Responsive Document - CREW: Department of Education: Regarding For-Profit Education: 8/16/2011 - OS Additional Responsive Docs 11-00026 Weismann

Winters, Deborah
From:
Sent:
To:
Private- Duncan, Arne
Monday, June 07, 2010 9:13AM
Duran, Maribel
Subject: Fw: NYT: Facing Cuts in Federal Aid, For-Profit Colleges Are in a Fight
Please print
From: Kanter, Martha
To: Rogers, Margot; Private - Duncan, Arne; Miller, Tony
Sent: Sun Jun 06 17:33:50 2010
Subject: NYT: Facing Cuts in Federal Aid, For-Profit Colleges Are in a Fight
Sent using BlackBerry
From: Pauline Abernathy <pabernathy@tlcas.org>
To: Pauline Abernathy <pabernathy@ticas.org>
Sent: Sun Jun 06 15:55:02 2010
FYI. Today's NYT has a good article on gainful employment.
June 4, 2010
Facing Cuts in Federal Aid, For-Profit Colleges Are in a Fight
By TAMAR LEWIN
Any day now. the federal Department of Education will formally propose new regulations that would
cut off federal aid to for-profit colleges whose graduates cannot earn enough to repay their student
loans.
The regulations, known as the "gainful employment" rules. are an effort to rein in the high debt loads
students take on when they enroll in for-profit colleges that offer certificates or degrees in fields like
nursing or culinary arts. Students at for-profit colleges are much more likely than others to default on
their loans.
Under the regulations, a draft of which came out in February, for-profit colleges would not be eligible
to receive federal student aid if their graduates' debt load was too high to be repaid, over 10 years,
with 8 percent of their starting salary.
The Career College Association, which represents 1,450 for-profit colleges. is lobbying fiercely
against the regulations, which it argues are wrong-headed, unnecessary and likely to restrict needy
students' access to vocational training and higher education. With so many community colleges
overcrowded, the for-profit colleges say, their programs represent the nation's best hope for training
much-needed health care workers and technicians.
1
The association criticizes almost every element of the regulations: the 8 percent debt limit, the 10-
year repayment period and the underlying idea that high debt loads lead to loan default.
"Shouldn't the Department of Education have to present some facts and figures showing that there's
really a problem with students who have debt-income ratios above 8 percent?" said Harris Miller,
president of the association. "They haven't shown any evidence. And our own research shows that
students with high debt-income ratios actually default less than students with low debt-income ratios."
Arne Duncan, the secretary of education, has avoided demonizing the for-profit schools. In a May
speech, he said that despite a "few bad apples," for-profit colleges play a vital role in helping the
nation reach the Obama administration's goal of having the world's best-educated work force by
2020.
Advocacy groups representing students and consumers are less diplomatic. 'These programs
overpromise. underdeliver and load vulnerable students up with way too much debt," said Chris
lindstrom, higher education program director at the U.S. Public Interest Research Group, part of a
coalition of education, consumer, student and public interest groups supporting the regulations.
In 2007, coalition members said, students at for-profit colleges made up only 7 percent of those in
higher education but 44 percent of those defaulting on federal student loans. Adding new fuel to the
fire was a recent presentation at a New York conference for investors by Steven Eisman, a hedge-
fund manager known for having anticipated the housing market crash.
Mr. Eisman, whose early awareness of structural problems in the housing market is described in
Michael Lewis's bestseller 'The Big Short," said the for-profit education industry, like the subprime
mortgage industry, has rested on the proliferation of loans to low-income people who would not be
able to repay them.
Without tighter government regulation, Mr. Eisman predicted, students at for-profit colleges will
default on $275 billion of student loans over the next decade.
"Until recently I thought that there would never again be an opportunity to be involved with an industry
as socially destructive and morally bankrupt as the subprime mortgage industry," said Mr. Eisman, of
FrontPoint Partners, a unit of Morgan Stanley. "I was wrong. The for-profit education industry has
proven equal to the task."
tn an interview last week, Mr. Eisman said the gainful employment regulations help change the for-
profits' business model of aggressively recruiting needy students eligible for maximum federal aid.
For-profit colleges typically get three-quarters of their revenues from federal grants and loans- and
some, like Apollo Group, which owns the University of Phoenix, nearly 90 percent, the legal limit.
Federal aid for students at for-profit colleges has more than quintupled, to $26.5 billion, since 2000.
"The University of Phoenix got about a billion dollars in Pell grants last year, and when you have any
institution growing that rapidly, it's only fiscally prudent to take a look at it," said Mark Kantrowitz of
Finaid.org, a financial aid Web site.
Sara Jones, a spokeswoman for Apollo, said in a prepared statement that with 458,000 students, the
University of Phoenix's status as the largest recipient of federal financial aid makes sense. The
statement also said that the university had a lower default rate than for-profits generally, and that in
the last year half its students had borrowed less than the maximum available.
2
Federal law has long said that federal student aid can go only to for-profit colleges that "prepare
student for gainful employment in a recognized occupation." But this is the government's first effort to
define "gainful employment" in relation to graduates' debt-to-income loads.
"With a record number of students attending programs that are subject to this requirement, and a
record amount of taxpayer money being used to enable them to attend, it's more important than ever
to make sure they're getting their money's worth," said Pauline Abernathy, vice president of the
Institute for College Access and Success, part of the coalition supporting the regulations.
A study conducted by Charles River Associates for the Career College Association estimated that 18
percent of for-profit colleges' programs, serving a third of for-profits' students, would not satisfy the
gainful employment regulations. But supporters of the regulations said for-profit colleges tended to
have very high operating margins and could still make healthy profits if they lowered their tuition to
avoid running afoul of the new rules.
The regulations' 8 percent standard is not absolute: Programs that fail it could retain eligibility for aid if
their students achieved other standards like high levels of repayment or employment.
For-profit colleges, which contribute generously to Democrats and Republicans alike, have
substantial influence in Congress. On the Career College Association's annual Hill Day in March,
members met with aides in almost every Congressional office, telling them the regulations would limit
access to college for minority students with few other options.
After the draft regulations are issued, there will be a public comment period, and final rules will be
issued by Nov. 1, to take effect in July 2011.
http :1/www. nvtimes.com/201 0/06/06/education/06gain. htm I? ref::;education&pagewanted=print
Pauline Abernathy
Vice President
The Institute for College Access & Success
www.ticas.org and www.projectonstudentdebt.org
We moved! TICAS' main number is now 510.318.7900. My direct line is 510.318.7903.
3
Winters, Deborah
Sent: Sunday, June 06, 2010 6:34PM
To: Rogers, Margot; Private- Duncan, Arne; Miller, Tony
Sent using BlackBerry
From: Pauline Abernathy <pabernathy@ticas.org>
To: Pauline Abernathy <pabernathy@ticas.org>
Sent: Sun Jun 06 15:55:02 2010
FYI. Today's NYT has a good article on gainful employment.
June 4, 2010
Facing Cuts in Federal Aid, For-Profit Colleges Are in a Fight
By TAMAR LEWII\I
Any day now, the federal Department of Education will formally propose new regulations that would
cut off federal aid to for-profit colleges whose graduates cannot earn enough to repay their student
loans.
The regulations, known as the "gainful employment'' rules. are an effort to rein in the high debt loads
students take on when they enroll in for-profit colleges that offer certificates or degrees in fields like
nursing or culinary arts. Students at for-profit colleges are much more likely than others to default on
their loans.
Under the regulations, a draft of which came out in February, for-profit colleges would not be eligible
to receive federal student aid if their graduates' debt load was too high to be repaid, over 10 years,
with 8 percent of their starting salary.
The Career College Association, which represents 1,450 for-profit colleges, is lobbying fiercely
against the regulations, which it argues are wrong-headed, unnecessary and likely to restrict needy
students' access to vocational training and higher education. With so many community colleges
overcrowded, the for-profit colleges say, their programs represent the nation's best hope for training
much-needed health care workers and technicians.
The association criticizes almost every element of the regulations: the 8 percent debt limit, the 10-
year repayment period and the underlying idea that high debt loads lead to loan default.
"Shouldn't the Department of Education have to present some facts and figures showing that there's
really a problem with students who have debt-income ratios above 8 percent?" said Harris Miller,
president of the association. "They haven't shown any evidence. And our own research shows that
students with high debt-income ratios actually default less than students with low debt-income ratios. "
4
Arne Duncan, the secretary of education, has avoided demonizing the for-profit schools. In a May
speech, he said tliat despite a "few bad apples," for-profit colleges play a vital role in helping the
nation reach the Obama administration's goal of having the world's best-educated work force by
2020.
Advocacy groups representing students and consumers are less diplomatic. "These programs
overpromise, underdeliver and load vulnerable students up with way too much debt," said Chris
Lindstrom, higher education program director at the U.S. Public Interest Research Group, part of a
coal ition of education, consumer, student and public interest groups supporting the regulations.
In 2007, coalition members said, students at for-profit colleges made up only 7 percent of those in
higher education but 44 percent of those defaulting on federal student loans. Adding new fuel to the
fire was a recent presentation at a New York conference for investors by Steven Eisman, a hedge-
fund manager known for having anticipated the housing market crash.
Mr. Eisman, whose early awareness of structural problems in the housing market is described in
Michael Lewis's bestseller "The Big Short," said the for-profit education industry, like the subprime
mortgage industry, has rested on the proliferation of loans to low-income people who would not be
able to repay them.
Without tighter government regulation, Mr. Eisman predicted, students at for-profit colleges will
default on $275 billion of student loans over the next decade.
"Until recently I thought that there would never again be an opportunity to be involved with an industry
as socially destructive and morally bankrupt as the subprime mortgage industry," said Mr. Eisman, of
FrontPoint Partners, a unit of Morgan Stanley. "I was wrong. The for-profit education industry has
proven equal to the task."
In an interview last week, Mr. Eisman said the gainful employment regulations help change the for-
profits' business model of aggressively recruiting needy students eligible for maximum federal aid.
For-profit colleges typically get three-quarters of their revenues from federal grants and loans- and
some, like Apollo Group, which owns the University of Phoenix, nearly 90 percent, the legal limit.
Federal aid for students at for-profit colleges has more than quintupled, to $26.5 billion, since 2000.
"The University of Phoenix got about a billion dollars in Pell grants last year, and when you have any
institution growing that rapidly, it's only fiscally prudent to take a look at it," said Mark Kantrowitz of
Finaid.org, a financial aid Web site.
Sara Jones, a spokeswoman for Apollo, said in a prepared statement that with 458,000 students, the
University of Phoenix's status as the largest recipient of federal financial aid makes sense. The
statement also said that the university had a lower default rate than for-profits generally, and that in
the last year half its students had borrowed less than the maximum available.
Federal law has long said that federal student aid can go only to for-profit colleges that "prepare
student for gainful employment in a recognized occupation.'' But this is the government's first effort to
define "gainful employment" in relation to graduates' debt-to-income loads.
"With a record number of students attending programs that are subject to this requirement, and a
record amount of taxpayer money being used to enable them to attend, it's more important than ever
5
to make sure they're getting their money' s worth," said Pauline Abernathy, vice president of the
Institute for College Access and Success, part of the coalition supporting the regulations.
A study conducted by Charles River Associates for the Career College Association estimated that 18
percent of for-profit colleges' programs, serving a third of for-profits' students, would not satisfy the
gainful employment regulations. But supporters of the regulations said for-profit colleges tended to
have very high operating margins and could still make healthy profits if they lowered their tuition to
avoid running afoul of the new rules.
The regulations' 8 percent standard is not absolute: Programs that fail it could retain eligibility for aid if
their students achieved other standards like high levels of repayment or employment.
For-profit colleges, which contribute generously to Democrats and Republicans alike, have
substantial influence in Congress. On the Career College Association's annual Hill Day in March,
members met with aides in almost every Congressional office, telling them the regulations would limit
access to college for minority students with few other options.
After the draft regulations are issued, there will be a public comment peri od, and final rules will be
issued by Nov. 1, to take effect in July 2011.
http://www.nvtimes.com/201 0/06/06/education/06gain.html?ref=education&pagewanted=print
Pauline Abernathy
Vice President
The Institute for College Access & Success
www.ticas.org and www.projectonstudentdebt.org
We moved! TICAS' main number is now 510.318.7900. My direct line is 510.318.7903.
6
Winters, Deborah
From: Miller, Tony
Sent: Thursday, April 01 , 2010 9:00AM
To: Kanter, Martha; Private- Duncan, Arne; Yuan, Georgia; Rose, Charlie; Cunningham, Peter:
Subject:
Shireman, Bob; Dannenberg, Michael; Plotkin, Hal; Dann-Messier, Brenda
RE: For-profits vs. community colleges, report due out tomorrow
l(b)(S)
Sent: Thursday, April 01, 2010 12:55 AM
To: Private- Duncan, Arne; Miller, Tony; Yuan, Georgia; Rose, Charlie; Cunningham, Peter; Shireman, Bob; Dannenberg,
Michael; Plotkin, Hal; Dann-Messier, Brenda
Subject: FYI: For-profits. vs. community colleges, report due out tomorrow
, Martha Kanter
Under Secretary
U.S. Department of Education
''The future belongs to those who believe in the beauty of their dreams!"
-- Eleanor Roosevelt
Begin forwarded message:
From: GEORGE BOGGS <gboggs@aacc.nche.edu>
Date: March 31,2010 1:53:19 PM PDT
To: GEORGE BOGGS <gboggs@aacc.nche.edu>
Subject: For-profits vs. community colleges, report due out tomorrow
FYI.
George
George R. Boggs
President and CEO
American Association of Community Colleges
7
One Dupont Circle, NW, Suite 410
Washington, DC 20036
202.728.0200, ext. 235
gboggs@aacc. nche. edu
AACC: The Voice of America's Community Colleges
www.aacc.nche.edu
FYI. We will surely be dealing with this tomorrow.
FYI. The Washington Post is reporting below that a report paid for by Corinthian
Colleges will be released tomorrow showing "for-profit colleges do a better job
educating students than community colleges, even while serving a more at-risk
population, and does so for a comparable sum of money." Of course, no one should be
surprised when a report says nice things about the sector that paid for the report. The
post notes that the contractor that wrote the report has done work for the NYC and
Chicago public schools, but not that most of its work is for for-profit companies,
including for-profit schools and payday lenders. (The blog posting also discloses that
the Wash Post owns Kaplan, but describes Kaplan as "a test-preparation company that
also offers distance higher education," even though its revenues from higher education
swamp the revenues from test-prep.)
For-profits vs. community colleges
http:l/voices.washingtonpost.com/college-inc/2010/03/for-
profits vs community colle.html
A new study, scheduled for release Thursday, suggests that for-profit colleges do a
better job educating students than community colleges, even while serving a more at-
risk population, and does so for a comparable sum of money.
Commissioned by Corinthian Colleges, a major player in the for-profit sector, the study
was conducted by the Parthenon Group, a Boston consultancy that has done education
research for the New York and Chicago public schools.
8
Leaders of Corinthian Colleges ordered the study "in response to the hyperbole, the
insinuations that we are not delivering value," said Mark Pelesh, executive vice
president for legislative and regulatory affairs. The fast-growing sector has a re12utation
- undeserved, the colleges say-- for charging students too much, over-selling the
market value of their services and leaving students deep in debt.
(Note: The Washington Post Co. is a player in the college industry because it
owns Kaplan, Inc., a test-preparation company that also offers distance higher
education.)
The study examines U.S. Department of Education survey data on input and output and
reaches the following conclusions:
1. colleges are adding capacity at a rate of 6 percent, investing $800 million to
$900 million a year, compared with a 1-percent annual growth rate among two-year
public institutions, whose growth is hindered by dwindling state funds.
2. For-profit colleges serve a larger proportion of high-risk students (meaning at risk of
dropping out) than community colleges. Fifty-four percent of for-profit students meet
three or more "risk factors" as defined by the federal government, including parenthood,
delayed enrollment and lack of a high school diploma. Thirty-six percent of community
college students are considered at high risk.
3. For-profits arguably a higher success rate than community colleges. Sixty-
nine percent of students surveyed by the federal government attained the degree or
certificate they sought or transferred elsewhere within five years of enrollment in a for-
profit college. The comparable rate in community colleges is 62 percent. Community
college students are far more likely to transfer to other schools, whereas for-profit
students are more likely to attain certificates and then conclude their studies.
4. For-profit colleges receive $26,700 in funding, on average, for every student who
successfully completes study or transfers. Community colleges receive $25,300 per
student. The funding sources, of course, look entirely different: the for-profits receive
most of their funding in tuition and fees paid by students, whereas community colleges
get most of their funds from state and local government.
5. students start out with a lower income than community college students but
yield a greater earnings gain through their studies. For-profit students earn $14,700, on
average, when they begin their studies, and see an income boost of $7,900, or 54
percent, when they leave. Community college students earn an average $20,300 when
they start, and see a boost of $7,300, or 36 percent, when they finish.
6. For-profit students are less likely than community college students to report that they
were surprised by how much they owed at the end of their studies. More than half of for-
profit students report they were told how much they would have to borrow by their
institution, according to a survey of students by the Parthenon Group. By comparison,
about 40 percent of community college students said their institution provided
information on debt.
Please follow College Inc. all day, every day at washinqtonpost. com/college-inc.
9
And for all our college news, campus reports and admissions advice, please see our
new Higher Education page at washingtonpost.com/higher-ed. Bookmark it!
This email has been scanned for all viruses by the MessageLabs Email
Security System.
10
Winters, Deborah
From:
Sent:
To:
Kanter, Martha
Thursday, April 01. 2010 12:55 AM
Private - Duncan. Arne; Miller, Tony; Yuan. Georgia; Rose. Charlie; Cunningham. Peter;
Shireman, Bob; Dannenberg, Michael; Plotkin, Hal; Dann-Messier, Brenda
Subject: FYI: For-profits vs. community colleges. report due out tomorrow
Martha Kanter
Under Secretary
"The future belongs to those who believe in the beauty of their dreams!"
-- Eleanor Roosevelt
Begin forwarded message:
From: GEORGE BOGGS <gboggs@aacc.nche.edu>
Date: March 31, 2010 1:53: 19 PM PDT
To: GEORGE BOGGS <gboggs@aacc.nche.edu>
Subject: For-profits vs. community colleges, report due out tomorrow
FYI.
George
George R. Boggs
President and CEO
American Association of Community Colleges
One Dupont Circle, NW, Suite 410
202.728.0200, ext. 235
qboggs@aacc. nc he. ed u
11
AACC: The Voice of America's Community Colleges
www.aacc.nche.edu
FYI. We will surely be dealing with this tomorrow.
FYI. The Washington Post is reporting below that a report paid for by Corinthian
Colleges will be released tomorrow showing "for-profit colleges do a better job
educating students than community colleges, even while serving a more at-risk
population, and does so for a comparable sum of money." Of course, no one should be
surprised when a report says nice things about the sector that paid for the report. The
post notes that the contractor that wrote the report has done work for the NYC and
Chicago public schools, but not that most of its work is for for-profit companies,
including for-profit schools and payday lenders. (The blog posting also discloses that
the Wash Post owns Kaplan, but describes Kaplan as "a test-preparation company that
also offers distance higher education," even though its revenues from higher education
swamp the revenues from test-prep.)
For-profits vs. community colleges
http://vo ices. wash i ngtonpos t. com/coli ege-i nc/20 1 0/03/for-
profits vs community colle.html
A new study, scheduled for release Thursday, suggests that for-profit colleges do a
better job educating students than community colleges, even while serving a more at-
risk population, and does so for a comparable sum of money.
Commissioned by Corinthian Colleges, a major player in the for-profit sector, the study
was conducted by the Parthenon Group, a Boston consultancy that has done education
research for the New York and Chicago public schools.
Leaders of Corinthian Colleges ordered the study "in response to the hyperbole, the
insinuations that we are not delivering value," said Mark Pelesh, executive vice
president for legislative and regulatory affairs. The fast-growing sector has a reputation -
- undeserved, the colleges say- for charging students too much, over-selling the
market value of their services and leavi ng students deep in debt.
(Note: The Washington Post Co. is a player in the for-profit college industry because it
owns Kaplan, Inc., a test-preparation company that also offers distance higher
education.)
12
The study examines U.S. Department of Education survey data on input and output and
reaches the following conclusions:
1. For-profit colleges are adding capacity at a rate of 6 percent, investing $800 million to
$900 million a year, compared with a 1-percent annual growth rate among two-year
public institutions, whose growth is hindered by dwindling state funds.
2. For-profit colleges serve a larger proportion of high-risk students (meaning at risk of
dropping out) than community colleges. Fifty-four percent of for-profit students meet
three or more "risk factors" as defined by the federal government, including parenthood,
delayed enrollment and lack of a high school diploma. Thirty-six percent of community
college students are considered at high risk.
3. For-profits have -- arguably -- a higher success rate than community colleges. Sixty-
nine percent of students surveyed by the federal government attained the degree or
certificate they sought or transferred elsewhere within five years of enrollment in a for-
profit college. The comparable rate in community colleges is 62 percent. Community
college students are far more likely to transfer to other schools, whereas for-profit
students are more likely to attain certificates and then conclude their studies.
4. For-profit colleges receive $26,700 in funding, on average, for every student who
successfully completes study or transfers. Community colleges receive $25,300 per
student. The funding sources, of course, look entirely different: the for-profits receive
most of their funding in tuition and fees paid by students, whereas community colleges
get most of their funds from state and local government.
5. For-profit students start out with a lower income than community college students but
yield a greater earnings gain through their studies. For-profit students earn $14,700, on
average, when they begin their studies, and see an income boost of $7,900, or 54
percent, when they leave. Community college students earn an average $20,300 when
they start, and see a boost of $7,300, or 36 percent, when they finish.
6. For-profit students are less likely than community college students to report that they
were surprised by how much they owed at the end of their studies. More than half of for-
profit students report they were told how much they would have to borrow by their
institution, according to a survey of students by the Parthenon Group. By comparison,
about 40 percent of community college students said their institution provided
information on debt.
Please follow College Inc. all day, every day at washingtonpost.comlcollege-inc.
And for all our college news, campus reports and admissions advice, please see our
new Higher Education page at washingtonpost.com/higher-ed. Bookmark it!
13
This email has been scanned for all viruses by the MessageLabs Email
Security System.
14
Winters, Deborah
From: Private - Duncan, Arne
Sent:
To:
Wednesday, June 17, 2009 9:48AM
Duran, Maribel
Subject: Fw: Article about For Profit FeNor
Please print
From: Rogers, Margot
To: Miller, Tony; Private- Duncan, Arne; 'Martha Kanter' <kantermartha@gmail.com>; Rose, Charlie; Cunningham, Peter
Cc: Hamilton, Justin; Shireman, Bob
sent: Wed Jun 17 08:40:59 2009
Subject: Article about For Profit Fervor
Thought everyone would be interested in this; I think it is worth your taking 5 minutes to read it. I have pasted below
for your convenience.
http:ljwww.insidehighered.com/news/2009/06/16/cca
Ferment Over For-Profit Colleges
June 16, 2009
ORLANDO -- The last few weeks have witnessed a truly remarkable discussion in Washington and on Wall Street surrounding for-profit
higher education.
Reports (and sometimes rumors} about the prospect of tougher federal regulation of career colleges by the Obama administration have
made the rounds among Wall Street analysts, driving the stocks of the largest, publicly traded companies i n the sector down by more
than 20 percent and prompting the U.S. Education Department two weeks ago to hold unprecedented conference calls with investors
and analysts to try to reassure them that department offiCi als did not have it in for for-profit colleges.
That step did not calm the marl<ets, though, in large part. many observers of the for-profit market assert, because several"short sellers"
- - investors who bet that the value of a certain stock or group of stocks will fall -- have been doing their best to promote uncertainty on
Wall Street. On Monday, a leading department official took another shot at it at the annual meeting here of the Career College
Association, which represents most of the country's for-profit institutions.
"I can stand here and tell you that I've been at the Department of Education for 30 years, and l have never heard any one of our policy
officials say, 'We've got to get that sector. Let's put it to the for-profits,' said Dan Madzelan. who is the acting assistant secretary for
postsecondary education. "That is not how any of our policy officials operate. They're concerned about whars best for students and
taxpayers, and agnostic with respect to the kind of institution affected. They are not interested in singli ng out any one sector."
That language differed little from the words that Robert Shireman -- the deputy under secretary for education and the person whose
alleged animus for for-profit hi gher education has been the primary bogeyman for those predicting the sector's downfall in recent weeks
-used in last month's calls with investors.
"Our overall goal at the Department of Education in postsecondary education is to make sure that students -- potential students --
whether young or old, have access to couege, they have the information they need to make good choices, and that they have good
quality postsecondary education that serves both them as students and taxpayers as well ," Shireman said. "if that's not the case. if
there is not quality, we want to know about it and if we can, we want to do something about it. Whether that involves a public institution.
a nonprofit. a for-profit, a two-year, a four-year, a trade program, whatever type or sector of institution. we want to do all we can to make
sure that we good quality and get the degrees and certificates that we need in thi s country."
