayer funds and prevent students from falling deeply into debt without anything to show for it. On the other, they must avoid running roughshod over private for-profit schools that have not been found guilty of wrongdoing. Agency officials point out that they cannot withhold money based on accusations, but must have proof of misconduct.

For example, Education Management, which says it is cooperating with prosecutors, says it “strongly disagrees” with the Justice Department allegations.

Regulators are caught between an industry that says it is being unfairly demonized by opponents and critics who complain not enough is being done to prevent fraud and abuse of vulnerable students.”

The article goes on to mention a number of other for-profit colleges including the University of Phoenix and Kaplan that have been accused of questionable recruitment practices.  It also quotes Kevin Kinser:

“For-profits successfully serve a lot of students, and the department has been very sensitive to having all students suffer for what may only affect some students in some programs,” said Kevin Kinser, an associate professor who studies for-profit colleges at the State University of New York at Albany. “So they are reluctant to throw the baby out with the bath water.”

Mr. Kinser pointed out that the Education Department had little flexibility under the law when it came to cutting off federal student loan and grant money to potential abusers. “There are individual triggers in place for financial viability, institutional integrity, et cetera,” he said, “but no three-strikes-and-you’re-out rule.”

A sad situation for students vulnerable to the come-on tactics of unscrupulous recruiters.

Tony