• July 22, 2014

Obama's Victory Spells Continued Scrutiny for For-Profit Colleges

The re-election of President Obama isn't likely to result in a slew of new regulations aimed at for-profit colleges. But with student debt and the cost of college expected to remain high-profile issues in his second administration, industry observers foresee little let-up in the focus on the for-profit sector.

That focus will begin, many say, with a push to resuscitate the gainful-employment regulation, a Department of Education proposal strongly opposed by for-profit colleges. And according to one community-college leader, in its new incarnation, the regulation might come back to life "in a broader form," with portions of it applying more widely at nonprofit colleges as well. The original regulation was largely vacated by a federal judge last summer after it was challenged in court by the Association of Private Sector Colleges and Universities, the main trade group of for-profit colleges.

And while the election brought no changes in control to either the U.S. Senate or the U.S. House of Representatives, observers also predict that for-profit colleges will continue to face heat from Democrats in Congress as deficit-cutting measures and the reauthorization of the Higher Education Act take center stage over the next few years.

"Student debt is a huge political and economic issue," and for-profit colleges are a key part of that story, says Teddy Downey, a senior policy analyst with TJ Strategies, a firm in Washington, D.C., that provides research on education issues to investors and policy makers. "They're still going to be a big part of the conversation."

Some executives of for-profit colleges say privately that they hope a second-term Obama administration will shift the focus "away from just our sector to the whole sector," and put the spotlight on curbing rising tuition at all colleges. But several analysts say that might be more wishful thinking than reality.

The second Obama administration will "continue the process they started" with new regulations on how for-profit colleges market to students and recruit them, says David Hawkins, director of public policy and research at the National Association for College Admission Counseling.

And thanks in large part to Sen. Tom Harkin's two-year investigation of the sector and a damning report that raised questions about the recruiting and educational practices of many for-profit-college companies, they will also "still be very much in the Congressional eye." With Democrats keeping their slim majority in the Senate, Mr. Harkin, a Democrat from Iowa, is likely to remain chairman of the Senate education committee, the body that will also help to shape the next Higher Education Act.

Still, any measure aimed at for-profit colleges—including several now pending as part of a Senate appropriations bill that would curtail the colleges' ability to use federal student-aid proceeds on recruiting or advertising—would still require House approval. And for-profit colleges are better regarded in the Republican-controlled House.

Tougher Version of Gainful Employment?

President Obama's win over Mitt Romney also means the sector is likely to see continued attention from the Consumer Financial Protection Bureau, a new agency that has already opened investigations into student-lending practices at two major for-profit-college companies, ITT Educational Services and Corinthian Colleges Inc. A win by Mr. Romney would have meant "a neutered CFPB," says Jarrel Price of Height Analytics, a firm that follows the for-profit-college industry for financial companies.

During his campaign Mr. Romney singled out for-profit colleges as innovators and said he opposed "punitive regulations" on the sector, prompting many to assume he would let the gainful-employment regulation die if he were elected, either by not pursuing further court appeals or not attempting to rewrite the regulation to meet objections raised by the federal judge.

Many expect the Obama administration will press ahead on both those counts. The gainful-employment regulation would deny federal student aid to most programs at for-profit institutions and to certain nondegree-granting programs at other colleges where graduates have loan-repayment rates that are too low, or debt-to-income ratios that are too high.

The Education Department has asked the judge to reconsider a portion of the ruling but has not said whether it would appeal the entire ruling. Those who expect the department to pursue the appeal in court say they also expect it will propose a new version of the regulation.

With growing public attention to the cost and value of college, a new version of the rule might go farther than the original, according to David S. Baime, senior vice president for government relations and research at the American Association of Community Colleges. Mr. Baime says he's heard that a revamped regulation might require more colleges to report the loan levels and earnings of graduates from programs not included in the original regulation, even if the department lacked the authority to cut off federal student aid to institutions that don't meet the standards.

Any revival of the gainful-employment regulation would be unwelcome news to the for-profit-college sector, which lobbied furiously against the measure during most of President Obama's first term in a campaign many say helped to weaken the final regulation.

Yet as Tom E. Netting, a lobbyist for for-profit colleges, notes, the election of Mr. Romney would have been "no panacea" for the sector either. That's because, along with an agenda for deregulation, an administration headed by Mr. Romney and Rep. Paul Ryan might have pressed to scale back spending for Pell Grants, a key source of revenue at many for-profit colleges.

No matter who is in office, the Pell Grant budget will be under great pressure because of the federal deficit, with tighter eligibility rules likely. But Mr. Netting says he would "find it hard to believe" that the Obama administration would press to cut the maximum Pell Grant award, after spending the last few years raising it.

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