The Perfect Storm of Private Sector Higher Education Regulation

1. The Perfect Storm of Private SectorHigher Education Regulation Presented to the American Massage Therapy Association February 17, 2011 Elise Scanlon Elise Scanlon Law Group

2. Overview: Answer 3 questions 1. Describe the current climate in Washington. 2. What comparisons can be drawn between now and the late 1980’s and early 1990’s and how can history instruct our course for the future?

3. Where do we go from here? 3. What should institutions be doing to answer what appears to be a persistent call for accountability, transparency and operating with integrity?

4. Current Climate Characterized by… • Serious concerns about the quality of for-profit higher education and high default rates resulting from the inability of graduates to repay federally guaranteed student loans.

5. Congressional Concerns • There are too many schools taking advantage of students and making money hand over fist. . . Some for-profit colleges are spending a quarter of their revenues on marketing and recruiting, and up to 90% of those revenues come from federal funding. We need to consider whether it is wise for companies to profit so handsomely on federal funding when the results don’t match the investment. And we need Congressional action to rein in abuses and ensure that taxpayer dollars are being wisely spent.” Senator Dick Durbin D-IL

6. Congressional Concerns • “They [private career colleges] figured out how to be profitable even when the students are not successful. There’s irrefutable evidence now that something’s gone wrong with this industry. I’m not saying that everybody’s bad in the industry, I’m just saying that the system has gone wrong.” Senator Tom Harkin (D-IA)

7. Department of Education Concerns • “While some programs appear to be very good, there are also troubling signs that some for-profit programs are not delivering great value and you can see in the data that some programs have very low repayment rates, very high debt loads, high default rates. Those are the programs that the department is attempting to rein in with its gainful employment regulations.” James Kvaal

8. First Impressions of Current Climate • Well orchestrated public relations push to gain support for controversial proposed regulations including state authorization, credit hour misrepresentation and gainful employment. • Negotiated Rulemaking on program integrity • House Education Committee Hearings (Credit Hour) • HELP Committee (Harkin) Hearings • NPRM on program integrity regulations • Speeches (Harkin, Durbin Shireman, Kvaal)

9. Education Trust Report • “If the for-profit sector as a whole did its part to ensure that the students they enroll got the kind of high-quality education they thought they were paying for, these institutions would be making an important contribution to our economy, indeed to our democracy…Instead, too many are taking advantage of the system by operating a business model based on systemic failure and foreclosing on the futures of vulnerable students before they have a chance to begin. That’s unethical, but it’s also un-American.” Kati Haycock President Education Trust

10. Program Integrity Regulations Summary • State Authorization • Institutional eligibility for Federal Student Aid requires institutions to have state approval or licensure conferred through a state approval or licensure process and subject to a process whereby the state addresses complaints directly or through referrals. • Concerns about application to programs delivered at a distance.

11. Misrepresentation • Rule defines erroneous or misleading statements that are misrepresentations • Those that have the likelihood or tendency to deceive or confuse • Made to a student, prospective student, member of the public, accrediting agency, state agency or the Department of Education • About the nature of its educational program(s), financial obligations of students, employability of graduates, government job statistics, among other topics.

12. Misrepresentation • Substantial Misrepresentation • Any misrepresentation on which the person to whom it was made could reasonably be expected to rely or has reasonably relied to that person’s detriment and can result in: • Revocation of T-4 eligibility • Limitations on T-4 participation • Denial of applications made by the institution • Fine, limitation, suspension or termination proceedings.

13. Credit Hour Definition • Establishes a federal definition of credit hour consistent with the Carnegie Unit. • One hour of classroom or direct faculty instruction and a minimum of two hours of out of class student work each week for 15 weeks for 1 semester or trimester credit, or 10-12 weeks for 1 quarter hour of credit or equivalent work for a different amount of time. • Based on a 900 clock hour academic year

14. Credit Hour • Where student licensure/certification requires clock hours, program must be measured in clock hours. • Accreditation responsible for ensuring that institutional credit hour policies are reliable and accurate. Agencies must report severe deficiencies and significant noncompliance to the Department.

15. Gainful Employment in a Recognized Occupation • HEA uses the term “gainful employment in a recognized occupation” in relation to the eligibility of for-profit institutions, community colleges and short-term programs at any institution. HEA does not define the term. • Term to be defined in regulation using a series of metrics.

16. Gainful Employment • Debt-to-Income Ratio • Between 8%-12% or lower of income or 20%-30% of discretionary income during the prior three-year period. • Note: If debt-to-income ratio is above 12% (or 30% of discretionary income) the program’s Loan Repayment Rate must be at least 35% for the program to remain eligible.

17. Gainful Employment • Loan Repayment Rate • Reviewed on a 4-year rolling cohort basis • By program • Assumes a 10-year repayment rate • Counts payments to principal only (at least $1) • Concerns over the treatment of loan consolidations, forbearance and deferments.

18. How did we get here? • Confluence of events • Scarce resources, shrinking state budgets, and endowments • Enormous demand for higher education globally • Scarce federal resources/concerns over Pell appropriations • Significant default rates in the private sector (12% of institutions responsible for 44% of defaults)

19. How did we get here? • Confluence of Events • Belief that high defaults correlate to a lack of quality • Unprecedented expansion of federal authority and influence over higher education, raising real concerns over the future of self-regulation (accreditation). • Skepticism about the investment community and inherent tension between making a profit and “being a force for good.”

20. Similarities Weak economy then and now Considerable and fast growth of for-profit schools High default rates Concerns over fraud and abuse Questions about the effectiveness of oversight and self-regulation Similarities Congressional Hearings + Document Production How does this climate compare to the late 1980’s?

21. Differences PCS larger, more sophisticated PCS owned by well-capitalized companies Tie to investment community a blessing and a curse Complex ownership structures Regional accreditation Differences Authorizing Committee acting like an oversight committee TA also being considered Distance Education much more significant component of higher education Students engaged How does this climate compare to the late 1980’s?

22. What is to be done? • Create Dissonance • Count on long-time partnerships, associations and friendships with students and community partners so sound bites do not square with their experience with PCS’s • Proactively forge new partnerships to see PCS’s through difficult times in the future. • Solidify relationships with the employment community.

23. What is to be done? • Take outcomes assessment seriously • Religiously analyze student performance metrics and use them honestly to improve courses and programs (Harkin analysis) • Student Assessment and Engagement • Construct a body of empirical evidence to prove that PCS’s are accountable to the students they serve

24. What is to be done? • Become known for integrity and ethical conduct with the singular purpose of helping students to be successful. • Cultivate authentic leadership that puts students first in all decision-making. • Undermine the bias that the only good education is non-profit education by capturing the moral high ground.

25. What is to be done? • Support Accreditation and High Standards Critical Components • Peer Review • Self-analysis • Employer involvement • Academic Freedom • Diversity • Institutional Autonomy

26. What is to be done? • Embrace social entrepreneurship by connecting service to mission.

27. Concluding Remarks

28. Elise Scanlon Elise Scanlon Law Group 1501 M Street, NW 7th Floor Washington, D.C. 20005 202-872-6767 Elise.scanlon@elisescanlonlawgroup.com