So why haven't department officials repeated assertions that they aren' t out to get for-profit colleges managed to reassure some
people in the sector? Do most career college officials believe that their institutions have a target sign on their back in the Obama
15
administration? And what does it say about for-profit higher education that the Education Department's leaders even care what Wall
Street analysts say?
Those are other questions were much di scussed by at least some of those attending this week's Career College Association meeting,
though hardly by most people here. While the public conception of for-profit colleges i s dominated today by the handful of national
companies whose campuses are found just off the highways in many American cities-- the University of Phoenix. DeVry, Kaplan
Higher Education. to name several -- the vast majority of career colleges are still the mom-and-pop truck driving. beauty and,
increasingly, allied health schools that have been mainstays of many towns for decades. While those institutions, too. are subject to
Education Department regulation of higher education, they have little to no stake in what Walt Street analysts say or think about their
bigger cousins.
The publicly traded companies. however, have a great deal at stake in what the analysts and investors say, and in recent months, a
small number of them have been saying not-so-flattering t hings. Perhaps most prominent among them has been James Chanos. an
analyst at Kynikos Associates who, in several recent presentations at investor conferences and on televi sion shows like James
Cramer' s "Mad Money," has been comparing for-profit education companies to health care companies that make excessive profits by
feeding at the public trough (in the colleges' case, through the Pel! Grant and federal student loan programs).
Chanos's thesis. which has been embraced by several other analysts who follow the for-profit sector, is that the Obama administration
(unlike its predecessor) is preparing to crack down on such corporate behavior. (A PowerPoint presentation he gave at an investor
conference last month features an image of Obama in a cowboy hat under the tag line "There's a new sheriff in town."} Obama's chief
deputy in higher education in this line of argument is Shireman, and it was his appointment to the Education Department's leadership in
early February that started the Wall Street decline.
The biggest dust-up, though, came last month when the deoartment announced that it would undertake a new round of negoti ations
over possible changes to federal regulati ons governing policy areas, such as incentive compensat ion paid to student recruiters, that are
predominantly a factor among career colleges.
The announcement of the new regulatory review was made quietly (as is the norm) in the Federal Register. but after some analysts
cast the review as big trouble for the industry and others began bombarding the department with calls seeking clarification, Shireman
decided to hold the unprecedented conference calls.
But Shireman's insistence in the calls with for-profit investors and analysts that he would be an equal opportunity regulator was offset
for some Wall Street watchers by a Deutsche Bank analyst's report that, in a cal l the day before with officials of traditional nonprofit
colleges, he had talked about the department's desi re to find who had been wronged by for-profit colleges that give incentives
to their student recruiters.
According to several accounts of the call with nonprofit college leaders, though, Shireman spoke of "victims and lawyers for those
victims" only in response to a question that used that phrase. saying that the department would seek to protect students who were
wronged by unscrupulous practices wherever they occurred.
Department officials have expressed increasing frustration that their assertions that they do not plan to single out for-profit colleges are
keep getting ignored or twisted in meaning. Experts on career colleges offer differing reasons why.
Some believe it's because the thesis just makes sense, given the backgrounds of the players and of the sector. Obama has made no
secret of his disgust wi th the larger corporate culture that contributed mightily to last fall's financial meltdown, and Shireman, as a
former Congressional and Cl inton White House aide and as an advocate for low-income students. has long fought for polici es that
protect students from excessive debt and seek to ensure that they get a meaningful education.
While he has not been openly critical of for-profit colleges to any significant degree in the past, he can fairly be said to see himself as a
protector of the type of needy students that predominate at for-profit colleges. and to be simpatico with consumer protection groups that
see themselves as watchdogs of the for-profit sector. which went through a wrenching scandal in the late 1980s that flushed many bad
actors out of business.
Trace Urdan. who analyzes for-profit colleges for Signal Hill, describes this line of thinking about the career college sector as being a
mi crocosm of fears about the Obama administration' s overall approach to corporate America. "It' s as much about Wall Street's paranoia
about Obama as about the Education Oepartment.n he said. "The fear isn't about the detai ls of incentive compensation. The fear is that
Shireman thinks that somehow Apollo is robbing students and taxpayers."
16
But other analysts and many leaders in the career college sector offer a more nefarious explanation for the drumbeat of assertions that
the department is gunning for for-profit colleges. They attribute the stream of analyst reports to "short sellers" (investors who buy and
sell stocks in patterns that reward them when the stocks tumble) who have been trying {unsuccessfully) for several years to drive down
the price of shares of the publicly t raded higher education companies, which have generally outperformed the overall stock market for
more than a decade.
At a time when the enrollments of for-profit colleges are growing and the government is pouring billions more dollars into Pell Grants
and other programs that aid the low-income students who populate career colleges, these investors are turning to "nonsense like the
assertions about increased regulatory scrutiny to drive down the institutions' stocks, Harris N. Miller, president of the Career College
Association, said in an interview Monday after Madzelan' s speech.
"I don't know how the department could be any clearer in its public statements" than 1t has been, Miller said. ''To me you just have to
take them at their face:
'We've been working well wi th the department,'' said Arthur Keiser, president of Keiser Colleges. a Florida-based chain of colleges that
is privately held and therefore not subject to the recent stock swoon. "There's a lot of paranoia out here. but I think we're all focused on
the same thing: making sure students succeed. They want that and we want that."
Jeffrey Volshteyn, a vice president at J.P. Morgan, is among the analysts who thinks that "people are just reading way too much into
this," and that the department will "enforce the rules just like it always has," for the for-profit colleges and all others.
Jeffrey Silber of BMO Capital Markets, who is among the longest-serving analysts of the career college sector. tends to agree with
Volshteyn that the department is not taking particular aim at for-profit colleges. But he also said that the uncertainty about the
department' s agenda for rule making (an agenda that will take shape. in part, out of public hearings that begin this week) and the
general inclination toward regulation of a Democratic administration are likely to provide plenty of fodder for those who seek to keep for-
profrt colleges -- and their stocks -- on the defensive.
"Could you see increased regulation" of for-profit colleges? he asked rhetorically. "Sure, though probably on the margins. But this thing
is not going to be resolved for months. and there's no telling what kind of noise will be generated in the
17
Winters, Deborah
From:
Sent:
To:
Cc:
Subject:
Rogers, Margot
Miller, Tony; Private - Duncan, Arne; 'Martha Kanter'; Rose, Charlie; Cunningham, Peter
Hamilton, Justin; Shireman, Bob
Article about For Profit Fervor
Thought everyone would be interested in this; I think it is worth your taking 5 minutes to read it. 1 have pasted below
http:ljwww .insidehighe red .com/news/2009/06/16/cca
June 16, 2009
higher education.
Reports (and sometimes rumors} about the prospect of tougher federal regulation of career colleges by the Obama administration have
made the rounds among Wall Street analysts, driving the stocks of the largest. publicly traded companies in the sector down by more
and analysts to try to reassure them that department officials did not have it in for for-profit colleges.
That step did not calm the markets, though, in large part, many observers of the for-profit market assert. because several "short sellers"
-- investors who bet that the value of a certain stock or group of stocks wil l fall -- have been doing their best to promote uncertainty on
'' I can stand here and tell you that I've been at the Department of Education for 30 years, and 1 have never heard any one of our policy
offici als say. 'We've got to get that sector. Let's put it to the for-profits.'" said Dan Madzelan, who is the acting assi stant secretary for
postsecondary education. "That is not how any of our policy officials operate. They're concerned about what' s best for students and
taxpayers, and agnostic with respect to the kind of institution affected. They are not interested in singling out any one sector.
alleged animus for for-profit higher education has been the primary bogeyman for those predicting the sector's downfall in recent weeks
- used in last month's calls with investors.
whether young or old, have access to college, they have the information they need to make good choices, and that they have good
quality postsecondary education that serves both them as students and taxpayers as well ." Shireman said. "If that's not the case, if
there is not quality, we want to know about it and if we can, we want to do something about it. Whether that involves a public institution.
a nonprofit. a for-profit, a two-year. a four-year. a trade program, whatever type or sector of institution, we want to do all we can to make
sure that we good quality and get the degrees and certificates that we need in this country."
So why haven't department officials' repealed assertions that they aren't out to get for-profit colleges managed to reassure some
administration? And what does it say about for- profit higher education that the Education Department's leaders even care what Wall
Those are other questi ons were much discussed by at least some of those attending this week's Career College Association meeting.
though hardly by most people here. While the public conception of for-profit colleges is dominated today by the handful of national
companies whose campuses are found just off the highways in many American cities-- the University of Phoenix, DeVry. Kaplan
Higher Education, to name several --the vast majority of career colleges are still the mom-and-pop truck driving, beauty and.
increasingly, allied health schools that have been mainstays of many towns for decades. While those institutions. too, are subject to
Education Department regulation of higher education. they have little to no stake in what Wall Street analysts say or think about their
bigger cousins.
18
The publicly traded companies, however, have a great deal at stake in what the analysts and investors say, and in recent months, a
small number of them have been saying not-so-flattering things. Perhaps most prominent among them has been James Chanos, an
analyst at Kynikos Associates who, in several recent presentations at investor conferences and on television shows like James
Cramer's "Mad Money." has been comparing for-profit education companies to health care companies that make excessi ve profits by
feeding at the public trough (in the coll eges' case. through the Pell Grant and federal student loan programs}.
Chanos' s thesis, which has been embraced by several other analysts who follow the for-profit sector, is that the Obama administration
. (unlike its predecessor} is preparing to crack down on such corporate behavior. {A PowerPoint presentation he gave at an investor
conference last month features an image of Obama in a cowboy hat under the tag line "There's a new sheriff in town.") Obama's chief
The biggest dust-up, though, came last month when the department announced that it would undertake a new round of negotiations
over possible changes to federal regulations governing policy areas. such as incentive compensation paid to student recruiters, that are
predominantl y a factor among career colleges.
The announcement of the new regulatory review was made quietly (as is the norm) in the Federal Register, but after some analysts
for some Wall Street watchers by a Deutsche Bank analyst's report that, in a call the day before with officials of traditional nonprofit
colleges, he had talked about the department' s desire to find xvi ctims who had been wronged by for-profit colleges t hat give incenti ves
to thei r student recruiters.
According to several accounts ot the call with nonprofit college leaders, though, Shireman spoke of "victims and lawyers for those
victims only in response to a question that used that phrase, saying that the department would seek to protect students who were
secret of his disgust with the larger corporate culture that contributed mightily to last fall' s financial meltdown, and Shireman, as a
former Congressional and Cli nton White House aide and as an advocate tor low-income students, has long fought for policies that
protect students from excessi ve debt and seek to ensure that they get a meaningful education.
While he l'las not been openly critical of for-profit colleges to any significant degree in the past, he can fairly be said to see himself as a
protector of the type of needy students that predominate at for-profit colleges, and to be simpatico with consumer protection groups that
see themselves as watchdogs of the for-profit sector, which went through a wrenching scandal in the late 1980s that flushed many bad
Trace Urdan. who analyzes tor-profit colleges for Signal Hill, describes this line of thinking about the career college sector as being a
microcosm of fears about the Obama administration' s overall approach to corporate America. "It's as much about Waf Street's paranoia
about Obama as about the Education Department," he said. "The fear isn't about the detail s of incenti ve compensation. The fear is that
Shireman thi nks that somehow Apoll o is robbing students and taxpayers."
the department is gunning tor for-profit colleges. They attribute the stream of analyst reports to "short sellers" (investors who buy and
sell stocks In patterns that reward them when the stocks tumble) who have been trying (unsuccessfully) for several years to drive down
the price of shares of the publicly traded higher education companies, which have generally outperformed the overall stock market tor
more than a decade.
At a time when the enrollments of for- profit colleges are growing and the government is pouring billions more dollars into Pell Grants
and other programs that aid the low-income students who populate career colleges, these investors are turning to nonsense li ke the
assertions about increased regulatory scrutiny to dri ve down the institutions' stocks, Harris N. Miller, president of the Career College
Association, said in an interview Monday after Madzelan's speech.
19
"I don't know how the department could be any clearer in its public statements'' than it has been, Miller said. ''To me you just have to
take them at their face.
"We've been wor-Xing well with the department," said Arthur Keiser, president of Keiser Colleges, a Florida-based chain of colleges that
is privately held and therefore not subject to the recent stock swoon. "There's a lot of paranoia out here, but I think we're all focused on
this." and that the department will "enforce the rules just li ke it always has, for the for-profit colleges and all others.
Jeffrey Silber of BMO Capital Markets. who is among the longest-serving analysts of the career college sector, tends to agree with
department's agenda for rule making (an agenda that will take shape, in part. out of public hearings that begin this week) and the
profit colleges -- and their stocks -- on the defensive.
"Could you see Increased regulation" of for-profit colleges? he asked rhetorically. "Sure. though probably on the margins. But this thing
is not going to be resolved for months, and there's no telling what kind of noise will be generated in the meantime."
20
Winters, Deborah
From:
Sent:
To:
Cc:
Subject:
Yuan, Georgia
Wednesday, May 19, 2010 8:54AM
Rose, Charlie; Miller, Tony; Rogers, Margot
Hamilton, Justin
Today's Chronicle of Higher Education article on lobbying
http://chronicle.com/article/To-Battle-a-Proposed-
Rule/65616/?sid=at&utm_source=at&utm_medium=en
May 19, 2eHl
In a fight to Preserve Their Market, For-Profit Colleges Lobby Hard Against a Proposed Rule
By Goldie Blumenstyk and Kelly Field
for-profit colleges, faced with the threat of program closures, have gone on a lobbying and
public- relations blitz, spending hundreds of thousands of dollars in an attempt to beat back
an Education Department proposal to cut off federal student aid to for-profit programs whose
graduates carry high debt - to-income loads.
In the five months since the department offered its controversial "gainful employment
proposal," for-profit colleges and their chief association have spent at least $62e,eee
lobbying members of Congress, the Education Department, and the Office of Management and
Budget, which is reviewing the department's proposed rule (see related article, with tables).
The University of Phoenix, the nation's largest for-profit institution, has taken out ads in
major publications, including The Chronicle, defending the sector and arguing against the
rule, while for-profit colleges are urging their students to sign on to a petition opposing
the plan.
For-profit lobbyists and executives are swarming Capitol Hill and federal agencies, pushing
an alternative plan that would require programs only to provide prospective students with
more information about their graduates ' debt levels and salaries. During the Career College
Association ' s annual "Hill Day" in March, members of the organization met with aides from
nearly every Congressional office. Their message: The proposal would cost jobs and limit
access to college at a time when the president is pushing education as a solution to high
unemployment.
In an attempt to discredit the proposal, some opponents have tried to paint Robert M.
Shireman, who as deputy under secretary is the department ' s top political appointee on
higher-education issues, as a rogue actor. But even critics of the plan acknowledge that Mr.
Shireman, who is stepping down this summer, was not the sole author of the proposal.
Lobbyists for the for-profit sector say the last time there was a lobbying push of this
magnitude was in 1992, when the Education Department was crafting rules governing commissions
for college recruiters. The fight extends all the way to the top, with the chief executives
of major for-profit companies like ITT Educational Services, Career Education Corporation and
Corinthian Colleges holding meetings with agency heads.
For- profit lobbyists and Congressional aides say Education Department officials have been
surprised by the amount of pushback they ' ve gotten on their proposal.
Backing From Business
The for-profits have gotten a boost from the U.S. Chamber of Commerce, which represents both
for-profit colleges and the employers who hire their graduates. In recent weeks, Arthur J.
16
Rothkopf, executive vice president of the Chamber's Institute for a Competitive Workforce and
a former president of Lafayette College, has met with Secretary of Education Arne Duncan and
other department officials to voice concerns about the "gainful employment" rule, said Rolf
Lundberg Jr., the Chamber's chief lobbyist.
"Employers are keenly interested in the continuing ability of the for- profit industry to
thrive," he said.
Consumer and student groups, meanwhile, have launched a counteroffensive, urging the
department to stand firm and issuing briefs challenging the sector's claims about the impact
of the proposal. In April, the Career College Association released a report on a study of
more than 10,000 for-profit college programs. It estimates that nearly a fifth of those
programs would become ineligible for federal student aid and forced to close under the
proposed rule, which would bar a program's students from taking on loan payments that exceed
8 percent of the expected earnings for graduates in that program, based on a 10-year
repayment plan. The association has extrapolated from those findings to predict that more
than five million students could be displaced over the next 10 years if the rule is adopted.
Supporters of the rule say the study demonstrates that the rule would hardly devastate the
for-profit college industry because 82 percent of programs would be unaffected.
"What is truly troubling," said Pauline M. Abernathy, vice president of the Institute for
College Access & Success, is the Career College Association's response to the study. Rather
than fighting the rule, she said, its members should shut down programs that require students
to take on more debt than their likely earnings would allow them to repay.
The study was conducted by a Jonathan Guryan, an associate professor of economics at the
University of Chicago Booth School of Business, along with a colleague from Charles River
Associates, a consulting firm with offices around the world. Neither Mr. Harris nor Mr.
Guryan would reveal how much the association paid for the research or for the professor's
trips to Washington to explain the findings to staff members on Capitol Hill and the Obama
Administration. But both insisted that the association had no say over how the study was
conducted or in interpreting the results.
An Appeal to Minority Groups
Though for-profit colleges are, in the words of one college lobbyist, "leaving no stone
unturned" in their effort to build Congressional opposition to the plan, they are
particularly targeting minority lawmakers and members with for-profit colleges in their
districts. In April, the Career College Association held a briefing for aides to members from
the "Tri-Caucus"-the Congressional Black Caucus, the Congressional Hispanic Caucus, and the
Congressional Asian Pacific American Caucus-in whi ch association leaders warned that the
proposal would harm minority students attending for-profit institutions. At the hearing, the
association circulated charts showing that for-profit colleges educate, and graduate, more
African-American and Hispanic students than public two- and four-year colleges.
The sector's effort to appeal to minority groups has met with mixed success. While the League
of United Latin American Citizens and the National Black Chamber of Commerce have come out
against the plan, members of the Tri-Caucus groups are split over the proposal. In the u.s.
House of Representatives, African-American lawmakers Rep. Alcee L. Hastings, Democrat of
Florida, and Rep. Donald M. Payne, Democrat of New Jersey, sent a letter signed by 18
lawmakers to Mr. Duncan warning that the department's proposal would "disproportionately harm
nontraditional and lower- income students" and "lead to educational capacity cutbacks in
critically important fields." The letter urged the secretary to consider expanding
disclosures instead.
But other members of the Tri-Caucus groups are suspicious of the sector. At the Career
College Association's briefing, some aides to minority lawmakers raised doubts about the
17
value that for-profit institutions are providing students, with one aide calling proprietary
colleges "the Toyota" of education, according to an individual who attended the meetings. An
aide to one of the Hispanic lawmakers said that roughly seven of the 1e or so questions
raised by the two dozen attendees ranged from "somewhat skeptical to very skeptical."
"We agree that the colleges provide the access," said another aide to a Hispanic lawmaker.
"Our concern is that the quality of the education is not what it needs to be."
The aide suggested that the rules should be even stronger, calling the department's proposal
"actually pretty wimpy."
He called the association's appeal to minority members "cynical."
"Minority status is always used to get away with s0111ething," the aide said .
Lobbying and PR Blitz
For- profit colleges have also been hiring lobbyists with ties to the Congressional Black
Caucus, the Education Department, and Congressional leaders. Both the Career College
Association and the Career Education Corporation have retained the Podesta Group, a powerful
lobbying shop led by Tony Podesta, who is a top Democratic fund raiser with longstanding ties
to members of Congress.
Among the lobbyists working for the colleges are Paul Brathwaite, a former executive director
for the Congressional Black Caucus; Lauren a former assistant secretary of
communications for the Education Department, and former aides to Sen. Richard J. Durbin,
Democrat of Illinois and the assistant majority leader, and Rep. Al Green, Democrat of Texas
and a member of the Congressional Black Caucus.
During the first three months of 2e1e, the association and Career Education Corporation paid
the Podesta Group about $14e,eee in lobbying fees, making the Podesta Group No. 1 among 14
lobbying firms hired by the largest for-profit college groups, according to a Chronicle
analysis of lobbying disclosure forms. (Podesta Group has represented both for several
years.) Another lobbying firm led by Mr. Podesta's wife, Heather, received approximately
$2e,eee each from Concorde Career Colleges, DeVry Inc, and Education Management LLC during
that time period.
Kaplan Inc. has hired Dezenhall Resources, a Washington-based public-relations
firm known in political circles (and a 2ee6 Business Week story) as the "pit bull of public
relations" for its secretive work for interests seeking to undermine environmental groups and
advocates for open access to research findings.
Kaplan officials declined to comment on Dezenhall's entire role, but did acknowledge that the
firm has been helping it to place op-ed articles that question the proposed rule. (One of
those, by Robert H. Atwell, a former president of the American Council on Education and also
a former board member Education Management Corporation, which owns for-profit colleges,
recently appeared as a letter to the editor in The Chronicle.)
For - profit colleges are being "undeservedly lambasted" by news media and others and "in
situations like companies hire outside experts like said Ronald H. Iori, a
spokesman for Kaplan Higher Education, which runs Kaplan University and other for-profit
colleges.
Calls and e-mails to Dezenhall from The Chronicle were not returned. On its Web site,
Dezenhall describes its chief product as "crisis management" and notes that it is "typically
brought in during times of intense scrutiny, risk, or competition."
18
In addition to the personal visits to lawmakers and regulators, the colleges and companies
have been trying to make their case in the news media, both with op-ed commentaries
criticizing the rule, and paid advertisements.
This week, for example, the University of Phoenix, ran advertisements aimed at discrediting
the proposed gainful-employment rule as a policy that could "limit access to the education so
many Americans desire." One of the ads uses a quote from Mr. Shireman praising the for-profit
sector. M The ads will or have run in newspapers widely read on Capitol Hill-Politico, CQ
Today, Roll Call, The washington Post, and The Chronicle.
Terri C. Bishop, executive vice-president for external affairs for the university's parent
company, the Apollo Group, would not say how much the company is spending on the ads.
On the other side of the fight over the gainful employment rule are groups representing
students, consumers and civil- rights organizations. They have also held meetings with
Congressional aides and agency heads, and, later this week, a coalition of more than 20
groups will announce their support for "strong and effective regulation."
"CCA is much louder than we are because they have way more to lose," said Christine
Lindstrom, higher-education program director for u.s. Public Interest Research Group, a
consumer organization.
"They have just been a force on the Hill and in the media," she said. "Now we're feeling the
need to amp it up ourselves."
Ms. Lindstrom said the association's message, and in particular its argument that it serves
minority students, is disingenuous. "They keep saying, 'We serve this population. We serve
this population."' But the reality is, if you're serving a financially needy population,
"then you need to care about debt and defaults and job placement."
An association of Florida community-college presidents has already publicly endorsed the
proposed rule, calling it "a fair measure' in a letter to Mr. Duncan, and a Texas community-
college association is considering doing so.
Student Petition
One unusual piece of the lobbying effort is the online petition drive from an organization
calling itself students for Academic Choice.
For more than two weeks, the self-described organization of "proud students and graduates of
private, postsecondary career oriented institutions" has been seeking signatures from at
least 1ee,eee fellow students and graduates for their petition opposing the proposed rule.
(As of Tuesday, the counter on the site showed under 32,eee signers.)
"This new regulation would treat career-college students as separate and inherently unequal,"
the petition reads, invoking language of the segregation era.
The site was established with the technical and financial help of the Career College
Association, and a number of colleges have put up links to it on their own Web sites. At
least one of those pages with the link invites readers with questions to contact a Career
College Association lobbyist, Bruce Leftwich.
Advocates for the proposed rule call the petition a classic example of "astroturfing,"-an
attempt by the association to create the appearance of grass-roots opposition.
The career college's president, Mr. Miller, said the idea for the petition came from some of
the same 150 students who participated in the association's March 11 "Hill Day," an annual
19
event that brings hundreds of college officials to lobby their representatives and senators .
The association
3
he said
1
helped out at the students' request.
"These are not weal thy
3
middle-class students who have lots of free time/' he said. "We make
no apologies for assisting the group getting set up."
He said the language of the petition was not an attempt by his association to make allusions
to the civil-rights battles overturning racial segregation. "I'm not clever enough to use
code words," said Mr. Harris.
Another group, the Business Industry Political Action Committee
1
has created Web sites for
the Education Management Corporation that urge the company's 29
1
999 employees and 136,eee
students to weigh in with Congress on the gainful - employment rule.
With the department's decision on the rule expected to affect the stocks of publicly traded
for- profits, Wall Street analysts have also been closely watching the debate over the
proposal . One of them, Trace A. Urdan, an analyst with Signal Hill Capital Group, has even
offered for-profits some advice on fighting the proposal: "Embrace the media, control the
message
3
" he urged in an April 27 note to clients and others. "Go on cable television (right
and left) and make the case for more-rigorous disclosure and student choice over government
price controls."
