Predatory For-Profit Colleges Benefit From Washington’s Culture of Corruption
President Donald Trump’s culture of corruption is pervasive: He has put lobbyists in charge of regulating the industries they previously worked for and perverted the legislative process to help wealthy donors at the expense of everyone else. One of the most concerning examples of this corruption is the Trump administration’s cozy relationship with predatory for-profit colleges. Their close relationship has negative consequences for millions of Americans, including low graduation rates, less valuable credentials, and higher tuition and student debt costs.
Trump and his administration are currently propping up for-profit institutions, where students are four times more likely to default on their loans compared with their counterparts in less expensive community colleges. Eighty-eight percent of borrowers who graduated from for-profit colleges did so with student loan debt—a higher rate than that of both public and private nonprofit colleges.
While not all for-profit institutions are bad actors, the sector has been rife with predatory and fraudulent practices that make it easier for unscrupulous education corporations to take advantage of students. Predatory for-profits tend to go after potential students who are disadvantaged or have less economic security such as people of color, single parents, and older students. The institutions continue to survive using campaign donations and high-placed political allies to game the education system at the expense of the average student.
This effort has been driven by U.S. Secretary of Education Betsy DeVos, a prominent public education opponent and far-right megadonor, who has been on a mission to reshape and privatize education in America alongside the for-profit industry lawyers and lobbyists that now staff the U.S. Department of Education.
The landscape of for-profit colleges
Students have long been told that attending a four-year college and graduating with a bachelor’s degree is the best way to secure one’s place in the middle class. For many families, however, the rising price of higher education has put a traditional four-year education at a public or private institution simply too far out of reach. Students today are also taking on more crippling debt than any generation before—and they have nearly $1.6 trillion to repay. Enter for-profit schools, which promise well-paying jobs in growing fields and use inspirational commercials with well-known celebrities in order to attract potential students.
The minds behind these institutions saw an opportunity to capitalize on a group of Americans who desperately want a chance to get ahead—and who have access to massive amounts of federal education dollars. Despite enrolling only 11 percent of the higher education population, for-profit colleges and universities receive 25 percent of all federal student aid that the Education Department disperses. Some of the largest for-profit colleges receive as much as 90 percent of their total funding from federal aid, incentivizing schools to target low-income students and veterans who are eligible for large amounts of federal aid. Many for-profits have an unsavory history of using fraudulent marketing and recruiting techniques and engaging in predatory lending practices that make low-income students, veterans, single parents, and other nontraditional students perfect recruiting targets.
For-profit college graduation rates make clear that these moneymaking operations are not built to give students the tools and skills they need to succeed: 60 percent of students at private or public nonprofit universities graduated with a bachelor’s degree within six years, compared with 26 percent of students at for-profit institutions. Additionally, for-profits charge higher tuition than community colleges, and their students take on more debt, have a tougher time repaying their debt, and suffer high unemployment rates after program completion.
The motives of executives at these giant education corporations should not surprise anyone; the priority of for-profit education is to generate profit for corporate shareholders. Although some for-profits are now folding under the weight of their own schemes, their stock prices rose sharply upon Trump’s election. Under the new administration, these corporations anticipated more profit at the expense of vulnerable students after then-candidate Trump signaled a willingness to put Obama-era regulations in the crosshairs.
President Obama attempted to crack down
The Obama administration attempted to crack down on these colleges by implementing a number of rules and regulations to hold institutions accountable and ensure that students were presented with quality educational opportunities.
One of the major mechanisms the Obama administration put in place was the gainful employment rule, which was designed to ensure that career-training programs produce graduates who find jobs with incomes sufficient enough to repay their student loans. A program is considered to have met the standard if the annual loan payment of a typical graduate is less than 20 percent of their discretionary income. If a program exceeded the debt-to-earnings threshold, it risked being expelled from qualification for the federal student aid on which many for-profits rely. According to The Chronicle of Higher Education, 98 percent of programs that failed the accountability standards for the gainful employment rule were offered by for-profit college programs.
The Obama administration also implemented the borrower defense to repayment rule, which relieved students of all federal loans if a school used deceptive or illegal practices to persuade students to incur debt to attend the institution. Importantly, these Obama-era rules also included bans on the use of forced arbitration agreements in student enrollment contracts so that students who were potentially wronged by predatory institutions did not have to sign away their rights to bring lawsuits and be left to instead engage in a private process out of court with little right to appeal. According to a 2016 Century Foundation report, mandatory arbitration clauses are widely used in the industry, applying to about 98 percent of students enrolled at for-profits versus 7 percent at traditional schools.
The Consumer Financial Protection Bureau (CFPB) even brought a $500 million suit against one of the largest chains—the now-defunct Corinthian Colleges Inc.—for predatory practices that lured thousands of students to take out tens of thousands of dollars in loans by advertising phony career prospects and then using illegal debt collection tactics to force students, including some still enrolled in school, to repay loans.