He also suggested that the companies appeal to their supporters within the Congressional
Black Caucus and to the alternative media outlets that serve minority communities and other
interests. "Industry has a great story to tell in terms of expanding educational access
within minority communities and in terms of a government policy that seeks to rob these
students of choice and condescends to their ability to make informed choices," he said.
Congressional Pushback
The colleges' arguments appear to be getting some traction in Congress. In addition to the
letter sponsored by Representatives Hastings and Payne, at least two Democratic S\senators-
Bill Nelson of Florida and Bob Casey of Pennsylvania-have sent letters to the Education
Department opposing the proposal. Sen. Lamar Alexander
3
Republican of Tennessee, has
suggested that the department consider applying caps on default rates to for-profit college
programs rather than adding another layer of regulation. The existing rules penalize colleges
whose default rates over all exceed certain levels.
Mr. Alexander
3
a former secretary of education
3
and a member of the Senate education and
appropriations committees, has warned that he will offer an amendment to withhold funds to
put the rule into effect if the department follows through with its original proposal.
One senior Republican aide says that the Education Department has failed to make a case for
its proposal. Education Department officials have so far refused to provide opponents of the
rule with the data they say they used in drafting the rules.
"The department hasn't presented a factual case," the aide said. "Before you can legislate3
you have to have a factual case."
Meanwhile, on the House side, Rep. Robert E. Andrews
1
Democrat of New Jersey, is preparing to
offer legislation that would substitute the debt-to-income ratio for a "matrix" of variables
used to measure the value that for-profit colleges add. The matrix, he said in an interview3
would apply to all colleges, nonprofit and for-profit
3
and assess four things: job placement
in the advertised field, graduation rates, default rates, and success in serving low-income,
high-need populations. His goal, he said, is to measure students' "actual outcomes," rather
than their "projected incomes."
20
"I think the department has chosen the wrong method to measure value-added," Mr. Andrews said
in an interview. Pif we want to measure whether people get a job and how much money they
make, let's measure whether people get a job and how much money they make."
Comments
1. handley - May 19, 2e1e at es:29 am
As the father of two recent graduates of non-profit colleges, both of whom are struggling
with debt far above 8% of their income, I am in favor of applying the same regulations to all
institutions of higher ed. Student debt is student debt, regardless of whether the college
pays taxes or not. It is irrational to suggest that this is the basis for the proposed
gainful employment regulation and not apply it across the board.
Once we admit that, we can start talking about disclosure as the most sensible solution
rather than program elimination. I hasten to add that disclosure should also apply to all
institutions, not just for -profits.
21
Winters, Deborah
From:
Sent;
To:
Cc:
Subject:
Attachments:
Folks:
(b)(5)
Peter
Cunningham, Peter
Friday, April30, 2010 1:34PM
Rogers, Miller, Tony; Kanter, Martha; Rose, Charlie; Gomez, Gabriella
Haro, Adrian; )(6) l@comcast.net
RE: Mtg tomorrow
03_24_10_Frontline_lnterview_Briefing[1].doc; 4-28 Statement regarding for profits.doc; 4-28
Statement regarding for profits.doc; 4-30 media.doc; AD on AOL.doc; analyst overview of
Shireman remarks. pdf; frontline press release and other info.doc;
Gainfui_Employment_ T alking_Points_-_MD[ 1 ].doc; Harris miller 04-28-1 OOuncanLetter[ 1 ].pdf;
Homeless Dropouts Lured by For-Profits.doc; Notes on frontline.doc; Shireman Speech and
Q&A.pdf
Sent: Friday, April 30, 2010 11:58 AM
To: Miller, Tony; Martha; Cunningham, Peter; Rose, Charlie; Gomez, Gabriella
1
Cc: Haro, Adrian
Subject : Mtg tomorrow
Peter has put together a set of materials for us to review re: Frontline etc. Those will be
coming to you later today. In the meantime, I'd like to schedule a short call for tomorrow
so that we can touch base about what, if anything, we want to roll out on Monday.
Pls send Adrian any preferences you have for tomorrow morning/afternoon. Thx
2
Nonresponsive
Nonresponsive
Nonresponsive
Nonresponsive
Nonresponsive
PRESS RELEASE
FRONTLINE INVESTIGATES THE RISE OF FOR-PROFIT UNIVERSITIES AND THE
TENSIONS BETWEEN THEIR WALL STREET BACKERS AND REGULATORS
FRONTLINE Presents
College, Inc.
Tuesday, May 4, 2010, at 9 P.M. ET on PBS
www.pbs.org/frontline/collegeinc
www.facebook.com/frontlinepbs
Twitter: @frontlinepbs
Even in lean times, the $400 billion business of higher education is booming. Nowhere is this
more true than in one of the fastest-growing- and most controversial- sectors of the industry:
for-profit colleges and universities that cater to non-traditional students, often confer degrees
over the Internet, and, along the way, successfully capture billions of federal financial aid
dollars.
In College, Inc., airing Tuesday, May 4, 2010, at 9 P.M. ET on PBS (check local listings),
FRONTLINE correspondent Martin Smith investigates the promise and explosive growth of the
for-profit higher education industry. Through interviews with school executives, government
officials, admissions counselors, former students and industry observers, this film explores the
tension between the industry-which says it's helping an underserved student population obtain
a quality education and marketable job skills- and critics who charge the for-profits with
churning out worthless degrees that leave students with a mountain of debt.
At the center of it all stands a vulnerable population of potential students, often working adults
eager for a university degree to move up the career ladder. FRONTLINE talks to a former staffer
at a California-based for-profit university who says she was under pressure to sign up growing
numbers of new students. "I didn't realize just how many students we were expected to recruit,"
says the former enrollment counselor. "They used to tell us, you know, 'Dig deep. Get to their
pain. Get to what's bothering them. So, that way, you can convince them that a college degree is
going to solve all their problems. m
Graduates of another for-profit school-a college nursing program in California-tell
FRONTLINE that they received their diplomas without ever setting foot in a hospital. Graduates
at other for-profit schools report being unable to find a job, or make their student loan payments,
because their degree was perceived to be of little worth by prospective employers. One woman
who enrolled in a for-profit doctorate program in Dallas later learned that the school never
acquired the proper accreditation she would need to get the job she trained for. She is now
sinking in over $200,000 in student debt.
The biggest player in the for-profit sector is the University of Phoenix-now the largest college
in the US with total enrollment approaching half a million students. Its revenues of almost $4
billion last year, up 25 percent from 2008, have made it a darling of Wall Street. Former top
executive of the University of Phoenix Mark DeFusco told FRONTLINE how the company's
business-approach to higher education has paid off: "lf you think about any business in America,
what business would give up two months of business-just essentially close down?" he asks.
"[At the University of Phoenix], people go to school all year round. We start classes every five
weeks. We built campuses by a freeway because we figured that's where the people were."
"The education system that was created hWldreds of years ago needs to change," says Michael
Clifford, a major education entrepreneur who speaks with FRONTLINE. Clifford, a former
musician who never attended college, purchases struggling traditional colleges and turns them
into for-profit companies. "The big opportunity," he says, "is the inefficiencies of some of the
state systems, and the ability to transform schools and academic programs to better meet the
needs of the people that need jobs."
' 'From a business perspective, it's a great story," says Jeff Silber, a senior analyst at BMO
Capital Markets, the investment banking arm of the Bank of Montreal. "You're serving a market
that's been traditionally underserved .... And it's a very profitable business-it generates a lot of
free cash flow."
And the cash cow of the for-profit education industry is the federal government. Though they
enroll 10 percent of all post-secondary students, for-profit schools receive almost a quarter of
federal financial aid. But Department of Education figures for 2009 show that 44 percent of the
students who defaulted within three years of graduation were from for-profit schools, leading to
serious questions about one of the key pillars of the profit degree college movement: that their
degrees help students boost their earning power. This is a subject of increasing concern to the
Obama administration, which, last month, remade the federal student loan program, and is now
proposing changes that may make it harder for the for-profit colleges to qualify.
"One of the ideas the Department ofEducation has put out there is that in order for a college to
be eligible to receive money from student loans, it actually has to show that the education ifs
providing has enough value in the job market so that students can pay their loans back," says
Kevin Carey of the Washington think tank Education Sector. "Now, the for-profit colleges, l
think this makes them very nervous," Carey says. "They're worried because they know that
many of their members are charging a lot of money; that many of their members have students
who are defaulting en masse after they graduate. They're afraid that this rule will cut them out of
the program. But in many ways, that's the point."
FRONTLINE also finds that the regulators that oversee university accreditation are looking
closer at the for-profits and, in some cases, threatening to withdraw the required accreditation
that keeps them eligible for federal student loans. ' 'We've elevated the scrutiny tremendously,"
says Dr. Sylvia Manning, president of the Higher Learning Commission, which accredits many
post-secondary institutions. "lt is really inappropriate for accreditation to be purchased the way a
taxi license can be purchased .... When we see any problematic institution being acquired and
being changed we put it on a short leash."
College, Inc. is a FRONTLINE co-production with RAIN Media, lnc., produced by Chris
Durrance and John Maggio and written by John Maggio and Martin Smith. The correspondent is
Martin Smith. FRONTLINE is produced by WGBH Boston and is broadcast nationwide on PBS.
Funding for FRONTLINE is provided through the support of PBS viewers. Major funding for
FRONTLINE is provided by The John D. and Catherine T. MacArthur Foundation. Additional
funding is provided by the Park Foundation and by the FRONTLINE Journalism Fund. Major
funding for College, Inc. is provided by the Bill & Melinda Gates Foundation. Additional
funding is provided by Lumina Foundation for Education. FRONTLINE is closedcaptioned for
deaf and hard-of-hearing viewers and described for people who are blind or visually impaired by
the Media Access Group at WGBH. FRONTLINE is a registered trademark of the WGBH
Educational Foundation. The senior producer of FRONTLINE is Raney Aronson-Rath. The
executive producer of FRONTLINE is David Fanning.
pbs.org/pressroom
Promotional photography can be downloaded from the PBS pressroom.
Press contact
Diane Buxton (617) 300-5375 diane buxton@wgbh.org
Chris Durrance
cdurrance@rainmedia.net
w: 1212 579 7781
c: 1 646 236 5492
Gwen Schroeder
Associate Producer
RAINmedia for PBS/FRONTLINE
(212} 579-7781 Phone
gschroeder@rainmedla .net
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Random quote from Shireman in recent interview
"Targeting vulnerable populations who are not likely to benefit is one example of overzealous recruiting
that can be driven by paying based on enrollment numbers," says Robert Shireman, Deputy Under
Secretary of the U.S. Education Department, which is pushing to tighten the rules.
Todav's clips 4-3010
Education Stocks Drop On Comments By DOE Official (AP)
By Erin Conroy
Associated Press, April30, 2010
Shares of for-profit schools fell Thursday following a report that a Department of Education official
criticized oversight of the industry in a speech Wednesday to state regulators.
Deputy Undersecretary of Education Robert Shireman compared the insmutions to the Wall Street
firms whose behavior led to the financial meltdown, according to Inside Higher Ed, a trade publication.
The growing for-profit education sector is drawing heavy sums of federal student aid money, and
several for-profit schools saw their share of Pell Grant money rise by more than a third this year, Shireman
reportedly said.
The publication relied on the reports of people in the audience to produce its coverage of Shireman's
speech.
The sector has been criticized as leaving students with overwhelming debt for questionable training.
Federal grants cover only a small portion of any student's tuition and other expenses.
Shares of DeVry Inc. dropped $4.09, or 6.1 percent, to $62.61 on Thursday. And stock in Apollo
Group Inc.-- which runs the University of Phoenix chain, the nation's largest for-profit school-- slid $3.56,
or 5.8 percent, to $57.94.
Shares of Corinthian Colleges Inc. fell 87 cents, or 5.1 percent, to $16.04; Career Education Corp.
sank 3.36 cents, or 10.1 percent, to $30.05 and Strayer Education Inc. lost $3.04, or 1.2 percent, to
$243.71. ITT EducaUonal Services Inc. shed $7.09, or6.4 percent, to $103.61.
Signal Hill analyst Trace Urdan called the drops "overdone."
"The challenge in this case would be to show that the academic rigor was inferior to that of
comparable institutions which, in our opinion, would be extremely difficult," Urdan wrote in a note to
investors.
He was responding to Shireman's reported comment that there is a conflict of interest inherent in the
way higher education is regulated.
NoUng that accrediting agencies depend on financial contributions from the programs they rate,
Shireman questioned whether the tradition of joint oversight by the federal government, state governments
and accrediting groups can guarantee school quality, the publication said.
Urdan was among the readers who posted comments about the event and the report on Inside Higher
Education's website Thursday.
Several commenters said Shireman's comments included positive statements about for-profit schools
-- including that they performed the important function of meeting fast-rising demand for higher education.
DeVry, Career Education Drop On Federal Official's Criticism (BLM)
Bloomberg News, April30, 2010
(Bloomberg} - Apollo Group Inc., the biggest U.S. for-profit education provider; Career Education
Corp.; Grand Canyon Education Inc., and DeVry Inc. fell in stock trading after a trade joumal report that
U.S. Education Deputy Undersecretary Robert Shireman criticized the companies.
Career Education, based in Hoffman Estates, dropped $3.41, or 10 percent, to $30. DeVry, based in
Oakbrook Terrace, fell $4.51 , or 6.8 percent, to $62.19.
Apollo Group Inc., based in Phoenix, fell $3.50, or 5.7 percent, to $58 at 12:26 p.m. in New Yori< Stock
Exchange composite trading. Grand Canyon, also based in Phoenix, declined 76 cents, or 3 percent, to
$24.20.
The Education Department has proposed rules that might make it more difficult for for-profit colleges
to recruit students and qualify for federal financial aid programs. In a speech yesterday, Shireman criticized
for-profit educators for their growing use of federal student aid, the trade journal Inside Higher Ed reported
today on its Web site. Crain's Briefing
"Allegedly, Mr. Shireman mentioned the for-profit education companies by name in reference to the
increasing amount of federal student aid being used by students to attend their schools," said Jeffrey Silber,
an analyst with BMO Capital Markets in New York, in a note to clients. "He then compared the relationship
between for-profit education companies and national accrediting agencies to the relationship between Wall
St. firms and ratings agencies, citing an inherent conflict of
ITT, Bridgepoint Shares
ITT Educational Services Inc., based in Carmel, Indiana, fell $6.05, or 5.5 percent, to $104.65. San
Diego-based Bridgepoint Education Inc., fell 61 cents, or 2.4 percent, to $25.04.
Federal aid to for-profit colleges increased to $26.5 billion in 2009 from $4.6 billion in 2000, according
to the department.
The severity of the remarks was a departure for the Education Department official, who had been
"congenial" to for-profit educators, Silber said in the note.
Shireman's remarks weren't prepared as a speech, and the Education Department wasn't able to
provide a copy of them, said Justin Hamilton, a spokesman.
"For-profit colleges play a critically important role in helping to ensure so many American's have
access to education and training that can improve their job prospects and their lives," he said in an e-mail.
"We've had constructive discussions in recent months, and look forward to continued thoughtful dialogue
with the career education community."
Shireman noted that higher-education accrediting agencies are constituted by, and financially
supported by, their member colleges, according to Inside Higher Ed.
"Federal and state governments cannot rely on accreditors to assure that consumers and taxpayers
are protected to full extent that they need to be," Shireman said, according to the report.
Education Dept Criticism Pressures For-Profit Ed Shares (OJ)
By Kerry Grace Benn
Dow Jones Newswire, April30, 2010
NEW YORK (Dow Jones}--For-profit education companies were under pressure Thursday after a U.S.
Department of Education official did an about-face and bashed the companies and the accreditation
process in a speech late Wednesday, allegedly comparing the sector with Wall Street firms whose actions
brought about the financial turmoil of the last few years.
In a speech to state regulators who oversee for-profit colleges, Robert Shireman, the man behind the
Education Department's strategy, called out the colleges one by one for the increasing amounts of federal
student aid money they're getting, according to an article in industry publication Inside Higher Ed.
BMO Capital Markets analyst Jeffrey Silber said in a note to clients he doesn't think the author of
Inside Higher Ed's article was present to hear the speech, and that it's based on accounts from people who
"presumably did attend."
Silber said his thesis hasn't changed on the stocks--that there will likely be some constraints because
of the regulation process, but he is cautiously optimistic the changes proposed earlier this year, like the
gainful-employment proposition, will be diluted somewhat.
"However, the 'fear factor' has certainly risen this morning," he wrote.
There were no prepared remarks for Shireman's speech, a Department of Education spokesman said,
and Shireman wasn't immediately available for comment.
"For-profit colleges play a critically important role in helping to ensure so many Americans have
access to education and training that can improve their job prospects and their l i v e s , ~ the spokesman said.
"We've had constructive discussions in recent months and look forward to continued thoughtful dialog with
the career education community."
Shares of Career Education Corp. (CECO) fell 10% to $30.07, while Corinthian Colleges Inc. (COCO)
dropped 7.2% to $15.70. ITT Educational Services Inc. (ESI) declined 5.4% to $104.73, Apollo Group Inc.
(APOL) slid 6% to $57.83 and Grand Canyon Education Inc. (LOPE) declined 2.4% to $24.37.
Strayer Education Inc. (STRA), which beat analysts' expectations with its first-quarter earnings earlier
Thursday, pared some declines, falling 1.1% to $244.03.
Signal Hill Group analyst Trace Urdan thinks Shireman's speech shows the Education Department is
"taking a very hard line in promoting its gainful employment regulations.
The most hotly debated measure to come out of the negotiated rulemaking discussions was a
government proposal to hold colleges accountable for graduating students with high debt loads and low
income levels, or literally not preparing students for "gainful employment." Though the exact criteria have
been debated, the Department of Education has pegged a fair level of debt at about 8% of income and
originally said it would scrutinize schools that don't graduate at least 70% of their students or place 70% of
graduates in jobs related to their fields of study.
Shireman's comments seem to signal the department intends to go after accrediting agencies, Urdan
said.
Shireman said accreditors lack the "firepower" to regulate the sector, and states and the federal
government don't have all the tools they need to do it either, Inside Higher Ed said, citing the notes of
several people in the audience.
Urdan said it looks likely the department will pressure the accrediting agencies, but it's a tricky
situation for them, because other than kicking one of the agencies out of the club, the department is limited
as to what it can do. There's a panel made up of six Senate members, six House members and six White
House staffers that has the job of looking over accreditation agencies, he said, so though the market is
worried Thursday, the process of making changes is going to be much slower and will probably have to
involve Congress.
Shireman's comments were a switch from his stance of late. Earlier this week, Shireman told Dow
Jones Newswires in an interview that there was a misimpression that the Education Department was out to
get or was biased against for-profit education companies. The companies "play a very important role" in the
higher-education system, he said at the time.
Urdan said he thinks the market is going to see Shireman in the press a lot this summer drumming up
positive sentiment for the gainful-employment rules, which have so far generated only negative comments
from the industry.
He added Career Education's shares were down more than the others since the company had been
trying to switch its accreditation to the North Central division, which had already been called to task by the
Education Department for being too lax in allowing other schools to make that switch.
-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com
Non responsive
Please see important disclosure information on pages 17 - 18 of this report.
Robert Shireman
Deputy Undersecretary, U.S. Department of Education
Remarks to National Association of State Administrators and Supervisors of Private
Schools (NASASPS)
April28, 2010
Source: Career Education Review/Workforce Communications
[Introduction by Host]
.. . And I had forgotten to put the FAFSA simplification applause line into my actual
remarks so I have applause when he said it so it never fails and of course- it' s not often -
sometimes it's the thing I get questions about but more often its about things like two Pell
awards, two programs in an award year, things more detailed like that. But thank you so
much fw that introduction.
Two and a half or three years ago, we started to see a serious economic slide downward
in this country. Credit markets had seized up, the sub prime mortgage issue was a major
cause of that and we started seeing people losing their jobs. We saw people in their jobs
feeling much more insecure, much less secure about their ability to invest in higher
education, their ability to buy a home with the collapse ofthe credit markets and the way
to solve that - long term- is to invest in improving our nations economy, to invest in the
kind of innovation that comes from education, the productivity increases that come from
job training.
In order to follow up on that President Obama laid out a bold goal for he country, he said
that by 2002 we want to regain our place as the nwnber one country in the world in terms
of adults with post secondary credentials, college degrees, certificates and other job
training programs. In the recovery legislation, now about a year and a half ago, that
included an expansion of the tax credits that [Congress] created in the 90s, an expansion
of that tax credit to $2500, making it for four years and actually covering more of the
types of expenses that students and families have for higher education. Increases in Pell
grants- the usual approach and what you have seen in your own states, are in an
economic downturn, more people are poor, more people want to go to school, but instead
of following up on that need by putting more money onto the grant and scholarship
programs, actually less money goes into the grant and scholarship programs be ofthe
state budgets.
Federal government took the opposite approach really, what needs to be countercyclical
spending that helps - like unemployment insurance - spending that needs to follow up on
and help to address the new gaps that families are seeing- so the tax credits were part of
that, the increases in Pell grants are not only meeting the new demand for Pell grant
dollars but actually increasing the size of the Pelt grants and improving those increases
into the future with the follow-up legislation passed a few weeks ago. Also restoring
some certainty to the student loan program, and making sure that no one has any reason
to doubt whether they will be able to get the federal student loans that they need, again
with the reforms that were implemented a few weeks ago.
I mentioned that when people are losing their jobs, when people become insecure in their
jobs, they look for higher education, they look to find what kind of job training can I get,
what kind of skills can I add to my repertoire, what are the skills that I have, how can I
make them better so that I' 11 keep my job, so that if I lose my job I'll have options. And at
the same time, while we saw this increase in demand, which is helpful and useful given
what the President had to say about the need to train our population, we saw state tax
revenue declining in all but a few states, we saw resulting cuts in the budgets of state
co lieges and universities and community colleges, resulting in a combination of very
large increases in tuition in some cases and reduced enrollments, fewer seats. So
increased demand - people wanting more education and training, and public institutions
either had fewer seats and charging more tuition or might not declare going to be
enrolling fewer people but their course offerings are cut, fewer kinds of course offerings,
so the result is they are not able to demand for higher education.
Tuition-driven institutions didn't react that way because they're tuition-driven institutions,
and the non-profit institutions have done pretty well despite significant declines in their
endowments because there continued to be significant demand for higher education. The
public., the non profit private colleges did well and in particular the for profit institutions
have come in with investors making sure that there was capacity to be able to serve
additional students, and they knew that those students would come with those federal
dollars, Pell grants, student loans, tax credits and that bat would help them to not only be
consumers who want higher ed but consumers who can pay for that higher education with
that federal support so the for-profit industry, more than any other in this economic
difficult times, has responded.
I want to give you some specific numbers, we now post now on one of the [Department]
Websites, the quarterly numbers ofPell grants by different kinds of schools. So I looked
at what the first three quarters - the total of the first three quarters of this award year
compared to the last award year for some of the schools that I knew would be here today.
So for example,
Corinthian Colleges- 38% increase for first 3 quarters this year compared to last year for
a total of $800M. DeVry - a couple people here from DeVry?- 42% increase up to
$1.7B. ITT - you guys here? A 44% increase up to $623M. Strayer- still here? Is that
you? Well this one- 95% increase, may be something about the quarters, but up to
$414M. APEI- Wally here? And Russell? 94% increase up to $44M. Kaplan - they
here? So this total is actually all the Washington Post-owned entities, 33% increase up to
$909M, and again this is the first three quarters of the year so the totals for the year are
obviously more than that. Career Education Corporation- 29% increase up to $1 B this
first three quarters. EDMC - several folks here; a 16% increase, $1.1 B. Capella- over
there? 40% increase to $378M.
And I think I've just got a couple of others: Grand Canyon - 55% i!lcrease to $260M.
And University of Phoenix - you there?- 9% increase but obviously that's on a larger
base. So probably that increase is as much as a lot of others' total dollars, and that
increase is $2.7b total. And Bridgepoint - you guys here?- 61% increase, $393M.
I think those were all that I had numbers for, obviously I know that there's a few others
here as well.
So I wanted to begin just by thanking the for-profit industry for responding to the critical
demands from people out there who need higher education. I'd like everybody to give
them a hand. Now, others of us in the room have the responsibility for making sure those
federal funds I just listed, for education and training --that it's all totally above board.
That those significant increases in fed spending for higher education - loans, grants- are
serving students and taxpayers as well as they possibly can and that is what the Triad is
about - and I know I can say triad in front of this audience because I heard somebody say
it earlier.
I want to talk for a second about some things going on in Washington right now, and I
don't mean negotiated rulemaking- I will get to that in a few minutes, but there is a Wall
Street reform debate going on right now in Washington. What happened in that credit
crisis a couple of years ago had something to do with credit rating agencies - agencies
like S&P, Fitch, other agencies that were responsible for rating instruments- financial
instruments, looking at what is the quality of these things that have names that cause
people's eyes to roll over - things like collateralized debt obligations, and other kinds of
securitizations - so what is the quality of the loans, mortgages, are they going to be
repaid, how likely are theses loans to be repaid so that an investor purchasing this, how
confident can they be that when they purchase, when they invest in this particular
instrument, that they will get the money back that they are expecting.
The business model for these rating agencies bas come under fire in these meetings in
Washington, part of this has to do with the business model of the rating agencies, on the
one hand, their responsibility, their job, the core of their business was to make sure they
did a good job providing an honest rating for the instrwnent that they were analyzing. On
the other band, they relied on the income from the companies who asked them to rate the
instrument, and I'll read to you from - a New York Times- some of the emails that have
been coming out recently.
In 2004, well before Wall Street's bets on subprime mortgages became widely known,
employees at Standard & Poor's credit rating agency were feeling pressure to expand the
business. One employee warned in an internal email that the company would lose
business if it failed to give high enough ratings to collateralized debt obligations, the
investments that later emerged at the heart of the financial crisis.
Quote, " ... we are meeting with your group this week to discuss adjusting criteria for
rating CDOs of Real estate assets because of the ongoing threat of losing deals. Lose the
CDO and lose the base business. A self-reinforcing loop."
In other words, ifwe don't loosen up, we don't loosen up in our assessment of these
instruments, nobody is going to come have their instruments assessed by us anymore.
And this created a conflict which led to instruments that should have been questioned not
being questioned, and [leading] over to the financial crisis that we have been suffering
from for the past couple of years.
The other issue besides the business model was the complexity and fast growth of
different kinds of instruments and I'll read from another of the recent articles. "Email
documents and other messages suggested that executives and analysts at ratings agencies
embraced new business from Wall Street even though they recognized that they couldn't
properly analyze all of the banks' products. And one of the other quotes ends with, " ... we
were so overwhelmed."
So I want to actually ask, on that issue, the complexity and growth, and I know we're
feeling this with publicly-traded corporations and purchases going this way and that way,
and we're trying to figure out whafs going on. Are there regulators in the room who feel
like you DO have the analytical firepower you need to assess what is going on with the
entities you regulate in higher education? Those who do feel you have the firepower you
need? I don't think we feel we have the firepower we need.
So the reform back on the financial instrument side of the equation, what they're really
talking about now in Washington on financial reform, one analyst - an academic looking
at what's going on, said it only tinkers with the workings of the ratings agency, it doesn't
end the inherent conflicts of interest, those conflicts of interest where the people who do
the rating are paid for by those who do the ratings. This whole situation with credit
agencies, credit rating agencies, is, as I see it, very similar to the way accrediting
agencies work in this country. The same kind of inherent conflict of interest. Albeit
accrediting agencies are nonprofit and on top of that, what would this crisis look like if
the banks had actually been the ones running the credit agencies and were doing a peer
review kind of model, which is the model we have in accreditation, where it is the
regulated who are really looking at each other rather than an outside entity.
So to borrow from Winston Churchill, accreditation, as a part of that triad, in terms of a
way of assessing quality in higher education, is the worst form of accountability except
for all of the others. What Winston Churchill actually said was, democracy is the worst
form of government, except for all the others. So I am bringing up this issue of
accreditation not to say that we should back away from it or change it, I actually don't
have a better system for us for assessing quality in higher education. But it is problematic
and we need to remember that as the other two pieces of the triad, as we figure out how
we can do the best job possible in our responsibilities. Federal and state goverrunents
cannot rely on accreditation to insure that consumers and taxpayers are protected to the
full extent that they need to be- all three legs of that three legged stool need to be working
and working well.
There are a number of things that we're doing, you've heard about some of them-
elevating, monitoring and enforcement, we're working with the Inspector General at the
Department of Education, taking a much closer look at data than ever before to help
guide our selection for program reviews and investigations when necessary by the
inspector general, working with the federal trade commission to join their consumer
complaint system so complaints they get and other agencies that are on their consumer
sentinel, working on the issue of how we can look more at issues of misrepresentation as
we do program reviews and other kinds of monitoring.
A second area besides the monitoring and enforcement is improving consumer
information. We have put graduation rates, retention rates and transfer rates right on the
F AFSA form when students are choosing colleges, the rates are right there as a reminder
to students that they should do some good shopping, look at various kinds of data that
might help them to compare schools. We're also providing them with a more detailed
financial aid estimates in terms of the financial aid that they can get and this is partly to
make sure that people know they can get that aid wherever they go. Sometimes students
think, oh I can get that $12K because the school costs $12K, and I would only get $3k at
a community college that only cost $3K, not realizing that in fact if they wanted to get
more than what tuition costs at that community college so that they can focus on their
studies instead of working excessive hours, that that is something that they can have
available to them.
And starting this summer, as a result of a regulatory process that has already completed,
schools will have to begin providing placement information and where they have
placement rates, they actually will need to make students aware on their Websites of
placement rates they have for programs that they are offering.
Uh coordination and sharing, I head some of the discussion in prior sessions and I look
forward to this afternoon's discussion. Within the federal government, we are working
with the Federal Trade Commission, the Veterans Administration around the GI bill, the
SEC because of the involvement of publicly-traded institutions, states we have
encouraged involvement in this group and are looking for other ways that we can help.
Happy to discuss that in Q&A here as well as this afternoon because we really need to
become good partners if we're going to do best by taxpayers and students.
And accreditors, there are some new requirements. We're working on sharing some draft
guidance related to all of the requirements for accreditors and again building that triad
and all working together. In fact, I was actually on the Internet looking for a three legged
stool to see if I could bring one for this, and I noticed one of the three legged stools had a,
not only the three legs, but it had this connecting piece of wood that held the three legs
together, and I thought, well that would be the perfect prop, because that would
demonstrate it's a strong stool if that connecting - that connector is there, making it as
strong as possible.
Also, may of you have heard, reviewing the rules and regulations and where appropriate
revising, in the process of revising those rules. Let me take a little bit of time to tell you
about some of those. We started about a year ago, doing public hearings where we
basically said, we want to know whether we need to improve program integrity, are thee
things we need to be doing? Here's a list of some areas, misrepresentation- definition of
credit hour, state authorization, other kinds of things, and we saw input. We did three
public hearings, people were able to submit items over the Internet, through e-mail, and
we got a lot of input about great schools out there, students who were having a good
experience, people who attended the schools, got a job, had a great experience. We also
heard from former students who felt that they were misled, legal aid attorneys who had
clients whose stories were cause for concern.
That was followed up by - we asked for nominations for people to serve on committees-
the way this whole process works is that we do our best to work through possible rule
changes with a committee of stakeholders, recommended, nominated by interested parties,
states, various institutions, student organizations, legal aid, for three week-long sessions,
December, January and February went through each of 14 issues talking about, changes
that might make sense.
One of them, misrepresentation, clarification really against misrepresentation by schools.
High school diploma - one of those things that you take to somebody and think, how
hard can it be to know if a high school dimple is valid? As you know, not that easy and
many of you are at the state level so you know that the state isn't necessarily declaring
who is good or bad. And the issue of the federal government declaring what is a valid
high school education, for example, gets into areas where the Federal government isn't
supposed to be declaring such things, so I think a more complicated issue than I think a
lot of people expected. We are making- at least in NegReg session- reached some
tentative agreement around the definition.
I would say the most significant thing we are doing is looking at- and 1 think this is now
a likelihood, when people apply on the FAFSA and it asks for a high school diploma, a
list will actually pop up and they can enter what that high school is, the name of that high
school based on some federal lists we have. It won't necessarily mean that it will be a
valid high school, but it does give us and you the ability to, if for example a suspected
diploma mill, we would be able to see who are, where are the students going who are
using this particular high school as the place they say they get their diploma from. And if
we find that its some particular colleges, that means that it might b encouraging people to
go and use and diploma mill. So it will be a useful took for us and you as well. And that's
the most important change we'll be making there.
Incentive compensation was a major issue, the issue of paid recruiters. A number of
years ago, a number of safe harbors were created and there was a lot of indication that
they were wider loopholes than are appropriate given the wording of the actual law that
prohibits payment of actual compensation based on enrollment. So that's another one that
we are working on.
State authorization, I heard California mentioned and it was a surprise to me when I came
to Washington and asked about California to discover that a legal interpretation of the
Department of Education, we11 if the school is not not-authorized, then it is authorized.
So this a raised question that came up in NegReg about what is at least some minimum
standard about what kind of authorization should count in tenns of the state role in that
Triad.
Satisfactory academic progress is another area taking attendance. What I used to call
R2D2, return to Title 4. And I'm not mentioning all of the issues, but the final one I will
talk some about is Gainful Employment, and this is the one that's been in the news a lot.
It seems that every time I speak somewhere, something thinks I said something new and
calls a stock analyst who then reports it causing the stocks to go up or down or whatever,
and I assure you I am not going to say anything new. If you are a stock analyst or you
know a stock analyst, the answer when they ask you, What did Shireman say? You say
nothing new.
So the statute, the federal law requires that in order for some programs to be eligible for
federal financial aid, they have to lead to gainful employment in a recognized occupation.
This applies to non degree programs at any type of school and it applies to most programs
at for-profit schools, really all except some BA, liberal arts programs through an
exception, a recently enacted exception, that actually begins this July 1st. but for the most
part, a for-profit institution, in order to be eligible for federal financial aid, has to show
that the program leads to gainful employment or prepares the student for gainful
employment in a recognized occupation.
So a year ago, we began asking the question, what is the definition, what should be the
definition of gainful employment in a recognized occupation. We had hoped that perhaps
some schools would come forward and say, well when we start a program, here's how we
detennine whether or not it complies. We didn't get that kind of information.
We brought it up in NegReg and made some suggestions for discussion. We suggested,
maybe there should be some relationship to the debt levels that students are taking on and
the expected earnings that they may have from the occupations that you have identified
that you are preparing people for. We also suggested that perhaps a loan repayment rate
approach could be devised where we would be able to see that federal loans are actually
being repaid at a rate that makes sense if ppl were actually gainfully employed.
We looked at the provision and current regulation that currently applies to very short
programs, the 70/70 rule. So 700/o completion rate, 70% placement rate, and asked should
something like that be part of the definition of gainful employment? And then for new
programs, we suggested maybe there should be something from an employer, who
employs people in the occupations that the program is preparing people for, that at least
asserts that yes, the curriculum, the program that I've seen at this school is designed in a
way where it would prepare people for the jobs that I have in my particular business, so
we suggested that for new programs.
Now in every other issue in negreg, we got pretty good discussion at the table, sometimes
we actually got consensus from the group on what we should actually, how regulation
should actually be worked out. But for some reason on the gainful employment issue, we
didn't get the kind of discussion that would at least help to guide in a very constructive
way the direction, and to know well, this would be okay with certain kinds of schools but
wouldn't be okay with other kinds of schools.
Instead the reaction from, in particular those who were representing the for-profit
colleges, was you can't do this, you can't define this term, why are you doing this, and
that continued even after the NegReg sessions. We continued to meet. We have gotten
improved input, improved feedback. And where things stand now with whole regulatory
[package,] so everything I've just discussed now including the gainful employment, is
that in the next few weeks there will be proposed rule published in the federal register.
There will be a comment period after that proposed rule is publi shed. That will be the
appropriate time to suggest changes or express support for provi sions, suggest
alternatives, and then a final rule, our goal would be to publish a final rule by November
1st. For rules to take effect in general next year from this July, they need to be published
by November 1st. So that's where we will be, that's the timeline for the rule going
forward.
I wanted to conclude my remarks before going to some Q&A and some discussion with a
piece that Thomas Frank wrote in the Wall Street Journal. The title of the article is,
"Obama and the Regulatory Capture," and it is again, back about the financial regulation.
" It was not merely structural problems that Jed certain regulators to nap through the crisis.
The people who filled regulatory jobs in the past administration were asleep at the switch
because they were supposed to be. It was as though they had been hired for their
extraordinary powers of drowsiness.
The reason for that is simple: There are powerful institutions that don't like being
regulated. Regulation sometimes cuts into their profits and interferes with their business.
So they have used the political process to sabotage, redirect, defund, undo or hijack the
regulatory state since the regulatory state was first invented."
So, he follows that up with one more line here, "And it created a situation where banking
regulators posed for pictures with banking lobbyists while putting a chainsaw to a pile of
regulations. Smiles all around. Let the fellows at lndyMac do whatever they want."
So my closing words, is, we should take the photos, we should smile, but lets not shirk
our responsibility for regulating the industry. The schools will make plenty of money and
students and taxpayers will be better off if we do our jobs as best as we can. Thank you
very much.
Host - Some time for questions and answers, and I know gainful employment will come
up, but first I want to j ust make a comment. I think most of the states, clearly the states in
the room, because the ones that aren' t in the room, there might not be a cognizant agency
that actually is involved in the regulation, if it' s a registration with the secretary of state
or what-have-you, but fortunately, there is another state within our state that someone can
go get a better rate at or what have you. So I think that's clearly one thing that I was
thinking about. There is an alternative on per se that the school has if they want to be
serving your students, they want to be in your state. They have a set of laws, a little bit
different, but I certainly appreciate the parallel, and I think important to add
Shireman - I was really more talking about the parallel with accrediting and it's not as
much of an issue with states
Host- Right so you know, I sympathize with that, good parallel. Did the Department,
was there any discussion when gainful employment issue was being looked at, to say, can
somehow the Department tap into information at the Department of Labor or at the prior
[X]. I understand there may be some challenges there, but we're trying to measure
whether or not this individual is 1), either employed or perhaps employed and had
benefited because of the education or training that they had received and somehow
reached their salary or what have you. Was there any discussion around that area, because
it seems like there may be some ways of doing that?
Shireman - Yes, one of the areas of discussion, so part of the areas we are looking at.;
some of the criticism that has been out there has been about the use of averages or 25th
percentile ofBLS occupational data. And the reason we suggested use ofBLS was not as
- it was actually as a way to reduce the work that would need to be done by whoever is
coming up with the income information. So for example, it's going to be the schools
having to figure out what their graduates earned, we figured why not just have a level
that's an average based on the industry that will eliminate a lot of the school's need to
follow up and look at their own graduates. In other words, if it meets - if the debt I
income ratio is fine given the earnings in the occupation generally, you don't need to
worry about it as a school. Just look at your debt and if it's okay, fine. You only need to
look more detailed if you don't, if it doesn't beat it that way, because maybe your
graduates are earning something more. It was really to try to reduce the number that
would have to go through a process, either using IRS data or a state data system. States
like Florida are in a much better position to be able to look individual programs and have
this kind of information using their UI, unemployment insurance, database. So there's a
lot that can be done there, and the discussion at and since negotiated rulemaking has
helped us to think through those issues.
Host - Know there's going to be some questions ...
Michael Cooney- Bob, [part] of your presentation is, do you believe that for profit
institutions are serving their students well?
Shireman - I think they have to be given their demand, given the number of people that
are going to for-profit institutions, I think it's, I think they are, absolutely. All of them for
all students, I think that's where our role comes in
Cooney - Following up on that, then your gainful employment provisions as we
understand it, according to CCA would approximate 300K students from the possibilities
of receiving an education. Is that an unintended consequence or are you all cognizant of
that?
Shireman- There isn't a proposal, and my argument with the- and I've had these
conversations directly with CCA, is work with us about what the definition should be. So
we can get in- what they've done is say, 8% Department of Labor statistics, these folks
are crazy! But the reality is, the only way to get to a rule that makes sense, and we need
to have a definition, is to get down in the weeds and start working out the details. And
they and others have come back with, I'd say some more constructive thoughts in recent
weeks, and those will be considered in the proposed rule, and then they' ll be further input
that I hope we'll get in a final rule.
[Ken MiJJer] -Mr. Shireman, I'm concerned about national averages. Some states are in
much better shape employment-wise than others. I'm from Ohio, a county in Ohio that
has 17% unemployment. Question- how can you adjust this rule, this definition, for
those kinds of anomalies between states, and should you?
Shireman- So using actual data from students as was suggested would deal with that
completely. The BLS data actually is available on a state basis so that could potentially
be another option. So this is where we are, we're open to suggestion and ideas about what
would be the best way, or whether it should be various possibilities that a school might
have an option to use. This is that input-seeking process for what would be the right kind
of approach. Again, part of the reason we just used the national average was because, to
eliminate a whole lot of work so that fewer needed to look in a more detailed way, and in
some ways I suppose if we had not suggested an approach to reducing work, we wouldn't
have had the BLS stuff on the table and wouldn't have the criticism, but I think it does
make sense, because it was a reasonable, work-reducing item that we put on the table
during negotiated rulemaking.
[Tom Cassell(?)] - Have you looked at the idea of a value-added concept in the
definition? Gainful to me means you've gained, improved. So if we looked at our
students and where they came to us and what their earnings were afterwards, a
measurement of change of gain as the definition?
Shireman - So specific suggestions about that proposal and how to do it, we welcome
that, I mean that's very useful. So in the proposed rule period, that's especially timely.
Make sure -- especially from this point forward -- make sure that ideas are considered,
that comment period after we publish the proposed rules. That' s the kind of thing that
would be great to work out the details and suggest it during that comment period.
[Keith Boss(?), Northwest Technical Institute) - Layers of control can sometimes
create layers of bureaucracy as you well know, you've got to struggle with that. There's
already [a measure] of default rate-- and we're very proud of our very low default rate --
was it ever considered that that's enough control to see that students have the ability to
pay off their student loans and why would there need to be more layers of control, more
bureaucracy than that?
Shireman - The discussion at the table around default rate bad to do with the fact that
the federal government has made sure that people who take out at least federal student
loans aren,t put in a situation where it's a choice between food on the table and paying
rent and paying off your student loan. So we have things like forbearance, and if you ask
for forbearance, you could make no payments at all and you're not in default, there's
income-based prepayment where you may be making nothing or next to nothing, but if
you're on income-based prepayment, there,s very low repayment or maybe nothing at all
and you're not in default. So default rate doesn' t measure whether or not people are
actually eaming any money.
[Ray]- One of the problems people have come to wrestle with this concept is that any
formula that is derived that results in the elimination of eligibility for a program has the
potential to have a school on the NE comer vs. a school n the SE corner delivering the
same program at the same level of efficiency and quality, but merely because of the
borrowing characteristics of their student population, one school's program could be
declared ineligible while the other school ' s program continues. Further, as you go
through this and eliminate program eligibility, the students don't go away, they seek out,
in many cases, the same education, in another institution. You could end up with a deluge
in the public institutions because they're not subject to the sanctions of a loss of
eligibility and yet, so it's okay to continue to train that person and for them to continue to
have debt and for state dollars to continue to subsidize their education at a public
institution but meanwhile the resulting product is the same?
Shireman - So what's your suggestion for a definition of gainful employment?
[Ray]- Well I don't know- I always thought it was defined in the IRS code, the Social
Security administration.
Shireman- I need a citation, tell me what we can do, as the US Department of Education,
to determine w h e t h e r ~ program is in or out.
[Ray)- I honestly don't know
Shireman -This is the problem. If you can't give me a definition, we' re not making any
progress. So anything - I can respond to the details of your question, things like the 90/ I 0
rule - any time you draw a line, there will be people right on one side and people on the
other side of the line that are very similarly-situated. But that's what lines are about, so
your suggestions about what would be, and I think asking your colleagues, your own
institution, how do we decide, how do we know our programs are eligible for financial
aid, would help for you to develop some suggestions for us.
Host - See I knew we should have had a workshop on gainful employment. We' ve all sat
around trying to figure it out. .. we have some good thinkers in the room.
Russell- APEI - I have sort of a detailed question I'm going to pose for you. You
mentioned earlier [xx] with regard to Title IV funds, but those funds are not necessarily
earmarked specifically for education costs, or direct education costs, and I think we all
recognize the reality is that many student do in fact realize substantial amount of money
for ... incidental spending, a new car, walking around, whatever. My question is, let's
take a scenario where an individual sent to community college for a couple years borrows
$35-40k, then that graduate comes to APEI system, where it will cost you $30k to get a
BA degree from start to finish, we inherit $35-40K worth of debt and add it to the $30k
the student incurs with us, we've got $75-80k of debt. Is that going to count against us for
the purposes of calculating gainful employment?
Shireman - We haven' t proposed a rule yet but what we discussed a the table in
negotiated rulemaking, the answer would be no. That's because we proposed using the
median, and using the median means that all those outliers don't pull up the average. It's
the median, schools don't generally have more than half of their students coming in with
huge amounts of debt from someplace else. Now there' s also the option in the rule of
saying, it's only debt you incur at the institution, so in the proposed rule in the comment
period will be the time to look back to a particular issue. There's debt I income ratio in
the rule, and you can provide commentary. Again this is the kind of thing, the kind of
discussion we needed a year ago and have begun to get recently and I really do appreciate
because they're useful and constructive discussions to have.
Russell- Well the reason, ifl can just add another comment to that, I think it's important
to have [other debt] considered because if you take that approach that I'm only
accountable for my own debt -
Shireman - Right, so to be clear, it's just a proposed rule. Comment period, final rule.
So we've gotten this kind of input, they' ll be a proposed rule. If we haven't addressed
this issue and it needs to be addressed further in your view, there will be another
opportunity for you beyond the opportunities you've had in the last several weeks.
Russell- The one thing I would like not to see happen is that for admissions staff to say
we don't want to admit you because you've got debt.
Shireman- Understood.
(NA] -Can you tell me how this would apply to a public university or state college?
Shireman - Well what we discussed at the table, in negotiated rulemaking - and I keep
repeating that because the "this"- we haven' t proposed anything, we brought discussion
items to the table during Negotiated Rulemaking, but it would mean that for shorter term
certificate programs, if more than half of the completers had debt, then the median debt
level of all completers, in other words not just the debt level of those who borrowed, but
the median debt level of all the people who complete the program, that would be the debt
level that would be compared against the expected earnings in the occupation the
program is preparing people for or the set of occupations. And then the discussion earlier
was about well, do you use actual earnings for people who are in the program or do you
use averages or 25
1
h percentile with BLS so there's that question about what the measures
of income should be, so that would be- the concept was that as a standard. And again, at
the table we also had other suggestions for an institution if they meet that
particular measure like graduation placement rates and loan prepayment rate.
[NA)- So are you going to be asking them to post their placement rates as welV
Shireman- Well placement rates have to be posted starting this July anyway, or
placement information. if you have rates need to be posted.
[NA]- So if they don't do it now, if they don' t have placement info now ... ?
Shireman- Placement information was done as part of a rule done in - Congress
required all schools to post placement information in the Higher Education Opportunity
Act, and that goes into effect under the rule that was adopted last year so that goes into
effect this July.
[John Weir(?)] -From a state regulatory perspective, appreciate the Dept' s effort to try
to address the cost issue, and one of the things that we've found at the state level is that
students don't seem to be price conscious when it comes to education. And what do you
think we can do at the state level to help make students better consumers, particularly as
to the cost issue?
Shireman - I think we've seen some improvement in that because of the economic
downturn, are seeing families shop more and really look at, does it really make sense for
me to spend $30-40K a year, what about the state university ... what about other options?
So I think it has improved somewhat, but more needs to be done. There will be, again
because of the Higher Education Opportunity Act, starting I believe this summer, schools
will now post net tuition - I can't remember if it's net tuition or net cost of attendance-
anyway some net figures by income bands so people will actually be able to go and say,
for someone in my family income background, it's more common to pay this price rather
than the other price. And starting in, I think it's a year and a half, all colleges will have to
have a net cost calculator, where a person can put in their income and other basic
information and get a basic sense of what their net cost would be. So that helps to deal
with some of the issues, we've provided some more tools to help people get more
information and to help them also deal with reality that sometimes a college that looks
really expensive based on its sticker price for a particular family, especially lower income,
may not actually be that expensive. So there's some new tools coming forward. I do
worry that just more infonnation on the Internet doesn't really help that much, and that
figuring out who we can provide tools more directly to teachers, counselors, people at
one stop job training centers. You know, our Website, when people are actually applying,
fmding those moments, those teachable moments when people are actually thinking
through these issues, so suggestions you have about the ways that we can do that, Pell
programs, state programs- we're certainly interested in ideas. It's important and not
easy to figure out how you teach the vast public things that aren't simple.
[Julie] -I guess this is more of a comment, but im somewhat concerned about the
potential for consumer confusion with the net cost calculator and different types of
disclosers about tuition. I know at the state, Pm in Tennessee, we've required that our
enrollment agreements contain the total cost of the program for a very long time. We now
require that the tuition rate be posted on the Internet, we've required disclosure of
completion, referral rate, placement rates for a good while. We now do in depth audits of
placement data, so if student looks at our Website, it's likely the numbers that they'll see
are going to be very different from maybe what they see on the F AFSA or some other
disclosure on the federal side. So how do we address the very likely possibility of
confusion, not knowing different methodologies and standards?
Shireman- I think you're right, there is going to be confusion. And even me, when I
first started talking about net tuition, I couldn't remember, is it net tuition, is it net cost?