Trump administration reversals
Secretary DeVos began her tenure by filling the Education Department with lawyers and lobbyists from the for-profit education industry, including top officials from industry trade associations and for-profit corporations. Two of DeVos’ most prominent industry hires were Robert S. Eitel and Diane Auer Jones.
Eitel, DeVos’ senior adviser and the department’s regulatory reform officer, is an instrumental player in the efforts to reverse Obama-era regulations. Eitel previously served as a top lawyer and vice president for regulatory legal services at Bridgepoint Education Inc., a for-profit that faced multiple federal investigations, including one for deceptive student lending that ended with a $30 million settlement. Eitel’s career also included a stint in former President George W. Bush’s Education Department. It should come as no surprise, then, that he was a vocal critic of federal regulation of both for-profit colleges and K-12 programs during the Obama administration.
Jones is now principal deputy under secretary at the Education Department. A former George W. Bush official at the department, she previously worked as senior vice president at Career Education Corporation—one of the largest for-profit education operators in the nation—which reached settlements in 48 states and the District of Columbia in 2019 over accusations that it misled students with inflated job placement rates. Much of her career has been focused on overhauling the accreditation system.
DeVos has killed investigations into widespread abuses by prominent for-profit colleges and also dismantled a special investigative team at the department that was formed in 2016, after the collapse of Corinthian Colleges, to continue those investigations.
She also took steps to suspend the Obama-era rules in a move slammed by groups such as Public Citizen as an effort to “put the profit margins of for-profit colleges ahead of the interests of students and their families” in “a craven attempt to avoid the agency’s legal obligation” to enforce the rules. DeVos has continued to signal a willingness to kill the Obama-era protections. In July 2018, DeVos—with Eitel’s assistance—proposed to neuter the borrower defense rule, and in June 2019, she revoked the gainful employment rule.
Outside of loosening rules for predatory for-profits, the Trump administration is also working to reduce accreditation standards. While the administration claims this effort, led by Jones, is necessary because the current rules stifle innovation, others say the proposed changes would loosen the reins on accreditors and drastically reduce oversight over programs and outcomes.
Trump himself once owned and operated a for-profit real estate program—Trump University—a glorified get-rich-quick scheme that, though it did not receive federal funding, was famously shut down in 2010 for using false advertising and aggressive marketing techniques to dupe students into spending thousands of dollars on phony seminars to learn the real estate business. Trump paid a $25 million settlement to bury a group of former students’ lawsuits alleging fraud immediately after the 2016 presidential election.
Other components of the administration have tipped the scales against students as well. The CFPB massively scaled back consumer protection efforts under then-interim Director Mick Mulvaney. The deregulatory schemes intended to empower special interests were so blatant that the career official charged with ensuring borrowers are not scammed or taken advantage of resigned in 2018.
With Trump signaling an affinity for the industry and vowing to relax or eliminate regulations in other sectors of the government, predatory for-profit colleges sensed an opportunity to influence policy through political donations. For-profits are not solely reliant on the administration, however; they also have powerful friends in Congress. The United States’ broken campaign finance laws—which prioritize the wealthy over everyday citizens—have helped the industry stay “quietly on offense.” Quiet as it may have been, during the 2016 and 2018 election cycles, the for-profit industry funneled almost $4.5 million dollars into outside groups, political parties, and candidates, including prominent members of Congress who sit on the very committees that govern education policy. In exchange, the deregulatory agenda has earned the support of some high-profile members in both parties.
Regulatory rollbacks expose students to harm
Put simply, these rollbacks mean more potential harm for unsuspecting and historically disadvantaged students who are trying to get ahead. Many seats in for-profit classrooms are filled by students who are more likely to be low-income students, older students, single parents, people of color, or veterans.
A 2014 analysis by the Leadership Conference on Civil and Human Rights showed that African American and Latinx students are overrepresented in the for-profit student population. The overrepresentation is even more extreme at schools such as Corinthian Colleges, where people of color once comprised 62 percent of the student population. And while President Trump frequently touts his devotion to veterans and the military, veterans are among the students most at risk from the aggressive recruitment of predatory for-profits and the reduced standards pushed by his administration.
Predatory for-profit colleges have found a friend in the Trump administration, and they are taking advantage of the cozy relationship to benefit their industry at the expense of students. For-profit colleges represent yet another example of how corruption has been embedded into a system that no longer works for everyday people. The federal government needs serious reform in order to tackle the structural inequality that allows wealthy education corporations to use campaign financing and Washington’s revolving door to benefit themselves at the expense of everyday people.
William Roberts is the managing director of Democracy and Government Reform at the Center for American Progress. Marissa Parker-Bair is an intern for Democracy and Government Reform at the Center.
The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.