What's included in the definition? And I think there will be confusion, I guess the
positive side of that is, usually when you take a step and it creates those problems, it then
forces us all to sit down and say, how can we improve on what we had come up with
originally? Sort of like, data that' s not perfect. Like, we can' t post that data, it' s not
totally clean. But the way to get people to clean their data is, you post it. And when we
started posting the student debt data that universities bad reported to US News & World
Report, and universities would call and say, well that's not our figure and we'd say, well
that's what you reported to US News. And they'd go back, and sure enough, somebody
had reported something wrong, so I think that you're right, there will be some confusion
but that will probably force the issue to some degree. But I'd also welcome - I mean I'd
love to look at what Tennessee does and take it to some of our folks and ask about what
we can do, A lot of- for some reason Congress in the education space, especially the
higher education space, gets very detailed in the legislation's actual statutory language,
which then makes it very difficult for us in the implementation to do things differently
that what they had proscribed. So we may not have a lot of flexibility in terms of our
implementation but maybe there's some suggestions we could make back to Congress by
pointing out to them these issues for particular states.
[Ray)- There seemed to be a reluctance on the part ofDepartment officials as well as
most people in the room during the NegReg process to talk about the troublesome aspect
of schools not being able to limit student borrowing. It seems that we have a statute, a
rule that leaves the amount that students borrow entirely up to them. It's based on
formulas, numbers across [] program lengths are mandated by state laws in many fields
of training, [licensure], all these things are out of the control of the institution, they
cannot seem to limit the amount that students borrow except in very specific case-by-case
basis, and then they subject themselves to lawsuits by students claiming they were
discriminated against. Might there be any opportunity to open up and look at some of
those rules so that we might be able to avoid some serious unintended consequences of a
formula that could cause havoc?
Shireman - Student loan program and the Pell grant program are entitlements. They are
entitlements for covering tuition, fees, books, supplies, room & board, and to restrict an
entitlement program is a pretty big deal, and that's why it's difficult for us to do in terms
of regulations. Now you do have the ability, if you believe someone would default on
their loan, I think that's the ability that the financial aid administrators have ... you' re also
able to establish what you feel to be reasonable expenses including in the room & board
space. But restricting loans beyond that would likely be something Congress would need
to consider, and l think part of the reason Congress has had a hard time thinking this one
through is higher education has benefitted enormously from Pell grants and student loans,
Pell grants working like an entitlement program on an annual basis, and student loan
programs being an entitlement program. And going down the road of starting to restrict
the entitlement, I think is something to do very cautiously if we want to make sure people
get the need they are eligible for.
END.
April 30, 2010
Investment Analysis:
His tone in general is much less severe than was characterized in the Inside Higher Education account of the
speech from yesterday, He presents as a reasonable person struggling with accountability gaps that he
perceives exist in the system. In his account of the neg-reg process for example, he implies that industry's
mistake was in not taking seriously enough from the outset the Department's desire to get at the definition of
gainful employment. He expresses regret that industry was not engaged a year-ago in the sort of dialog it is
having currently with the department.
Unlike the rhetoric in the press, he does not seem to give undue credence to negative stories about struggling
students, merely expressing that those stories do exist. He also gives ample recognition to the important role
played by industry in responding to the legitimate demand that other areas of higher education are ill-equipped
to address.
At the same time, he expresses extreme confidence in his -- and the Department's -- ability to solve all the
problems and even expresses peevish annoyance at one point with Congress' seeming desire to
micro-manage the Department through the specificity of the law's provisions. The implication is that the
Department knows best what needs to be done. He clearly views the Department's fundamental role as that of
regulator and the analogy he draws with the financial crisis seems less about ascribing nefarious motives to
industry that about assuring that the Department does not face the kind of embarrassment faced by the SEC.
More materially, he describes working with the SEC, the Federal Trade Commission and the Department's
Office of Inspector General to obtain and clarify data that can be used in assessing the compliance of operators
in the space. From his remarks, I believe we can now safely conclude that the SEC's investigation of Apollo
stems directly from work undertaken by the Department of Education. Though the SEC operates independently,
we may also conclude that to the extent Apollo is able to substantially address the Department's concerns, it
may go a long way toward avoiding escalation with the SEC. in his remarks he expressly states that the rigor of
the Depar tment's oversight has and will continue to increase.
Revealing for us as well was his focus on the corporate parentage of schools rather than the schools
themselves. When he cites the YTD increases In Pell grant funding for example, he references Corinthian
rather than Everest, Apollo rather than University of Phoenix, Bridgepoint rather than Ashford University and
aggregates the data for all of the individual entities inside Washington Post company. Investors should not be
surprised by this but there should be no doubt that as regulators, the Department is focused on the company's
themselves.
Though in his remarks Mr. Shireman derides Wall Street analysts' parsing his words and expressly states that
he intends to say nothing new. in parsing his words, her find evidence of something new.
On the more discouraging front, Mr. Shireman expresses a clear view that regardless of the final rules, the
school companies will be just fine. His remarks seem to express little regard for the financial challenges that
could ensue from more severe regulations. Referencing the Finance industry where regulators and industry
were seen as too close, Mr. Shireman says,
"We should take the photos, we should smile, but let's not shirk our responsibility for regulating the industry.
The schools will make plenty of money and students and taxpayers will be better off if we do our jobs as best
as we can."
On the more encouraging front, Mr. Shireman also seems to imply that the draft of the rules will include some
input from the discussions the Department has had with industry to date, Incorporating some constructive
changes, but that at the same time, there will be opportunity for the rules to change again before November:
"The only way to get to a rule that makes sense, and we need to have a [gainful employment] definition, is to
get down in the weeds and start working out the details. And they [CCA) and others have come back with, I'd
say some more constructive thoughts in recent weeks, and those will be considered in the proposed rule, and
then they'll be further input that I hope we'll get in a final rule."
Important Disclosures
Post-Secondary Education 17
April 30, 2010
Analyst Certification
I, Trace Urdan, hereby certify that all of the views expressed in this research report accurately reflect my
personal views about the subject securities or issuers. I also certify that no part of my compensation was, is or
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Post-Secondary Education
18
Robert Shireman
Speech to NASASPS
April28, 2010
Transcript provided by the Career Education Review
Michael J. Cooney, Editor
mcooney@workforce-com.com
... And I had forgotten to put the F AFSA simplification applause line into my actual
remarks so I have applaud when he said it so it never fails and of course - it's not often-
sometimes it's the thing I get questions about but more often its about things like two Pctl
awards, two programs in an award year, things more detailed like that. But thank you so
much for that introduction.
Two and a half or three years ago, we started to see a serious economic slide downward
in this country, credit markets had seized up, the sub prime mortgage issue was a major
cause of that and we started seeing ppllosing their jobs. We saw ppl in their jobs feeling
much more insecure, much less secure about their ability to invest in higher education,
their ability to buy a home w the collapse of the credit markets and the way to solve that
- long term- is to invest in improving our nations economy, to invest in the kind of
innovation that comes from education, the productivity increases that come from job
training.
In order to foll ow up on that President Obama laid out a bold goal for he country, he said
that by 2002 we want to regain our place as the number one country in the world in tenns
of adults with post sec credentials, college degrees, certificates and other job training
programs. In the recovery legislation, now about a yr and a half ago, that included an
expansion of the tax credits that [x] hoping to create in the 90s, an expansion of that tax
credit to $2500, making it for 4 yrs and actually covering more of the types of expenses
that students and families have for higher education. Increases in Pell grants - the usual
approach and what you have seen in your own states, are in an econ downturn, more ppl
are poor, more ppl want to go to school, but instead of following up on that need by
putting more money onto the grant and scholarship programs actually less money goes
into the grant and scholarship programs be of the state budgets.
Fed govt took the opposite approach really, what needs to be countercyclical spending
that helps - like unemployment insurance - spending that needs to follow up on and help
to address the new gaps that families are seeing- so the tax credits were part of that, the
increases in Petl grants are not only meeting the new demand for Pelt grant dollars but
actually increasing he size of the Pell grants and proving those increases into the future
with the follow up legislation passed a few weeks ago. Also restoring some certainty to
the student loan program, and making sure that no one has any reason to doubt whether
they will be able to get the federal student loans that they need, again with the reforms
that were implemented a few weeks ago.
I mentioned that when people are losing their jobs, when ppl become insecure in their
jobs, they look for higher education, they look to find what kind of job training can I get,
what kind of skills can I add to my repertoire, what are the skills that I have, how can I
make them better so that ill keep my job, so that if I lose my job !'11 have options. And at
the same time, while we saw this increase in demand, which is helpful and useful given
what the President had to say about the need to train our population, we saw state tax
revenue declining in all but a few states, we saw resulting cuts in the budgets of state
colleges and universities and community colleges, resulting in a combination of very
large increases in tuition in some cases and reduced enrollments, fewer seats. So
increased demand- ppl wanting more education and training, and public institution either
had fewer seats and charging more tuition or might not declare going to be enrolling
fewer ppl but their course offerings are cut, fewer kinds of course offerings, so the result
is they are not able to demand for higher education.
Tuition-driven institutions didn't react that way because they're tuition-driven institutions,
and the non-profit institutions have done pretty well despite significant declines in their
endowments because there continued to be significant demand for higher education. The
public., the non profit private col1eges did well and in particular the for profit institutions
have come in with investors making sure that there was capacity to be able to serve
additional students, and they knew that those students would come with those federal
dollars, Pel! grants, student loans, tax credits and that hat would help them to not only be
consumers who want higher ed but consumers who can pay for that higher education with
that federal support so the for-profit industry, more than any other in this economic
difficult times, has responded.
I want to give you some specific numbers, we now post now on one of the [X] websites,
the quarterly numbers ofPell grants by different kinds of schools s I looked at what the
first 3 quarters -the total of the first 3 quarters of this award year compared to the last
award year for some of the schools that I knew would be here today. So for example,
Corinthian Colleges- 38% increase for first 3 quarters this year compared to last year for
a total of $800M
DeVry- a couple people here from DeVry? - 42% increase up to $1.7B
ITT - you guys here? A 44% increase up to $623M
Strayer- still here? Is that you? Well this one - 95% increase, may be something about
the quarters, but up to $414M
APEI- Wally here? And Russell? 94% increase up to $44M
Kaplan- they here? So this total is actually all the Washington Post owned entities, 33%
increase up to $909M, and again this is the first 3 quarters of the year so the totals for the
year are obviously more than that
Career Education Corporation- 29% increase up to $1B this first three quarters
EDMC- several folks here; a 16% increase, $1.18
Capella - over there? 40% increase to $378M
And I think I've just got a couple of others:
Grand Canyon- 55% increase to $260M
And University of phoenix- you there?- 9% increase but obviously that's on a larger
base. So probably that increase is as much as a lot of others' total dollars, and that
increase is $2.7b total
And Bridgepoint- you guys here?- 61% increase, $393M
I think those were all that I had numbers for, obviously 1 know that there's a few others
here as well.
So I wanted to begin just by thanking the for-profit industry for responding to the critical
demands from ppl out there who need higher education. I'd like everybody to give them a
band. Now, others of us in the room have the responsibility for making sure those federal
funds I just listed, for education and training, that it's all totally above board. That those
significant increases in fed spending for higher education- loans, grants - are serving
students and tax payers as welt as they possibly can. and that is what the Triad is about-
and I know 1 can say triad in front ofthis audience because I heard somebody say it
earlier. I want to talk for a second about some things going on in Washington right now,
and I don' t mean negotiated rulemaking - 1 will get to that in a few minutes, but there is a
wall street reform debate going on right now in Washington. What happened in that
credit crisis a couple of years ago had something to do with credit rating agencies-
agencies like S&P, Fitch, other agencies that were responsible for rating instruments-
financial instruments, looking at what is the quality of these things that have names that
cause people's eyes to roll over- things like collateralized debt obligations, and other
kinds of securitizations - so what is the quality of the loans, mortgages, are they going to
be repaid, bow likely are theses loans to be repaid so that an investor purchasing this,
bow confident can they be that when they purchase, when they invest in this particular
instrument, that they will get the money back that they are expecting.
The business model for these rating agencies has come under fire in these meetings in
Washington, part of this has to do with the business model of the rating agencies, on the
one hand, their responsibility, their job, the core of their business was to make sure they
did a good job providing an honest rating for the instrument that they were analyzing. On
the other hand, they relied on the income from the companies who asked them to rate the
instrument, and ill read to you from - a NYTimes- some of the emails that have been
coming out recently.
In 2004, well before wall street's bets on subprime mortgages became widely known,
employees at Standard & Poor's credit rating agency were feeling pressure to expand the
business. One employee warned in an internal email that the company would lose
business if it failed to give high enough ratings to collateralized debt obligations, the
investments that later emerged at the heart of the financial crisis.
Quote, " we are meeting with your group this week to discuss adjusting criteria for rating
COOs of Real estate assets be of the ongoing threat of losing deals. Lose the CDO and
lose the base business. A self reinforcing loop"
In other words, if we don't loosen up, we don't loosen up in our assessment of these
instruments, nobody is going to come have their instruments assessed by us anymore.
And this created a conflict which Jed to instruments that should have been questioned not
being questioned, and [leading] over to the financial crisis that we have been suffering
from for the past couple of years.
The other issue besides the business model was the complexity and fast growth of diff
kinds of instruments and ill read from another of the recent articles. "Email documents
and other messages suggested that executives and analysts at ratings agencies embraced
new business from Wall Street even though they recognized that they couldn't properly
analyze all of the banks' products. And one of the other quotes ends with, " we were so
overwhelmed."
So I want to actually ask, on that issue, the complexity and growth, and I know we're
feeling this with publicly traded corporations and purchases going this way and that way,
and we're trying to figure out what's going on. Are there regulators in the room who feel
like you DO have the analytical firepower you need to assess what is going on with the
entities you regulate in higher education? Those who do feel you have the firepower you
need? I don't think we feel we have the firepower we need.
So the refonn back on the financial instrwnent side of the equation, what they're really
talking about now in Washington on financial reform, one analyst - an academic looking
at what's going on, said it only tinkers with the workings of the ratings agency, it doesn't
end the inherent conflicts of interest, those conflicts of interest where the ppl who do the
rating are paid for by those who do the ratings. This whole situation w credit agencies,
credit rating agencies, is, as I see it, very similar to the way accrediting agencies work in
this country. The same kind of inherent conflict of interest. Albeit accrediting agencies
are nonprofit and on top of that, what would this crisis look like if the banks had actually
been the ones running the credit agencies and were doing a peer review kind of model,
which is the model we have in accreditation, where it is the regulated who are reaJJy
looking at each other rather than an outside entity.
So to borrow from Winston Churchill, accreditation, as a part of that triad, in terms of a
way of assessing quality in higher education, is the worst form of accountability except
for all of the others. What Winston Churchill actually said was, democracy is the worst
form of government, except for all the others. So I am bringing up this issue of
accreditation not to say that we should back away from it or change it, I actually don't
have a better system for us for assessing quality in higher education. But it is problematic
and we need to remember that as the other two pieces of the triad, as we figure out how
we can do the best job possible in our responsibilities. Federal and state governments
cannot rely on accreditation to insure that conswners and taxpayers are protected t the full
extent that they need to be- all three legs of that three legged stool need to be working
and working well.
There are a number of things that we're doing, you've heard about some of them-
elevating, monitoring and enforcement, we're working with the inspector general at the
department of education, taking a much closer look at data than ever before to help guide
our selection for program reviews and investigations when necessary by the inspector
general, working with he federal trade commission to join their consumer complaint
system so complaints they get and other agencies that are on their consumer sentinel,
working on the issue ofhow we can look more at issues of misrepresentation as we do
program reviews and other kinds of monitoring.
A second area besides the monitoring and enforcement is improving consumer
information. We have put graduation rates, retention rates and transfer rates right on the
F AFSA fonn when students are choosing colleges, the rates are right there as a reminder
to students that they should do some good shopping, look at various kinds of data that
might help them to compare schools. We're also providing them with a more detailed
financial aid estimate in terms of the financial aid that they can get and this is partly to
make sure that people know they can get that aid wherever they go. Sometimes students
think, oh I can get that $12K because the school costs $12K, and I would only get $3k at
a community college that only cost $3K, not realizing hat in fact if they wanted to get
more than what tuition costs at that community college so that they can focus on their
studies instead of working excessive hours, that that is something that they can have
available to them.
And starting this summer, as a result of a regulatory process that has already completed,
schools will have to begin providing placement information and where the have
placement rates, they actually will need to make students aware on their websites of
placement rates they have for programs that they are offering.
Uh coordination and sharing, I head some of the discussion in prior sessions and I look
forward to this afternoons discussion. Within the federal government, we are working
with the Fed trade commission, the veterans administration around the GI bill, the SEC
because of the involvement of publicly traded institutions, states we have encouraged
involvement in this group and are looking for other ways that we can help. Happy to
discuss that in q&a here as well as this afternoon because we really need to become good
partners if we're going to do best by taxpayers and students.
And accreditors, there are some new requirements, we're working on sharing some draft
guidance related to all of the requirements for accreditors and again building that triad
and all working together. In fact, I was actually on the internet looking for a three legged
stool to see ifl could bring one for this, and I noticed one of the three legged stools had a,
not only the three legs, but it had this connecting piece of wood that held the three legs
together, and I thought, well that would be the perfect prop, because that would
demonstrate it's a strong stool ifthat connecting - that connector is there, making it as
strong as possible.
Also, may of you have heard, reviewing the rules and regulations and where appropriate
revising, in the process of revising those rules. Let me take a little bit of time to tell you
about some of those. We started about a year ago, doing public hearings where we
basically said, we want to know whether we need to improve program integrity, are thee
things we need to be doing? Here's a list of some areas, misrepresentation - definition of
credit hour, state authorization, other kinds of things, and we saw input. We did 3 public
hearings, ppl were able to submit items over the internet, through email, and we got a lot
of input about great schools out there, students who were having a good experience,
people who attended the schools, got a job, had a great experience. We also heard from
former students who felt that they were misled, legal aid attorneys who had clients whose
stories were cause for concern.
That was followed up by - we asked for nominations for ppl to serve on committees- the
way this whole process works is that we do our best to work through possible rule
changes with a committee of stakeholders, recommended, nominated by interested parties,
states, various institutions, student organizations, legal aid.fr 3 weeklong sessions,
December, January and February went through each of 14 issues talking about, changes
that might make sense.
One of them, misrepresentation, clarification really against misrepresentation by schools.
High school diploma- one of those things that you take to somebody and think, how
hard can it be to know if a high school dimple is valid?? As you know, not that easy and
many of you are at the state level so you know that the state isn't necessaril y declaring
who is good or bad. And the issue of the federal government declaring what is a valid HS
education, for example, gets into areas where the def government isn't supposed to be
declaring such things, so I think a more complicated issue than I think a lot ofppl
expected. We are making - at least in NegReg session - reached some tentative
agreement around the definition.
I would say the most significant thing we are doing is looking at- and I think this is now
a likelihood, when people apply on the FAFSA and it asks for a HS diploma, a list will
actually pop up and they can enter what that high school is, the name of that high school
based on some feral lists we have. It wont necessarily mean that it will be a valid high
school, but it does give us and you the ability to, if for example a suspected diploma miJI,
we would be able to see who are, where are the students going who are using this
particular high school as the place they say they get their diploma from. And if we find
that its some particular colleges, that means that it might b encouraging ppl to go and use
and diploma mill. So it will be a useful took for us and you as well., and that's the most
important change we'll be making there.
Incentive compensation was a major issue, the issue of paid recruiters. A number of
years ago, a number of safe harbors were created and there was a lot of indication that
they were wider loopholes than are appropriate given the wording of the actual law that
prohibits payment of actual compensation based on enrollment. So that's another one that
we are working on.
State authorization, I heard California mentioned and it was a surprise to me when I came
to Washington and asked about California to discover that a legal interpretation of the
Dept of Ed, well if the school is not not authorized, then it is authorized. So this a raised
question that came up in NegReg about what is at least some minimum standard about
what kind of authorization should count in tenns of the state role in that Triad.
Satisfactory academic progress is another area taking attendance. What I used to call
R1D2, return to tile 4. and I'm not mentioning all of the issues, but the final one I will
talk some about is Gainful Employment, and this is the one that' s been in the news a lot.
It seems that every time I speak somewhere, something thinks I said something new and
calls a stock analyst who then reports it causing the stocks to go up or down or whatever,
and I assure you I am not going to say anything new. If you are a stock analyst or you
know a stock analyst, the answer when they ask you, What did Shireman say? You say
nothing new.
So the statute, the federal law requires that in order for some programs to be eligible for
federal financial aid, they have to lead to gainful employment in a recognized occupation.
This applies to non degree programs at any type of school and it applies to most programs
at for-profit schools, really all except some BA, liberal arts programs through an
exception, a recently enacted exception, that actually begins this July 1
51
but for the most
part, a for-profit institution, in order to be eligible for federal financial aid, has to show
that the program leads to gainful employment or prepares the student for gainful
employment in a recognized occupation.
So a year ago, we began asking the question, what is the definition, what should db e the
definition of gainful employment in a recognized occupation. We had hoped that perhaps
some schools would come forward and say, well when we start a program, here's how we
determine whether or not it complies .. we didn't get that kind of information.
We brought it up in NegReg and made some suggestions for discussion. We suggested,
maybe there should be some relationship to the debt levels that students are taking on and
the expected earnings that they may have from the occupations that you have identified
that you are preparing people for. We also suggested that perhaps a Joan repayment rate
approach could be devised where we would be able to see that federal loans are actually
being repaid at a rate that makes sense if ppl were actually gainfully employed.
We looked at the provision and current regulation that currently applies to very short
programs, the 70170 rule. So 70% completion rate, 70% placement rate, and asked should
something like that be part of the definition of gainful employment? And then for new
programs, we suggested maybe there should be something from an employer, who
employs ppl in the occupations that the program is preparing people for, that at least
asserts that yes, the curriculum, the program that ive seen at this school is designed in a
way where it would prepare people for the jobs that I have in my particular business, so
we suggested that for new programs.
Now in every other issue in negreg, we got pretty good discussion at the table, sometimes
we actually got consensus from the group on what we should actually, how regulation
should actually be worked out. But for some reason on the gainful employment issue, we
didn' t get the kind of discussion that would at least help to guide in a very constructive
way the direction, and to know well, this would be okay with certain kinds of schools but
wouldn't be okay with other kinds of schools.
Instead the reaction from, in particular those who were representing the for-profit
colleges, was you cant do this, you cant define this term, why are you doing this, and that
continued even after the NegReg sessions. We continued to meet, we have gotten
improved input, improved feedback. And where things stand now with whole regulatory
packed, so everything I've just discussed now including the gainful employment, is that
in the next few weeks there will be proposed rule published in the federal register. There
will be a comment period after that proposed rule is published. That will be the
appropriate time to suggest changes or express support for provisions, suggest
alternatives, and then a final rule, our goal would be to publish a final rule by November
l st. For rules to take effect in general next year from this July, they need to be published
by November l
5
t. So that's where we will be, that's the timeline for the rule going
forward.
I wanted to conclude my remarks before going to some Q&A and some discussion with a
piece that Thomas Frank wrote in the WSJ. The title of the article is, "Obama and the
Regulatory Capture," and it is again, back about the financial regulation.
"It was not merely structural problems that led certain regulators to nap through the crisis.
The people who filled regulatory jobs in the past administration were asleep at the switch
because they were supposed to be. It was as though they had been hired for their
extraordinary powers of drowsiness.
The reason for that is simple: There are powerful institutions that don't like being
regulated. Regulation sometimes cuts into their profits and interferes with their business.
So they have used the political process to sabotage, redirect, defund, undo or hijack the
regulatory state since the regulatory state was first invented."
So, he follows that up with one more line here, "And it created a situation where banking
regulators posed for pictures with banking lobbyists while putting a chainsaw to a pile of
regulations. Smiles all around. Let the fellows at IndyMac do whatever they want."
So my closing words, is, we should take the photos, we should smile, but lets not shirk
our responsibility for regulating the industry. The schools will make plenty of money and
students and taxpayers will be better off if we do our jobs as best as we can. Thank you
very much.
Host - Some time for questions and answers, and I know gainful employment will come
up, but first I want to just make a comment. I think most of the states, clearly the states in
the room, because the ones that aren't in the room, there might not be a cognizant agency
that actually is involved in the regulation, if it's a registration with the secretary of state
or what-have-you, but fortunately, there is another state within our state that someone can
go get a better rate at or what have you. So I think that's clearly one thing that I was
thinking about. There is an alternative on per se that the school has if they want to be
serving your students, they want to be in your state. They have a set of laws, a little bit
different, but I certainly appreciate the parallel, and I think important to add -
Shireman- I was really more talking about the parallel with accrediting and it's not as
much of an issue with states
Host- right so you know, I sympathize with that, good parallel. Did the Dept, was there
any discussion when gainful employment issue was being looked at, to say, can somehow
the Dept tap into information at the Dept of Labor or at the prior (X]. I understand there
may be some challenges there, but we're trying to measure whether or not this individual
is 1, either employed or perhaps employed and had benefited because ofthe education or
training that they had received and somehow reached their salary or what have you. Was
there any discussion around that area, because it seems like there may be some ways of
doing that?
Shireman - Yes, one of the areas of discussion, so part of the areas we are looking at. ;
some of the criticism that has been out there has been about the use of averages or 25
1
h
percentile of BLS occupational data. And the reason we suggested use of BLS was not as
- it was actually as a way to reduce the work that would need to be done by whoever is
coming up with the income information. So for example, it's going to be the schools
having to figure out what their graduates earned, we figured why not just have a level
that's an average based on the industry that will eliminate a lot of the school's need to
follow up and look at their own graduates. In other words, if it meets - if the debt I
income ratio is fine given the earnings in the occupation generally, you don't need to
worry about it as a school. Just look at your debt and if it' s okay, fine. You only need to
look more detailed if you don't, if it doesn't beat it that way, because maybe your
graduates are earning something more. It was really to try to reduce the number that
would have to go through a process, either using IRS data or a state data system. States
like FLare in a much better position to be able to look individual programs and have this
kind of information using their UI, unemployment insurance, database. So there's a lot
that can be done there, and the discussion at and since negotiated rulemaking has helped
us to think through those issues.
Host- know there's going to be some questions ...
Michael Cooney - Bob, (part] of your presentation is, do you believe that for profit
institutions are serving their students well?
Shireman - I think they have to be given their demand, given the number of people that
are going to for-profit institutions, I think it's, I think they are, absolutely. All of them for
all students, I think that's where our role comes in
Cooney- following up on that, then your gainful employment provisions as we
understand it, according to CCA would approximate 300K students from the possibilities
of receiving an education. Is that an unintended consequence or are you all cognizant of
that?
Shireman- there isn't a proposal, and my argument with the - and ive had these
conversations directly with CCA, is work with us about what the definition should be. So
we can get in -what they've done is say, 8% pure labor statistics, these folks are crazy!
But the reality is, thee only way to get to a rule that makes sense, and we need to have a
definition, is to get down in the weeds and start working out the details. And they and
others have come back with, id say some more constructive thoughts in recent weeks, and
those will be considered in the proposed rule, and then they'll be further input that I hope
we' ll get in a final rule.
[Ken Miller) - Mr. Shireman, im concerned about national averages. Some states are in
much better shape employment-wise than others. I'm from Ohio, a county in Ohio that
has 17% unemployment. Question- how can you adjust this rule, this definition, for
those kinds of anomalies between states, and should you?
Shireman - So using actual data from students as was suggested would deal with that
completely. The BLS data actually is available on a state basis so that could potentially
be another option. So this is where we are, we're open to suggestion and ideas about what
would be the best way, or whether it should be various possibilities that a school might
have an option to use. This is that input-seeking process for what would be the right kind
of approach. Again, part of the reason we just used the national average was because, to
eliminate a whole lot of work so that fewer needed to look in a more detailed way, and in
some ways I suppose if we had not suggested an approach to reducing work, we wouldn't
have had the BLS stuff on the table and wouldn' t have the criticism, but I think it does
make sense, because it was a reasonable, work-reducing item that we put on the table
during negotiated rulemaking.
[Tom Cassell(?)) have you looked at the idea of a value added concept in the
definition?
Gainful to me means you've gained, improved. So if we looked at our students and
where they came to us and what their earnings were afterwards, a measurement of change
of gain as the definition?
Shireman - so speci fic suggestions about that proposal and how to do it, we welcome
that, I mean that's very useful. So in the proposed rule period, that's especially timely.
Make sure, Especially from this point forward, make sure that ideas are considered, that
comment period after we publish the proposed rules. That's the kind of thing that would
be great to work out the details and suggest it during that comment period.
(Keith Boss (?),Northwest Technical Institute) - layers of control can sometimes
create layers of bureaucracy as you well know, you've got to struggle with that. There's
already of default rate, and we're very proud of our very low default rate, was it ever
considered that that's enough control to see that students have the ability to pay off their
student loans and why would there need to be more layers of control, more bureaucracy
than that?
Shireman - the discussion at the table around default rate had to do with the fact that the
federal government has made sure that ppl who take out at least federal student loans
aren't put in a situation where it's a choice between food on the table and paying rent and
paying off your student loan. So we have things like forbearance, and if you ask for
forbearance, you could make no payments at all and you're not in default, there's income
based prepayment where you may be making nothing or next to nothing, but if you're on
incomebased prepayment, there's very low repayment or maybe nothing at a II and
you're not in default. So default rate doesn't measure whether or not people are actually
earnmg any money.
[Ray]- one of the problems ppl have come to wrestle with this concept is that any
formula that is derived that results in the el imination of eligibility for a program has the
potential to have a school on the NE comer vs. a school n theSE comer delivering the
same program at the same level of efficiency and quality, but merely because of the
borrowing characteristics of their student population, one school's program could be
declared ineligible while the other school's program continues ... further, as you go
through this and eliminate program eligibility, the students don' t go away, they seek out,
in many cases, the same education, in another institution. You could end up with a deluge
in the public institutions because they're not subject to the sanctions of a loss of
eligibility and yet, so it' s okay to continue to train that person and for them to continue to
have debt and for state dollars to continue to subsidize their education at a public
institution but meanwhile the resulting product is the same?
Shireman - so what's your suggestion for a definition of gainful employment?
[Ray)- well I don' t know- I always thought it was defined in the IRS code, the Social
Security admin ....
Shireman- I need a citation, tell me what we can do, as the US Dept of Ed, to determine
whether a program is in or out.
[Ray] - I honestly don't know
Shireman - this is the problem. If you cant give me a definition, we're not making any
progress. So anything- I can respond to the details of your question, things like the 90/10
rule - any time you draw a line, there will be people right on one side and people on the
other side of the line that are very similarly situated. But that's what lines are about, so
your suggestions about what would be, and I think asking your colleagues, your own
institution, how do we decide, how do we know our programs are eligible for finical aid,
would help for you to develop some suggestions for us.
Host- see I knew we should have had a workshop on gainful employment.. we've all sat
around trying to figure it out. .. we have some good thinkers in the room ..
Russell- APEI - I have sort of a detailed question im going to pose for you. You
mentioned earlier [xx] with regard to title IV funds, but those fund are not necessarily
earmarked specifically for education costs, or direct education costs, and I think we all
recognize the reality is that many student do in fact realize substantial amount of money
for impotent, incidental spending, a new car, walking around, whatever. My question is,
lets take a scenario where an individual sent to community college for a couple years
borrows $35-40k, then that graduate comes to APEI system, where it will cost you $30k
to get a BA degree from start to finish, we inherit $35-40K worth of debt and add it to the
$30k the student incurs with us, we've got $75-80k of debt. Is that going to count against
us for the purposes of calculating gainful employment?
Shireman - we haven't proposed a rule yet but what we discussed a the table in
negotiated rulemaking, the answer would be no. That's because we proposed using the
median, and using the median means that all those outliers don' t pull up the average. It's
the median, schools don't generally have more than half of their students coming in with
huge amounts of debt from someplace else. Now there's also the option in the rule of
saying, it's only debt you incur at the institution, so in the proposed rule in the comment
period will be the time to look back to a particular issue. There' s debt I income ratio in
the rule, and you can provide commentary. Again this is the kind of thing, the kind of
discussion we needed a year ago and have begun to get recently and I really do appreciate
because they're useful and constructive discussions to have.
Russell - well the reason, if I can just add another comment to that, I think it's important
to have [other debt] considered because if you take that approach that im only
accountable for my own debt -
Shireman - Right, so to be clear, it's just a proposed rule. Comment period, final rule.
So we've gotten this kind of input, they'll be a proposed rule. If we haven' t addressed
this issue and it needs to be addressed further in your view, there will be another
opportunity for you beyond the opportunities you've had in the last several weeks.
Russell - The one thing I would like not to see happen is that for admissions staff to say
we don't want to admit you because you've got debt.
Shireman - understood.
[NA]- can you tell me bow this would apply to a public university or state college?
Shireman - well what we discussed at the table, in negotiated rulemaking - and I keep
repeating that because the "this" - we haven't proposed anything, we brought discussion
items to the table during Negotiated rulemaking, but it would mean that for shorter term
certificate programs, if more than half of the completers had debt, then the median debt
level of all completers, in other words not just the debt level of those who borrowed, but
the median debt level of all the people who complete the program, that would be the debt
level that would be compared against the expected earnings in the occupation the
program is preparing people for or the set of occupations. And then the discussion earlier
was about well, do you use actual earnings for people who are in the program or do you
use averages or 25
1
h percentile with BLS so there's that question about what the measures
of income should be, so that would be- the concept was that as a standard. And again, at
the table we also had other suggestions for an institution if they didn't meet that
particular measure like graduation placement rates and loan prepayment rate.
(NA)- so are you going to be asking them to post their placement rates as welV
Shireman- well placement rates have to be posted starting this July anyway, or
placement information. if you have rates, rates need to be posted.
(NA)- so if they don't do it now, if they don't have placement info now . . .
Shireman -placement information was done as part of a rule done in - Congress
required all schools to post placement information in the Higher Education Opportunity
Act, and that goes into effect under the rule that was adopted last year so that goes into
effect this July.
(John Weir(?)) - from a state regulatory perspective, appreciate the Dept's effort to try
to address the cost issue, and one of the things that we've found at the state level is that
students don't seem to be price conscious when it comes to education. And what do you
think we can do at the state level to help make students better consumers, particularly as
to the cost issue?
Shireman- I think we've seen some improvement in that because of the economic
downturn, are seeing families chop more and really look at, does it really make sense for
me to spend $30-40K a year, what about the state university ... what about other options?
So I think it has improved somewhat, but more needs to be done. There will be, again
because of the Higher Education Opportunity Act, starting I believe this summer, schools
will now post net tuition - I cant remember if it's net tuition or net cost of attendance-
anyway some net figures by income bands so people will actually be able to go and say,
for someone in my family income background, it's more common to pay this price rather
than the other price. And starting in, I think it's a year and a half, all colleges will have to
have a net cost calculator, where a person can put in their income and other basic
information and get a basic sense of what their net cost would be. So that helps to deal
with some of the issues, we've provided some more tools to help people get more
information and to help them also deal with reality that sometimes a college that looks
really expensive based on its sticker price for a particular family, especially lower income,
may not actually be that expensive. So there's some new tools coming forward. I do
worry that just more information on the internet doesn't really help that much, and that
figuring out who we can provide tools more directly to teachers, counselors, people at
one stop job training centers. You know, our website, when people are actually applying,
finding those moments, those teachable moments when people are actually thinking
through these issues, so suggestions you have about the ways that we can do that, Pell
programs, state programs- we're certainly interested in ideas. It's important and not
easy to figure out how you teach the vast public things that aren't simple.
[Julie] -I guess this is more of a comment, but im somewhat concerned about the
potential for consumer confusion with the net cost calculator and different types of
disclosers about tuition. I know at the state, I'm in Tennessee, we've required that our
emollment agreements contain the total cost of the program for a very long time. We now
require that the tuition rate be posted on the internet, we've required disclosure of
completion, referral rate, placement rates for a good while. We now do in depth audits of
placement data, so if student looks at our website, it's likely the numbers that they'll see
are going to be very different from maybe what they see on the F AFSA or some other
disclosure on the federal side. So how do we address the very likely possibility of
confusion, not knowing different methodologies and standards?
Shireman - 1 think you're right, there is going to be confusion. And even me, when I
first started talking about net tuition, 1 couldn't remember, is it net tuition, is it net cost?
What's included in the definition? And 1 think there will be confusion, I guess the
positive side of that is, usually when you take a step and it creates those problems, it then
forces us all to sit down and say, how can we improve on what we had come up with
originally? Sort of like, data that's not perfect. Like, we cant post that data, it's not
totally clean. But the way to get people to clean their data is, you post it. And when we
started posting the student debt data that universities had reported to US News & World
Report, and universities would call and s a y ~ well that's not our figure and we'd say, well
that's what you reported to US News. And they'd go back, and sure enough, somebody
had reported something wrong, s I think that you're right, there will be some confusion
but that will probably force the issue to some degree. But id also welcome - I mean I'd
love to look at what Tennessee does and take it to some of our folks and ask about what
we can do, A lot of - for some reason Congress in the education space, especially the
higher education space, gets very detailed in the legislation's actual statutory language,
which then makes it very difficult for us in the implementation to do things differently
that what they had prescribed. So we may not have a lot of flexibility in tenns of our
implementation but maybe there's some suggestions we could make back to Congress by
pointing out to them these issues for particular states.
[Ray]- there seemed to be a reluctance on the part of Dept officials as well as most
people in the room during the NegReg process to talk about the troublesome aspect of
schools not being able to limit student borrowing,. It seems that we have a statute, a rule
that leaves the amount that students borrow entirely up to them. It's based on formulas,
numbers across [] program lengths are mandated by state laws in many fields of training,
[licensure], all these things are out of the control of the institution, they cannot seem to
limit the amount that students borrow except in very specific case-by-case basis, and then
they subject themselves to lawsuits by students claiming they were discriminated against.
Might there be any opportunity to open up and look at some of those rules so that we
might be able to avoid some serious unintended consequences of a fonnula that could
cause havoc?
Shireman- student loan program and the Pell grant program are entitlements. They are
entitlements for covering tuition, fees, books, supplies, room & board, and to restrict an
entitlement program is a pretty big deal, and that's why ifs difficult for us to do in terms
of regulations. Now you do have the ability, if you believe someone would default on
their loan, I think that's the ability that the fin aid administrators have ... you're also able
to establish what you feel to be reasonable expenses including in the room & board space.
But restricting loans beyond that would likely be something Congress would need to
consider, and I think part of the reason Congress has had a hard time thinking this one
through is higher education has benefitted enormously from Pell grants and student loans,
Pell grants working like an entitlement program on an annual basis, and student loan
programs being an entitlement program. And going down the road of starting to restrict
the entitlement, I think is something to do very cautiously if we want to make sure people
get the need they are eligible for.
END.
GAINFUL EMPLOYMENT TALKING POINTS
(b)(5)
Homeless Dropouts From High School Lured by For-Profit Colleges
2010-04-30 04:01 :00.4 GMT
By Daniel Golden
April 30 (Bloomberg)-- Benson Rollins wants a college
degree. The unemployed high school dropout who attends
Alcoholics Anonymous and has been homeless for 10 months is
being courted by the University of Phoenix. Two of its
recruiters got themselves invited to a Cleveland shelter last
October and pitched the advantages of going to the country's
largest for-profit college to 70 destitute men.
Their visit spurred the 23-year-old Rollins to fill out an
online form expressing interest. Phoenix salespeople then
barraged him with phone calls and e-mails, urging a tour of its
Cleveland campus. "If higher education is important to you for
professional growth, and to achieve your academic goals, why
wait any longer? Classes start soon and space is limited," one
Phoenix employee e-mailed him on April 15. 'Til be happy to
walk you through the entire application process. "
Rollins's experience is increasingly common. The boom in
for-profit education, driven by a political consensus that all
Americans need more than a high school diploma, has intensified
efforts to recruit the homeless, Bloomberg Businessweek magazine
reports in its May 3 issue. Such disadvantaged students are
desirable because they qualify for federal grants and loans,
which are largely responsible for the prosperity of for-profit
colleges. Federal aid to students at for-profit colleges jumped
to $26.5 billion in 2009 from $4.6 billion in 2000. Publicly
traded higher education companies derive three-fourths of their
revenue from federal funds, with Phoenix at 86 percent, up from
just 48 percent in 2001 and approaching the 90 percent limit set
by federal law.
Biweekly Stipend
The privately held Drake College of Business, which trains
people to be medical and dental assistants, relied on taxpayers
for 87 percent of its revenue in 2007. Almost 5 percent of the
student body at its Newark, New Jersey, branch is homeless, says
Jean Aoun, director of admissions and student services there.
Late in 2008, it began offering a $350 biweekly stipend to
students who show up for 80 percent of classes and maintain a
"C" average.
"It's basically known in the community: If you're
homeless, and you need some money, go to Drake," says Carmella
Hutson, a case manager at the Goodwill Rescue Mission in Newark,
where about 20 clients have enrolled at Drake in the past two
years. "It would put money in my pocket, help me buy a car,"
adds Jerome Nickens, 45, who lived at the mission when he talked
to a Drake representative but decided not to enroll.
Formal Investigation
After Bloomberg Businessweek called the Accrediting Council
for Independent Colleges & Schools to inquire about the
stipends, the council opened an investigation into the college' s
recruitment practices. The inquiry could lead to revoking
Drake's accreditation, leaving it ineligible for federal aid.
Chancellor University in Cleveland, which counts Jack Welch
as an investor and features a weekly video for students by the
former General Electric Co. chief executive, explicitly focused
recruiting efforts on local shelters after it realized that
Phoenix, owned by Apollo Group Inc., was doing so. Chancellor
has stopped pursuing the homeless, and Phoenix says any
recruiting by its employees in Cleveland shelters was
unauthorized. Phoenix's business code prohibits recruiting at
shelters, and any employee violating the ban could face
termination, Apollo says.
Phoenix wants to ensure that "only students who have a
reasonable chance to succeed enroll in our programs," Apollo
spokesman Manny Rivera said in an e-mai l.
Welfare Population
Other schools see nothing wrong with reaching out to the
disadvantaged. "We don't exclusively target the homeless,"
says Ziad Fadel , chief executive of Drake, which also sends
recruiters to welfare and employment agencies. "We are in a
community that is low-i ncome and happens to have a lot of people
on welfare."
The every-other-Friday payment encourages Drake students to
stay in school and graduate, he says. The stipend, which about
three-fourths of Drake's 1,200 students receive, is not "a
gimmick to just get students in the front door," Fadel says. He
adds that a sample analysis of 30 graduates placed by Drake's
career services office found "some very substantial
improvements in income."
While many caseworkers for the homeless are gratified by
the attention, some see only exploitation. The companies "are
preying upon people who are already vulnerable and can't make it
through a university," says Sara Cohen, a case manager at
Shelter Now in Meriden, Conn. "It's evil."
The current state of for-profit education has an element of
deja vu. Twenty years ago the sector had grown wild and unruly,
as fly-by-night trade schools siphoned off students from welfare
and unemployment lines, ostensibly to train them as truck
drivers or hairdressers. Often these enterprises provided little
or no schooling; their aim was the federal student aid. Default
rates on student loans skyrocketed to 22 percent before Congress
enacted tough regulations in 1992. Among them were limits on
default rates for individual colleges as well as a cap on the
percentage of their revenue that they could receive from the
government. The schools were also forbidden to pay recruiters
based on how many students they enrolled.
The reforms injected discipline into the industry and
brought down default rates. Then, a decade later, the Bush
administration relaxed the ban on incentive compensation for
recruiters, opening the door for the aggressive wooing of the
homeless.
'Targeting vulnerable populations who are not likely to
benefit is one example of overzealous recruiting that can be
driven by paying based on enrollment numbers," says Robert
Shireman, Deputy Under Secretary of the U.S. Education
Department, which is pushing to tighten the rules.
Unleashing Potential
The Bush Administration also sought to unleash online
education's potential. Phoenix now boasts 458,600 students, with
more than 200,000 in its two-year online program. Enrollment in
for-profit colleges grew to 1.8 million in 2008 from 673,000 in
2000. Revenue rose to an estimated $29.2 billion this year from
$9 billion in 2000, says Jeffrey Silber, an analyst for BMO
Capital Markets in New York. Operating margins averaged 21
percent in 2009; schools typically charge $10,000 to $20,000 a
year, well above comparable programs at community colleges.
The industry is now fully mainstream. Goldman Sachs Group
Inc. owns 38 percent of the for-profit Education Management
Corp. in Pittsburgh, which has 136,000 students in programs
ranging from fashion to culinary arts, and former President Bill
Clinton took a position as honorary chancellor of Laureate
International Universities, owned by Baltimore-based Laureate
Education Inc. Investors are flocking to the industry, drawn by
the stability of government funding and the profit potential of
online classes. But some of the unsavory practices that spurred
Congress to act are springing back to life, with a new wrinkle
or two.
Homeless Circuit
In Cleveland, Chancellor and Phoenix were both hitting the
homeless shelters last year. Byron Thompson, who joined Phoenix
in 2009 as a recruiter, soon made presentations at Y Haven,
Salvation Army Harbor Light and Transitional Housing, all of
which serve the city's homeless.
Thompson, 29, says the recruiting served a social purpose:
"I feel the homeless are a real population that can't be
ignored." Borrowing by the homeless to pay tuition "is no
different from a middle-class student who has to take out a
loan," he says. He also hoped to boost his pay. "The month I
signed up two or three women from Transitional Housing was a
good month," he admits. (Phoenix recruiters in Cleveland had a
quota of five students a month, according to a former employee.)
Legal Settlement
Thompson, who left Phoenix in January, acknowledges that
his bosses didn't endorse his efforts to recruit the homeless.
Apollo Group agreed last December to pay $78.5 million to settle
a federal lawsuit in California alleging that compensation for
Phoenix recruiters violated restrictions on incentive pay. The
company, which admitted no wrongdoing, says it's changing its
compensation model.
While Thompson says he was "welcomed with open arms" at
the shelters, some staff members were wary. "The question in my
mind about Phoenix was, 'Why are they doing this?"' says Bruce
Shagovac, a counselor at Y Haven. "There's got to be some
payoff for them.''
One homeless woman whom Thompson steered to Phoenix was
Marisol Lugo. Lugo ran away from her Chicago home at age 12,
became a heroin addict, and lived on the streets for 22 years,
eating out of restaurant trash bins and sleeping in parks and
abandoned cars. After detox, she moved in 2008 to Transitional
Housing, obtained a high school equivalency degree, and got to
know Thompson. "He gave me wonderful words of encouragement,"
says Lugo.
With federal grants and loans covering the $10,000-plus
annual tuition, she began pursuing a twoyear business degree
online at Phoenix last August. She soon ran into academic
difficulties, failing a course in critical thinking.
Retaining Information
"Sometimes, having used so much drugs, I have trouble
retaining information," says Lugo, who now has her own
apartment and a maintenance job at the shelter. According to
Phoenix. she left the school in November. She says she is still
registered and there is a payment dispute.
Phoenix's forays into shelters were noted by a new
Cleveland rival. In 2008, investors bought nonprofit Myers
University, which was under court receivership, and renamed it
Chancellor. A year later Welch acquired a stake in it; the
university named its new master's degree program in business
administration after him, and Welch helped develop the
curriculum.
At a faculty function last August, Darius Navran, dean of
Chancellor's School of Professional Studies, sought out Jeffrey
Perkins Jr., an adjunct professor of public administration, and
asked how Chancellor could boost its enrollment of about 400.
Nontraditional Students
"If we don't tap into that population, Phoenix will,"
Perkins says he told Navran, meaning the homeless. The dean
agreed.
Chancellor's small classes and low student-to-faculty ratio
are suited to nontraditional students such as the homeless,
Perkins says. He eMmailed managers of Cleveland social service
agencies in September, inviting them to a lunch at Chancellor to
"discuss our new plans to recruit the economically
disadvantaged and atMrisk groups. Many of them are targeted for
on-site recruitment at local transitional housing, halfway
houses, and other human service facilities."
Sixteen human services managers showed up for the lunch.
Two days later, in a memo to Navran, Perkins predicted that the
program would produce "a minimum of at least 10 enrollees by
spring term."
'Heavy-Handed'
In the ensuing weeks, Perkins and other Chancellor
officials gave presentations at a dozen social service programs.
Their pitch was "very heavy-handed," says Phillip Hines,
housing coordinator for the Community Women's Shelter. "It was
beating the drum, 'Go to Chancellor. This is what we offer.
Financial aid, financial aid, financial aid."'
Afterward, Hines says, Chancellor hounded him with phone
calls and e-mails to "get these women rolling." Chancellor's
initiative reaped only one or two students and was discontinued.
It "had all the best intentions," CEO Bob Barker said inane-
mail, "but the time and effort generated very little
interest."
In one view, the rise of for-profit colleges represents a
laudable merger of public interest and the private sector. With
public colleges beset by budget cuts, for-profit colleges offer
an opportunity for people who are down and out to get ahead.
Students with no assets or collateral can tap federal grants and
loans on the theory that degrees will lead to well-paying jobs
that enable borrowers to repay.
Tuition Hikes
The trouble is the cost. Education companies charge high
prices that require students to take on debt. Chancellor charges
$9,750 a year -- about four times the $2.400 tab at nearby
Cuyahoga Community College. Poor students can pay Cuyahoga's
tuition with federal grants and don't have to take out loans.
Student advisers from Cuyahoga make the rounds at Cleveland area
shelters, helping the homeless choose colleges and fill out
applications.
And for-profit tuitions are rising fast. Drake hiked its
tuition from $4,000 in 2007-2008 to $15,700 this year, which
Fadel attributes to new equipment and additional staff.
Borrowers who earned bachelor's degrees from for-profit colleges
in 2007-2008 had a median debt of $32,653, well above the
$22,375 and $17,700 for graduates of four-year private nonprofit
and public colleges, respectively.
Such burdens can be difficult for homeless people who are
more likely to suffer from mental illness and substance abuse
than the general population. Bad credit doesn't go away easily.
In the Cleveland shelters, you can still find people with trade
school debts from 20 years ago. Those who don't repay their
student loans may forfeit their chances for public housing and
are also ineligible for federal financial aid to return to
college.
Default Consequences
"If the homeless have a bad student loan, they can't find
a place to live, they can't go back to school. and in this
economy there's not a lot of work," said Ardretta Jones, a case
manager at Tacoma Rescue Mission in Tacoma, Washington, "That
leaves a person with no options."
Because they don't have to repay their educational loans
until they leave school , some homeless students spend beyond
their means. Kim Rose, a recovering crack cocaine addict and ex-
offender in Raleigh, North Carolina, began pursuing an online
bachelor's degree in business last November at Capella Education
Co.'s Capella University, based in Minneapolis. At the time she
was staying in a drug-free program with Internet access.
Big Splurge
Rose, 38, receives almost $4,000 each academic quarter in
federal grants and loans for tuition and living expenses. She
splurged last Christmas, spending $700 of her financial aid on
presents for her seven-year-old son, who has lived with his
grandmother. "I got him everything he wanted," Rose said in a
telephone interview. "Games, toys. He's a guitar freak, I got
him a guitar. To make up for me not being there."
In February, Rose moved into a shelter where the only
computer was broken. As a result, she has struggled to keep up,
dropping an English composition course. Rose isn't typical of
Capella students, most of whom are midcareer professionals
seeking graduate degrees, says university spokeswoman Irene
Silber: "We would not intentionally recruit someone who is in a
life crisis, much less one as significant as homelessness."
Given the troubled pasts of some homeless students, even a
college education hardly assures a well-paying job. Brenda
Torchia, another recovering crack cocaine addict in Raleigh who
has served several prison terms for drug offenses, was in a
shelter and looking online for work when she saw an ad that
asked if she wanted to further her education. She answered yes
and was directed to the website of a for-profit school called
ECPI College of Technology based in Virginia Beach, Virginia.
Placement Test
Torchia applied, passed a placement test, and started
ECPI's medical administration program on March 1. The 40-year-
old mother of four is borrowing about half of the $23,000 tab
from the federal government, with grants and scholarships paying
the rest. ECPI officials are aware of her background and
"guarantee me a job in
Winters, Deborah
From:
Sent:
To:
Subject:
Thanks
(b)(5)
Erceg, Marta
Wednesday, April28, 2010 12:04 PM
Rogers, Margot
RE: Media reports - background for noon meeting
DeVry leads ed, stocks lower as Credit Suisse downgrades on regulatory, job market concerns
Associated Press
04/26/10 9:30 AM PDT
NEW YORK - DeVry led decliners in education stocks Monday after a Credit Suisse analyst said
the for-profit school could be hurt by proposed regulatory changes and an improving job
market that could slow enrollment.
1
The administration has pushed hard for gainful employment regulations, which stipulate that
graduates of schools must not spend more than 8 percent of their income on paying student
loans.
It's meant to help improve school quality- making sure students are qualified and the
courses help increase their incomes - as student loan defaults soar.
If schools failed to pass this test, the government could block their access to federal loans
for students, the bulk of their revenues.
In early April, the Education Department said schools with 59 percent graduation rates and 79
percent job placement rates would be exempt from a proposed rule linking graduates' incomes
to required debt payments.
Analyst Kelly Flynn, however, said Washington sources believe the more lenient proposal might
not wind up in a draft of the law that will be posted by mid-May or June.
Flynn downgraded DeVry and ITT Educational Services Inc. to "neutral" from "outperform,"
cutting target prices to $65 from $75 and $119 from $135, respectively.
Shares of DeVry Inc. fell $4.59, or 6.6 percent, to $64.87, while ITT stock dropped fell
$2.97, or 1.8 percent, to $199.71.
Shares of Apollo Group Inc., which runs the largest for-profit school, the University of
Phoenix, also slid 93 cents, or 1.5 percent, to $62.69, while Corinthian Colleges Inc. stock
fell 59 cents, or 3.3 percent, to $17.3e. Career Education Corp. fell 61 cents, or 1.8
percent, to $33.49 and Strayer Education Inc. dropped $2.54, or 1 percent, to $259.49.
Meanwhile, Flynn cited DeVry's warning on slower enrollment growth in one of its divisions
and ITT's warning on higher advertising spending.
For-profit schools have seen big gains in enrollment because of the recession and high
unemployment. As the job market improves, people may not feel as much as a need to bolster
their resumes.
APRIL 26, 2e1e, 19:57 A.M. ET
Debt, Job Rule Uncertainty Hits Shares Of For-Profit Colleges NEW YORK (Dow Jones)--A
government proposal to hold colleges accountable for graduating students with high debt loads
2
and low income levels came front and center
1
again
1
after Credit Suisse analysts reversed
their assumption that the Department of Education had softened its stance on the subject.
Monday morning, Credit Suisse issued a note saying the Department of Education has returned
to a stiffer set of rules on post-graduation debt and gainful employment levels that colleges
must meet. The news hit share prices of for-profit universities that had rallied on expected
softer rules.
Credit Suisse downgraded ITT Educational Services Inc. (ESI) and DeVry Inc. (DV) to neutral
from outperform and slashed their price targets, citing the potential fallout from their new
take on gainful employment as well as concerns of countercyclicality. ITT recently was off
2.9% to $108.53, while DeVry was down 6.5% to $64.96. Credit Suisse had upgraded the schools
two weeks ago.
Other for-profit schools, including Strayer Education Inc. (STRA), Career Education Corp.
(CECO), Corinthian Colleges Inc. (COCO) and Apollo Group Inc. (APOL), were also trading down.
The Department of Education originally said schools could face scrutiny that could put
federal assistance--often the primary revenue stream for for-profit colleges--at risk if they
did not have at least a 70% graduation rate and 70% job placement in field of study. Two
weeks ago, Credit Suisse, and others, sent out notes saying they believe the Department of
Education had softened the graduation level to 50%, sending shares higher, with some hitting
52-week highs.
"Oddly, we suspect the big upward move the stocks had when the investment community found out
about the 50% exemption may have led to pressure on the DOE to remove the 50% exemption," the
firm wrote Monday.
Some education insiders have had mixed feelings on predicting the gainful-employment measure,
arguing that it's improper to say what the Department of Education will put forth and it's
best to wait until the official proposal is released for public comment. That will happen by
mid-June.
"I'm not sure who thinks they have what access to what's in this draft," said one for-profit
school official, but "I would really not be jumping to any conclusions just yet." He said
there's no way of knowing "whether it's been hardened, softened, pureed, whatever."
Representatives from the Department of Education weren't immediately available for comment.
http://online.wsj.com/article/BT-C0-20100426-710339.html?mod=rss_Hot_Stocks
Georgia Yuan
Deputy General Counsel
Postsecondary Education and Regulatory Service U.S. Department of Education 400 Maryland
Avenue SW 6E341 washington, DC 20202 202-401-6000
3
Winters, Deborah
From:
Sent:
To:
Subject:
(b)(5)
Rogers, Margot
Wednesday, April28, 2010 12:03 PM
Mitchelson, Mary
FW: Media reports - background for noon meeting
DeVry leads ed. stocks lower as Credit Suisse downgrades on regulatory, job market concerns
Associated Press
04/26/10 9:30AM PDT
NEW YORK- DeVry led dec liners in education stocks Monday after a Credit Suisse analyst said the for-profit school could
be hurt by proposed regulatory changes and an improving job market that could slow enrollment.
The administration has pushed hard for gainful employment regulations, which stipulate that graduates of schools must not
spend more than 8 percent of their income on paying student loans.
It's meant to help improve school quality - making sure students are qualified and the courses help increase their incomes -
as student loan defaults soar.
If schools failed to pass this test, the government could block their access to federal loans for students, the bulk of their
revenues.
In early April, the Education Department said schools with 50 percent graduation rates and 70 percent job placement rates
would be exempt from a proposed rule linking graduates' incomes to required debt payments.
Analyst Kelly flynn, however, said Washington sources believe the more lenient proposal might not wind up in a draft of the
law that will be posted by mid-May or June.
Flynn downgraded DeVry and ITT Educational Services Inc. to "neutral " from cutting target prices to $65 from
$75 and $110 from $135, respectively.
Shares ofDeVry Inc. fell. $4.59, or 6.6 percent, to $64.87, while ITT stock dropped fell $2.07, or 1.8 percent, to $109.71.
Shares of Apollo Group Inc., which runs the largest for-profit school, the University of Phoenix, also slid 93 cents, or 1.5
percent, to $62.60, while Corinthian Colleges Inc. stock fell 59 cents, or 3.3 percent, to $17.30. Career Education Corp. fell 61
cents, or 1.8 percent, to $33.49 and Strayer Education Inc. dropped $2.54, or I percent, to $250.49.
4
Meanwhile, Flynn cited De Vry's warning on slower enrollment growth in one of its divisions and ITT's warning on higher
advertising spending.
For-profit schools have seen big gains in enrollment because of the recession and high unemployment. As the job market
improves, people may not feel as much as a need to bolster their resumes.
APRIL 26, 201 0, 10:57 A.M. ET
Debt, Job Rule Uncertainty Hits Shares Of For-Profit Colleges
NEW YORK (Dow Jones)--A government proposal to hold colleges accountable for graduating students with high debt
loads and low income levels came front and center, again, after Credit Suisse analysts reversed their assumption that the
Department of Education had softened its stance on the subject.
Monday morning, Credit Suisse issued a note saying the Department of Education has returned to a stiffer set of rules on
post-graduation debt and gainful employment levels that colleges must meet. The news hit share prices of for-profit
universities that had rallied on expected softer rules.
Credit Suisse downgraded ITI Educational Services Inc. (ESI) and DeVry Inc. (DV) to neutral from outperform and
slashed their price targets, citing the potential fallout from their new take on gainful employment as well as concerns of
countercyclicality. ITI recently was off 2.9% to $108.53, while DeVry was down 6.5% to $64.96. Credit Suisse had
upgraded the schools two weeks ago.
Other for-profit schools, Including Strayer Education Inc. (STRA), Career Education Corp. (CECO) , Corinthian Colleges
Inc. (COCO) and Apollo Group Inc. (APOL), were also trading down.
The Department of Education originally said schools could face scrutiny that could put federal assistance--often the
primary revenue stream for for-profit colleges--at risk if they did not have at least a 70% graduation rate and 70% job
placement in field of study. Two weeks ago, Credit Suisse, and others, sent out notes saying they believe the Department
of Education had softened the graduation level to 50%, sending shares higher, with some hitting 52-week highs.
"Oddly, we suspect the big upward move the stocks had when the investment community found out about the 50%
exemption may have led to pressure on the DOE to remove the 50% exemption," the firm wrote Monday.
Some education insiders have had mixed feelings on predicting the gainful-employment measure, arguing that it's
improper to say what the Department of Education will put forth and it's best to wait until the official proposal is released
for public comment. That will happen by mid-June.
"I'm not sure who thinks they have what access to what's in this draft," said one for-profit school official , but "I would really
not be jumping to any conclusions just yet. " He said there's no way of knowing "whether it's been hardened, softened,
pureed, whatever."
5
http://online.wsj.com/article/BTC020100426710339.html?mod=rss Hot Stocks
Georgia Yuan
Postsecondary Education and Regulatory Service
400 Maryland Avenue SW 6E341
202-40 1-6000
6
Winters, Deborah
From:
Sent:
To:
Subject:
(b)(5)
Rogers, Margot
Wednesday, Apri128, 2010 12:02 PM
Erceg, Marta
FW: Media reports w background for noon meeti'ng
DeVry leads ed. stocks lower as Credit Suisse downgrades on regulatory, job market concerns
Associated Press
04/26/10 9:30AM PDT
NEW YORK - DeVry led decliners in education stocks Monday after a Credit Suisse analyst said the forwprofit school could
be hurt by proposed regulatory changes and an improving j ob market that could slow enrollment.
The administration has pushed hard for gainful employment regulations, which stipulate that graduates of schools must not
spend more than 8 percent of their income on paying student loans.
It's meant to help improve school quality - making sure students are qualified and the courses help increase their incomes -
as student Joan defaults soar.
lfschools failed to pass this test, the government could block thei r access to federal loans for students, the bulk of their
revenues.
In early Apri l, the Education Department said schools with 50 percent graduation rates and 70 percent job placement rates
would be exempt from a proposed rule linking graduates' incomes to required debt payments.
Analyst Kelly Flynn, however, said Washington sources believe the more lenient proposal might not wind up in a draft of the
Jaw that will be posted by midwMay or June.
Flynn downgraded DeVry and ITT Educational Services Inc. to "neutral" from "outperform," cutting target prices to $65 from
$75 and $1 IO from $135, respectively.
Shares of DeVry Inc. fell $4.59, or 6.6 percent, to $64.87, while ITT stock dropped fell $2.07, or 1.8 percent, to $109.71.
Shares of Apollo Group Inc. , which runs the largest forwprofit school, the University of Phoenix, also slid 93 cents, or 1.5
percent, to $62.60, while Corinthian Colleges Inc. stock fell 59 cents, or 3.3 percent, to $17.30. Career Education Corp. fell 61
cents, or 1.8 percent, to $33.49 and Strayer Education Inc. dropped $2.54, or 1 percent, to $250.49.
7
Meanwhile, FlyM cited DeVry's warning on slower enrollment growth in one of its divisions and ITT's warning on higher
advertising spending.
For-profit schools have seen big gains in enrollment because of the recession and high unemployment. As the job market
improves, people may not feel as much as a need to bolster their resumes.
APRIL 26, 2010, 10:57 A.M. ET
NEW YORK (Dow Jones)-A government proposal to hold colleges accountable for graduating students with high debt
Credit Suisse downgraded ITT Educational Services Inc. (ESI) and DeVry Inc. (DV) to neutral from outperform and
countercyclicality. ITT recently was off 2.9% to $108.53, while DeVry was down 6.5% to $64.96. Credit Suisse had
Other for-profit schools, including Strayer Education Inc. (STRA), Career Education Corp. (CECO), Corinthian Colleges
primary revenue stream for for-profit colleges--at risk if they did not have at least a 70A> graduation rate and 70% job
improper to say what the Department of Education will put forth and it's best to wait until the offi cial proposal is released
"I'm not sure who thinks they have what access to what's in this draft," said one for-profit school official, but "I would really
not be jumping to any conclusions just yet." He said there's no way of knowing "whether it's been hardened, softened,
pureed, whatever."
Representatives from the Department of Education weren' t immediately available for comment.
8
http://online .wsj.com/article/BT-C0-20100426-710339.html7mod=rss Hot Stocks
Georgia Yuan
Postsecondary Education and Regulatory Service
400 Maryland A venue SW 6E34l
202-40 l-6000
9
Winters, Deborah
From:
Sent:
To:
(b)(5)
Rogers, Margot
Tuesday, April27, 2010 11:26 AM
Miller, Tony
APRIL 26, 2010, 10:57 A.M. ET
NEW YORK (Dow Jones)- A government proposal to hold colleges accountable for graduating students with high debt
10
Other for-profit schools, including Strayer Education Inc. (STRA), Career Education Corp. (CECO}, Corinthian Colleges
Inc. (COCO} and Apollo Group Inc. (APOL}, were also trading down.
primary revenue stream for for-profit colleges-at risk if they did not have at least a 70% graduation rate and 70% job
pureed, whatever."
Representatives from the Department of Education weren't immediately available for comment
http://online. wsj.com/article/BT -C0-20100426-710339. ht ml?mod=rss Hot Stocks
Sharon Mar
Policy Ana}ygt I Information Policy
OMB l Office ofinformation and Regulatory Affairs
Tel: 202.395.64661 Fax: 202.395.51671 smar(!yomb.eop.gov
11
Winters, Deborah
Sent: Tuesday, April27, 2010 11:23 AM
To: Yuan, Georgia; Rose, Charlie; Kanter, Martha
(b)(5)
APRIL 26, 2010, 10:57 AM. ET
NEW YORK (Dow Jones)--A government proposal to hold colleges acoountable for graduating students with high debt
loads and low inoome levels came front and center, again, after Credit Suisse analysts reversed their assumption that the
Credit Suisse downgraded ITI Educational Services Inc. (ESI) and DeVry Inc. (DV) to neutral from outperform and
countercyclicality. ITI recently was off 2.9% to $108.53, while DeVry was down 6.5% to $64.96. Credit Suisse had
12
The Department of Education originally said schools could face scrutiny that could put federal assistance-often the
j"
, primary revenue stream for for-profit colleges-at risk if they did not have at least a 70% graduation rate and 7 0 ~ job
I
(
i
'
exemption may have led to pressure on the DOE to remove the 5 0 ~ exemption," the firm wrote Monday.
pureed, whatever."
http://online. wsj .com/article/BT-C0-20100426-710339. html?mod=rss Hot Stocks
Sharon Mar
Policy Analys t I lnformat.ion Policy
OMB I Office oflnfonnation and Regulatory Affairs
Tel: 202.395.6466I 'Fax: 202.:395.51671 smar@omb.eop.gov
13
Winters, Deborah
From:
Sent:
To:
(b)(S)
Rogers, Margot
Tuesday, April27, 201011:23 AM
Miller. Tony
APRIL 26, 2010, 10:57 A.M. ET
14
placement in field of study. Two weeks ago, Credit Suisse. and others, sent out notes saying they believe the Department
pureed, whatever."
http://online.wsj.com/article/BT-C0-20100426-710339.html?mod=rss Hot Stocks
Sharon Mar
Policy Analyst I Information Policy
OMB j Office of Infnrmation and Regulatory Affairs
Tel: 202.:395.64661 Fax: 202.395.51671 sm<H@omb.eop.gov
15
Winters, Deborah
From:
Sent:
To:
(b)(5)
Miller, Tony
Rogers, Margot
APRIL 26, 2010, 10:57 AM. ET
NEW YORK (Dow Jones}--A government proposal to hold colleges accountable for graduating students with high debt
16
pureed, whatever."
http://online.wsj.com/article/BTC0-20100426-710339.html?mod=rss Hot Stocks
Sharon Mar
Policy Analyst. I Information Policy
OMB I Office ofinf<rrmation and Regulat.ory Affairs
Tel: 202.395.6466J Fax: 202.395.51671 smar@omh.eop.gov
17
Winters, Deborah
Sent: Tuesday, April27, 2010 11:12 AM
.on.;- .,.---------Miller.J ruw'-----------------------------
(b)(5)
APRIL 26, 2010, 10:57 A.M. ET
loads and low income levels came front and center. again, after Credit Suisse analysts reversed their assumption that the
countercyclicality. ITT recently was off2.9% to $10B.53. while DeVry was down 6.5% to $64.96. Credit Suisse had
18
Some education insiders have had mixed feelings on predicting the gainful-employment measure. arguing that it's
pureed, whatever."
http://online. wsj.com/article/BT -C0-20100426-710339.html?mod=rss Hot Stocks
Sharon Mar
Policy Analyst I Information Po.licy
OMB j Office of Information and Regulatory Affairs
Tel= 202.395.64661 Fax: 202.:395.51671 smat'@omb.eop.gov
19
Winters Deborah
From:
Sent:
To:
(b)(5)
Miller, Tony
Tuesday, April27, 2010 11:03AM
Rogers, Margot
APRIL 26, 2010, 10:57 A.M. ET
NEW YORK (Dow government proposal to hold colleges accountable for graduating students with high debt
debt and gainful employment levels that colleges must meet. The news hit share prices of
Other for
4
profit schools, including Strayer Education Inc. (STRA), Career Education Corp. (CECO), Corinthian Colleges
20
pureed, whatever."
http://online.wsj.com/article/BT-C0-20100426-710339.html?mod=rss Hot Stocks
Sharon Mar
Policy Analyst I Information Policy
OMB I Office of lnfurmat.ion and Regulatory Affairs
'I'd: 202.395.64661 Fa-x: 202.:395.51671 sm<n@omb.mlp.g<>v
21
Winters, Deborah
From:
Sent:
To:
Subject:
Attachments:
Rogers, Margot
Tuesday, Apri120, 2010 9:27AM
Rose, Charlie; Cunningham, Peter; Gomez, Gabriella
FW: Letter to Hon. Tony Miller
Letter to Hon. Tony Miller 4-19-10.pdf
Forwarding so we ali have this before our conversation later this week. Thanks.
From: Yale, Matt
Sent: Tuesday, April 20, 2010 8:37 AM
To: Duran, Maribel
Cc: Rogers, Margot
Subject: FW: Letter to Hon. Tony Miller
Can you pis print for AD
Thanks,
my
From; AndrewS. Rosen rmailto:andrew.s.rosen@kaplan.coml
Sent: Monday, April 19, 2010 7:01 PM
To: Miller, Tony
Cc: Kanter, Martha; Martin, Carmel; Shireman, Bob; Yale, Matt; Yuan, Georgia; Fine, Stephanie; Rebecca Campoverde
Subject: Letter to Hon. Tony Miller
Dear Tony:
Thank you for inviting us to meet with you and your team on Thursday. Following up on that session, attached
is some additional input from Kaplan, DeVry and Education Management Corp. We believe it is possible to
address the Department's concerns without losing all the many positives that private sector educators offer
students. The attached letter outlines some paths to do so. We would welcome the opportunity to continue to
provide feedback on these and other issues before your office.
Best regards,
Andy
~
AndrewS. Rosen
Chainnan and CEO
Kaplan, Inc.
6301 Kaplan University Avenue
Fort Lauderdale, Florida 33309
(954) 515-3888
www.kaplan.com
1
The Honorable Anthony Wilder Miller
Deputy Secretary
400 Maryland A venue, SW
Dear Secretary Miller:
April 19,2010
Thank you for meeting with us this past Thursday to discuss the Department of Education's (ED)
proposed Gainful Employment (GE) regulation. We appreciate the candid discussion, and want to
follow up on several items that arose in our meeting.
We appreciated your reinforcement of the ED's public statements that it views private sector
presence in the higher education marketplace as positive. We also believe that it is not the ED's
intention to eliminate private sector institutions or eliminate private capital from higher education.
We view these as important points because the OE proposal made during Negotiated Rulemaking -
which would substantially eliminate proprietary institutions' ability to offer degrees- is not
consistent with the ED's goals.
Our comments come from a sincere concern for the students we serve, an understanding of the
limited educational opportunities afforded to these students, and the success stories of their fellow
students who graduated before them. We educate hundreds of thousands of students each year,
enabling them to obtain jobs and begin careers that are transformational not only for th>se students,
but for generations to follow. We each offer non-degree, associate, baccalaureate and graduate
degree programs. Across our three organizations, we enroll more than 300,000 students and employ
more than 50,000 faculty and staff each year.
As we discussed, while the ED's GE proposal will exclude fully one-third of our students from the
programs they currently attend, its effect on degree programs is the most severe. The ED's OE
proposal is unworkable for tbe vast majority of degree programs in our sector and will result in as
many as half of the two million plus degree students at our colleges being denied Title IV funds.
Tirls includes, among countless examples, Bachelor's of Science in Nursing students, at a time when
our country faces a growing nursing shortage. Private sector colleges are a vital source of new
capacity in nursing education as well as in allied health fields, where they educate 54% of all such
professionals. We do not believe this could possibly be the intent of the ED, which is why we are
asking you to revise your proposal to avoid these unintended consequences.
Aprill9, 2010
Page2
Likewise, we reiterate that the 50% graduation rate exception described recently does little to
ameliorate the impact of the ED's last OE proposal. With the nation's median aggregate college
graduation rate at less than 50% for all types of colleges (private, public and non-profit alike-
including elite colleges with 90%+ graduation rates), even this exception would exclude the students
at more than half of all colleges from participation in the Title IV program. Many of those excluded
students would be the very ones Congress was attempting to help through the Stafford and Pell
programs, and those for whom there are few other educational opportunities today.
We understand the objectives of the proposed OE regulations aiC focused on two concerns:
I. The ED's concern that a material segment of students take on disproportionate debt for value
received. More specifically, a concern that the risk tolerance of these students essentially
means that no amount of warning would deter them from making a poor enrollment decision
and "over-borrowing"- i.e., borrowing more than their ultimate job prospects would enable
them to repay.
2. The ED's concern about the risk that certain investors could purchase schools with the
intention of growing revenue by dramatically increasing enrollment without regard to
educational quality, and then turning a quick profit by re-selling the institution to another
buyer or to the investing public through a securities offering. The concern here is that such
investors would take advantage of the difference between their short timetable and the
inherently longer tenn during which regulatory problems mature-- all while drawing federal
financial aid and increasing the overall student debt burden.
As we discussed in our meeting, we share your concern about student over-borrowing and believe
our proposal can solve that problem without harming quality schools. Section 1 of this letter
expounds further on our student debt proposal and offers additional alternatives.
We also understand your concerns about the incentives certain investors might have and believe that
the ED has the tools to constrain them without harming students across the sector. The ED's ability
to constrain such investors is discussed in Section 2 of this letter.
1. Our Proposal aad Simple Modifications To the Debt-Service-To-Income Ratio Caa Solve
the Problem of Student Over-Borrowing without HarmiDg Students of QuaUty Schools
We continue to believe that student debt concerns can be addressed quickly and meaningfully by: (a)
mandating that institutions disclose to students the information students need to make infonned
decisions prior to taking on debt, and (b) implementing a student consumer "lemon law" that warns
students prior to enrollment about programs that fail to meet a minimum debt-service-to-income
ratio (Appendix A). This approach has at least four advantages over the ED's GE proposal: (I) it
addresses the concern that defining "gainful employment" by student debt levels is beyond
April19, 2010
Page3
Congressional intent; (2) it is a less draconian approach from an enforcement perspective; (3) it
avoids the risk of inadvertently eliminating quality programs if the ratio parameters are not set
appropriately; and (4) it will immediately address the ED's concerns while still allowing the ED and
schools to complete the data collection and analysis necessary to develop a more studied approach, if
necessary. This approach would indeed give the ED new tools to address the risk for programs that
do not provide value commensurate with their cost.
Under our in addition to disclosure, a school would be required to warn students if that
school had failed certain debt-service-to-income metrics. The proposed metrics would roughly
follow those in the ED's latest GE proposal, but with the following modifications:
a. Any Debt-Serviee-To-Income Ratio Should Apply
Only To Non-Degree Programs
As you are aware, the GE requirement contained in the Higher Education Act (HEA) applies to all
program offerings at proprietary institutions including Associate's, Bachelor's and Master's and
doctoral-level and professional degrees (other than a de minimis number of"liberal arts" programs)
and only non..degree programs at public and private nonprofit institutions. While we believe that a
debt-service-to-income fonnula is inappropriate, we are especially concerned with a formula that is
inherently biased against degree programs (and with corresponding alternative measures that are
biased as well).
There are a number of reasons why debt-service-to-income ratios such as those contained in the
ED's GE proposal should not apply to degree programs. First, it is very unlikely that Congress
intended the GE requirement to apply to degree programs. When the GE requirement was first
introduced by Congress in the 1965 HEA, very few proprietary schools were degree granting.
Second, the at-risk students the ED is seeking to protect are much more likely to enroll in non-degree
programs than in degree programs. Third, the lifetime benefits conferred by degree programs, such
as higher lifetime earnings; higher income growth rates, greater employability, better career
advancement and job stability, don't readily lend themselves to a formulaic approach to measuring
value using job codes and BLS statistics. For.these reasons, debt-service-to-income ratios should not
apply to degree programs.
To accomplish the above and to overcome our concerns with the ED's debt-service-to-income
proposal, we recommend the ED use the following language, which tracks the last language
proposed at the Negotiated Rulema.king session (bolded to show changes/additions):
(a) General. (I) An institution ... offering an eligible pro gram ... shall
be required to warn students that they are likely to have difflculty meeting their repayment
obligations ln such program where . . . at the end of each three-year period . . . the debt to
earnings ratio associated with the program is twelve percent or less ....
April19, 2010
Page4
(b) Debt to earnings ratio.[Ajn institution calculates the ratio for the three-year
period by-
( 1) Determining the median loan debt of students who completed or graduated from
the non-degree program (loan debt includes title IV, HEA programs (except Parent PLUS),
institutional loans and private educational loans) during the three-year period and using the
mean loan debt to calculate an annual loan payment based on a 15-year repayment schedule
and the current annual interest rate on Unsubsidized Federal Stafford Loans or Direct
Unsubsidized Loans;
(2) Using the most current Bureau of Labor Statistics (BLS) data ... to determine the
annual earnings, at the 25th percentile, made by persons employed in occupations related to
the training provided by the non-degree program; ...
b. Alternatively, There Should Be a Tiered Approach
To the Debt-Service-To-Income Formula
Should the ED be inclined to include degree programs, we recommend different formulae for non-
degree programs, Associate's degree programs, and Bachelor's degree programs. Post-baccalaureate
programs would not be included as those students, having successfully completed at least a
Bachelor's level of education, are more sophisticated consumers and better equipped to make
informed borrowing decisions.
We recommend the following graduated degree metrics:
Program Level Debt-service-to- BLS Percentile Yean in
income threshold
Repayment
Non-Degree 12%
25th
15
Associate's Degree 15%
som
15
Bachelor's Degree 15%
som
20
These numbers are consistent with the studies by Kantrowitz and Baum referenced in our April12,
2010 letter.
c. Any Formula Should Contain An Exclusion for Prior School Debt
As we also discussed, prior school debt should be excluded from any debt-service-to-income ratio
test. By excluding prior debt, the ED can ensure that students who may have failed in the past will
continue to have an opportunity to succeed in the future, without penalizing schools for giving the
students that opportunity.
April 19,2010
Page 5
d. There Are Other Alternatives Worth E:xploring
In the event the ED chooses to pursue a debt-service-to-income ratio test, we reiterate our
recommendation that the ED consider alternative routes to compliance as part of that test These
alternatives include maintaining target graduate cohort default rates (GCDR.s) at 12.5% over two
years and 15% over three years. Iky also include a threshold for post-graduate employment rates.
We recommend setting a minimum employment rate of70% within six months following
graduation. As we discussed, the employment rate would be measured using methodologies similar
to those of the larger national accrediting agencies, but with additional flexibility, particularly for
degree programs, as degree-seeking students are likely to use their degree for general employment
advancement.
2. The ED Has an Array of Powerful Tools to Constrain Certain New loveston
As we discussed, most private sector higher education companies are invested in students for the
long haul. Certainly, Kaplan, DeVry, and EDMC- as well as other higher education organizations -
are focused on building enduring institutions that create value for our students, our employees, and
our communities. Our institutions will only succeed to the extent our students succeed. We are
passionate about our students' achieving their learning outcomes, securing good jobs, and becoming
contributing members of society. Our reputation is essential to attracting students, faculty, and
employees. Indeed, most of our alumni quietly but successfully enter into essential roles in the
American economy - working hard, paying taxes, and raising their families. Their enthusiasm is
what encourages other students to join our institutions- and any unhappiness or frustration with
their learning experiences would quickly hamper our institutions' ability to attract new students.
We understand your concern that some firms may invest in higher education with different motives
and according to a vastly different timetable. They may see an opportunity to purchase a struggling
institution, grow it rapidly, and exit the business before difficulties like poor completion,
employment rates, cohort default rates or other problems mature- all at the students' and the
taxpayers expense.
We respectfully submit that the HEA currently provides the ED with ample measures to prevent
such a scenario from occurring. A number of such measures are enumerated below. A chart
providing additional detail regarding these measures is attached as Appendix B to this letter.
l. The ED has the authority to condition or withhold Title IV approval from new owners
who do not have a demonstrated track record.
2. 1be ED may condition or disallow the resumption of Title IV participation following a
change in ownership.
Aprill9, 2010
Page6
3. Following a change in ownership, the ED may terminate an institution's eligibility to
participate in the Title IV programs without the institution having the usual.. due process
rights to contest the termination.
4. The ED has the ability to ensure that no students receive Title IV funds until the ED is
satisfied that the students are eligible for the funds and the school is worthy.
We appreciate your meeting with us and we sincerely hope that you have found these observations
and ideas useful. We look forward to discussing these matters further. Should you so desire, we
would be happy to provide you with further clarifications and are available to meet at your
convenience.
Yours Truly,
Andrew S. Rosen
Chairman and CEO, Kaplan, Inc.
Daniel Hamburger
President and CEO, DeVry Inc.
Todd S. Nelson
CEO, Education Management Corporation
Enclosures
cc: The Honorable Martha J. Kanter
The Honorable Cannel Martin
Mr. Robert Shireman
Mr. Matthew A. Yale
Ms. Georgia Yuan
Appendix A
XVZ UNIVERSITY
INSTITUTIONAL DISCLOSURES RELATED TO EXPECTED EARNINGS AND DEBT
You have requested Information about our Veterinary Assistant program
WARNING: The annual loan repayment burden for 1raduates of this prol"am at XYZ University
exceeds the maximum debt-to-earnin1s ratio as recommended by the U. s. Department of
Education.
Program Level: 0Associates Oeachelors
r.- . '
Here are some Important disclosures for the award year

During the year ended June 30. 2009. Y% of in . logram graduated or
continued their enrollment into the next year whilei' 8.8% withdrew fro ; schoo1.
1
.';. :--
Of the students who graduated and were :rp*"t', 73.4% weci1fl,mployed in their
field of study, or a related fleld, of gr . _ . . n with an average'ilnual salary of
$23.600 per year. . _
- .
..
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
XYZ University
Veterinary
Assistant
Graduates' 1st
year Salaries
$5,000
$
Cost of Prosram Average loan debt for Average earnings for
Graduates all Accounting
graduates at 25th
percentile
Average earnlngs for
all Accountlns
graduates at 75th
percentile
The weighted annual occupation at the 25th and 75th percentiles are $20,809 and
$30.706. respectively.
3

The cost for this program of study at XVZ University for a student enrolled full-time and with no
transfer credits is $28.440. The average annual tuition increase for the three most recent years was
!:%.
The average education loan debt incurred at this institution for graduates of this program during the
2009 award year was $27.400. This amount includes $20.300 of federal student loans and $17.100 of
institutional loans. of graduates obtained private student loans from third parties.
1
$4,000.00
$3,000.00
$2,000.00
$1,000.00
$-
Loan Repayment as a Percentage of 25th Percentile of
Salaries for Veterinary Assistant Occupations
Annual loan repayment
10 year standard plan
Annual loan repayment
15 year extended repayment
plan
Recommended maximum
annual loan repayment
Appendix A
: . .- :.t;
If this average education loan debt was 100% loans with an -ige interest rate of 6.8% and
you chose to repay using a 10 year standard term, the of 12 monthly
payments would be $3.783.34. If you chose to pay a 15 year term, the
total of your first 12 monthly payments would be ., '.: .. ;:
The latest offldal Cohort Default Rate ( " ' the u's of Education' indicates that
3.6% of graduates in this program defa: ,

NOTE: YOUR ACTUAL MAY B _ AND STATISTICS
PRESENTED ABOVE AND THE FUTURE.
(Student Signt:a:u r re) ' 'j .. ,
. . . t . ii . . :;:ila
{Date}
0
t '( ; . .. :., '"
( : '
(l} program using the methodology required for the Institutional
U. S. Department a! Education. The graduation and continuing
enrollment resents the complement a/ the withdrawal rate.
(2} Graduates in th //()wing are considered unavailable for employment and are nat counted in the
placement rate calculcitioni!i. g .. tes who are pursuing further education, ore deceased, are in active military
service, hove medical cdisdi . . ' . at prevent them from working, ore continuing in 0 career unrelated ta their
program of study earn salaries which exceed those paid to entry-level employees in their
field af study, ar ore interno 10nal students no longer residing in the country in which their school is located.
{3} Scilorles are from the Bureau of Labor Statistics as reported for the Standard Occupational Classification (SOC}
codes that correspond ta the Classification a/ Instructional Program (CIP) code for this academic program. Far
information related to salaries from these and ather occupations, please visit
htJD:I/www.bls.aov/oeslcurrent/oes nat.htm.
(4} Costs are based on tuition rates and fees cu"ently charged to students in the indicated program af study.
(5} The recommended loan repayment is calculated using a debt-to-earnings ratio a/ l2% of the 25th percentile of
sa/aries as reported from the Bureau of Labor Statistics for the Standard Occupational Classification (SOC} codes
that correspond to the Classification af Instructional Program (CJP} code for this academic program.
(6} For more information concerning repayment options on federal loons, pleose visit
https:l/studentlaans.qov/myDlrectLaon/index.actian.
2
Title IV Eligibility
Terminates Upon
Institutional Change in
Ownership
An institution that changes
ownership mwt enter into a
new program pal1icipation
agreement at the ED's
discretion. The ED may
review all aspects of the
institution and may de11J'
ongoing Title IV
participation.
J\OIIliDC:maJ Program
Participation Agreement
Conditions
ED has disCI'elion to include
additional p1'(}\Jisions itt new
participation agreement
Disallowance of Title IV
Participation
May l'evou Title IV
participatl<m following a
change
Reimbursement or
Heightened Cash
Monitoring
Ability to place institution on
cosh manogement
restrictions, even in absence
Annual Compliance
May ann11olly l'eview
instituJion's compliance with
Department regulatioN
Program
Requirements
ED may conduct a fuJI
program review of any
institution in addition to the
review associated with
APPENDIXB
Title IV eligibility terminates when an institution c n s L n ~ : s
ownership. The new ownership must re-apply for
participation in Title IV programs. Under ED' s current 34 C.F.R. 600.31(a)
practice, the ED may extend the current program
participation agreement under a "provisional certification." 34 C.F.R. 668.13
The ED will not approve the new owners without a
demonstrated track record (as indicated by at least two years 34 C.F.R. 668.14
of audited fmancial statements) in higher education unless
they (I) post a letter of credit (typically 25 percent ofthe 34 C.F.R. 668.23
Title IV aid disbursed to the institution's snsdents during the
previous fiscal year), and (2) agree to growth restrictions
(typically the inability to offer new programs or open new
locations until the ED has reviewed and approved fmancial
aid and compliance audits for a full fiscal year of operations
the new
The ED has the ability to any ional conditions in 4)(ii)
any new program participation agreement that the Secretary
requires the institution to meet in order for the new
institution to participate in Title IV.
the nf a provisionally certified
period of participation, if the Secretary determines that the
institution is unable to meet its responsibilities under its
prognJm participation agreement, the SecretMy may revoke
the institutions provisional certification for participation in
that
Even in the absence of a change in ownership, the ED has
the ability to place a school on the reimbursement or
heightened cash monitoring method of Title IV payments,
so that no students receive Title IV funds until the ED is
satisfied that the students are eligible for the funds and the
school is worthy of administrating the funds.
Once ED has confirmed the institution's for
Title IV, the institution must file annual compliance audit
statements with the ED. Thus, the ED can monitor the
institution' s and take action as
In to the fact that an that changes
ownership will be required undergo new Title IV eligibility
review, the ED can review any program at any time to
determine compliance or issues.
34 C.F.R. 668.13(d)( l)
34 162
34 C.F.R. 668.17S(d)(2)(i) .
34 C.F.R 668.23(b)
34 c 668.24(f)
Winters, Deborah
From:
Sent:
To:
Subject:
Attachments:
FYI
Rogers, Margot
Wednesday, April14, 2010 11:43 AM
Hamilton, Justin; Cunningham, Peter
Fw: Signal Hill - Post-Secondary Education: Relief: Gainful Employment Gains Alternative
Measure
Post-Secondary_Education-201 00413.pdf
Original Message -----
From: Yuan, Georgia
To: Miller, Tonyj Rogers, Margotj Rose, Charlie; Kanter, Marthaj Shireman, Bob
Sent: Tue Apr 13 99:46:31 2919
Subject: FW: Signal Hill - Post-Secondary Education: Relief: Gainful Employment Gains
Alternative Measure
Business Services - Education Services
Industry Update
April 13, 2919 Relief: Gainful Employment Gains Alternative Measure
Trace Urdan
415. 364.9365
turdan@signalhill.com
Our Call:
As anticipated, Department of Education (USDOE) draft regulations went to the Office of
Management & Budget (OMB) last Friday 4/9 for review prior to thei r publication in the
Federal Register -- likely 5/15. A credible source close to OMB tells us that while the B%
median debt/income measure, and the 90% student loan repayment measures appear to be
essentially unchanged from the terms presented by the USDOE in January, a third alternative
measure has been added.
This measure would allow programs with a graduation rate of 59% or better and a subsequent
job placement (in the relevant field) of 79% or better to qualify out of the other two
measures.
Though the devil will certainly be in the details, including how these items are to be
considered for students that are transferring credits and may be already employed, the new
measure effectively removes the significant threat the rules had created for nationally-
accredited degree programs with typically high default rates. The new measure, in fact, seems
to closely resemble rules already imposed by national accrediting bodies. And while we might
anticipate that the terms could be stricter in USDOE's conception, they should be eminently
achievable with minimal disruption for all programs.
According to USDOE analysis, (in process of being reviewed by OMB,) the rules themselves
would only affect 6-8% of all for-profit programs, with culinar y, automotive tech, and
nursing programs hardest hit. (We note that this seems out of keeping with our knowledge of
these programs as represented by publicly-traded schools, but nevertheless appears to
represent a conclusion reached by USDOE.) Our contact indicated that the University of
Phoenix
(NASDAQ: APOL; Buy) was not seen as affected at all in the USDOE analysis.
1
While we expect all post-secondary school stocks to benefit from the we believe that
the those names that had been most challenged by the existing terms are likely to see the
biggest benefit as a result of the change. These include ITT Educational Services (NYSE: ESI;
Buy), Corinthian Colleges
(NASDAQ: COCO; Buy), and Career Education (NASDAQ: CECO; Buy) which recently heralded
graduation rates comfortably above 50%. Though some individual programs may still fail all
three tests, we believe these are likely to be isolated, rare and fixable.
We view this apparent concession as evidence of a desire by Secretary Duncan to defuse what
was promising to be an area of real contentionJ as evidenced by House Republicans) members of
the Congressional Black Caucus, and Senator Lamar Alexander all calling out the Secretary on
this issue. Secretary Duncan needsJ in our opinion, a diverse coalition of supporters to pass
his signature
issue: K-12 education reform. Because the Secretary's K-12 proposals do not easily fall
within typical party boundariesJ he really does need a bipartisan coalition in both the House
and Senate education committees to pass his version of ESEA (NCLB). No concession at all
would have kicked off a loud and publicized summer of public commentary. Because it is very
difficult to argue that a se% graduation rate and a 70% employment rate is an onerous burdenJ
we think USDOE has effectively neutered the campaign to ditch the rule entirely.
We still expect industry to challenge the rule in public and likely later in but based
on our reliable we believe investors need no longer fear that significant revenues
could be at risk in the event that the rules are passed .
Please see end of this report for important disclosure(s)
I J Trace Urdan, hereby certify that all of the views expressed in this research report
accurately reflect my personal views about the subject securities or issuers. I also certify
that no part of my compensation wasJ is or will be directly or indirectly related to the
specific recommendations or views expressed in this research report. Signal Hill does not
compensate its equity research analysts based on specific investment banking transactions.
Signal Hill Equity research analysts receive compensation based on several factors, including
overall profitability and revenues of the firm, which include investment banking revenues .
Meaning of Ratings
Signal Hill uses a three-tiered rating system defined as follows:
HOLD: We expect this stock to perform in line with its peers over the next 12
months:
Distribution of Ratings/IB Services
Signal Hill
IB Serv./Past 12 Mos .
Rating Count Percent Count Percent
BUY{BUY) 77 61.6 72 93.5
HOLD(HOLD) 47 37.6 38 80.9
SELL{SELL) 1 e.8 1 100.0
Disclaimer
This report has been prepared using sources we deem to be reliable but we do not guarantee
its accuracy and it does not purport to be complete. This report is published solely for
information purposes and is not intended to be used as the primary basis for making
2
investment which should reflect the investment objectives and financial situation
of the investor .
The opinions expressed herein are subject to change without notice. This report is not an
offer or the solicitation of an offer to buy or sell securities. Additional information is
available upon request.
3
April 13, 2010
Trace Urdan
415.364.0365
Industry Update
Relief: Gainful Employment Gains Alternative Measure
Our Call :
Management & Budget (OMB) last Friday 4/9 for review prior to their publication in the Federal
Register -- likely 5/15. A credible source close to OMB tells us that while the 8% median
debUincome measure, and the 90% student loan repayment measures appear to be essentially
unchanged from the terms presented by the USDOE in January. a third alternative measure has
been added. This measure would allow programs with a graduation rate of 50% or better and a
subsequent job placement (in the relevant field) of 70% or better to qualify out of the other two
measures.
Though the devil will certainly be in the details, Including how these items are to be considered
for students that are transferring credits and may be already employed, the new measure
effectively removes the significant threat the rules had created for nationally-accredited degree
programs with typically high default rates. The new measure, in fact, seems to closely resemble
rules already imposed by national accrediting bodies. And while we might anticipate that the
terms could be stricter in USDOE's conception, they should be eminently achievable with
minimal disruption for all programs.
According to USDOE analysis, (in process of being reviewed by DMB,) the rules themselves
would only affect 6-8% of all for-profit programs, with culinary, automotive tech, and nursing
programs hardest hit. (We note that this seems out of keeping with our knowledge of these
programs as represented by publicly-traded schools, but nevertheless appears to represent a
conclusion reached by USDOE.) Our contact indicated that the University of Phoenix (NASDAQ:
APOL; Buy) was not seen as affected at all In the USDOE analysis.
While we expect all post-secondary school stocks to benefit from the news, we believe that the
those names that had been most challenged by the existing terms are likely to see the biggest
benefit as a result of the change. These include ITI Educational Services (NYSE: ESI; Buy),
Corinthian Colleges (NASDAQ: COCO; Buy), and Career Education (NASDAQ: CECO; Buy)
which recently heralded graduation rates comfortably above 50%. Though some individual
programs may still fail all three tests, we believe these are likely to be isolated, rare and fixable.
was promising to be an area of real contention, as evidenced by House Republicans, members
of the Congressional Black Caucus, and Senator Lamar Alexander all calling out the Secretary
on this issue. Secretary Duncan needs, in our opinion, a diverse coalition of supporters to pass
his signature issue: K-12 education reform. Because the Secretary's K-12 proposals do not
easily fall within typical party boundaries, he really does need a bipartisan coalition in both the
House and Senate education committees to pass his version of ESEA (NCLB). No concession
at all would have kicked off a loud and publicized summer of public commentary. Because it is
very diffiCult to argue that a 50% graduation rate and a 70o/o employment rate is an onerous
burden, we think USDOE has effectively neutered the campaign to ditch the rule entirely.
We still expect industry to challenge the rule in public and likely later in court, but based on our
reliable source, we believe investors need no longer fear that significant revenues could be at
risk In the event that the rules are passed.
Please see important disclosure information on page 2 of this report.
April 13, 201 0
Meaning of Ratings
fbtlng
BUY
HOLD
SELL
Disclaimer
Distribution of Ratlngs/IB Sarvlces
Signal Hill
Count
77
47
Percent
61.6
37.8
8.8
IB sarv.JPast 12 Mos.
Count
72
38
Percent
93.5
80.9
180.8
it does not purport to be compl ete. This report is published solely for information purposes and is not intended
and financial situation of the investor: The opinions expressed herein are subject to change without notice. This
upon request.
Winters, Deborah
From:
Sent:
To:
Subject:
Attachments:
Yuan, Georgia
Miller, Tony; Rogers, Margot; Rose, Charlie; Kanter, Martha; Shireman, Bob
FW: Signal Hill - Post-Secondary Education: Relief: Gainful Employment Gains Alternative
Measure
Post-Secondary_Education-201 00413. pdf
Industry Update
Trace Urdan
415.364.0365
Our Call:
Management & Budget (OMB) last Friday 4/9 for review prior to their publication in the
Federal Register -- likely 5/15. A credible source close to OMB tells us that while the 8%
measures.
anticipate that the terms could be stricter in USDOE's conception, they should be eminently
would only affect 68% of all for-profit programs, with culinary, automotive tech, and
Phoenix
While we expect all post-secondary school stocks to benefit from the news, we believe that
(NASDAQ: COCO; Buy), and Career Education (NASDAQ: CECO; Buy) which recently heralded
graduation rates comfortably above 50%. Though some individual programs may still fail all
was promising to be an area of real contention, as evidenced by House Republicans, members of
1
this issue. Secretary Duncan needs, in our opinion, a diverse coalition of supporters to pass
his signature
within typical party boundaries, he really does need a bipartisan coalition in both the House
and Senate education committees to pass his version of ESEA (NCLB). No concession at all
difficult to argue that a 50% graduation rate and a 70% employment rate is an onerous burden,
We still expect industry to challenge the rule in public and likely later in court, but based
on our reliable source, we believe investors need no longer fear that significant revenues
could be at risk in the event that the rules are passed.
Please see end of this report for important disclosure(s)
I, Trace Urdan, hereby certify that all of the views expressed in this research report
that no part of my compensation was, is or will be directly or indirectly related to the
Meaning of Ratings
months:
Signal Hill
IB Serv. /Past 12 Mos.
Rating count Percent Count Percent
BUY( BUY) 77 61.6 72 93.5
HOLD(HOLD) 47 37.6 38 80.9
SELL(SELL) 1 0.8 1 100.0
Disclaimer
its accuracy and it does not purport to be complete. This report is published solely for
information purposes and is not intended to be used as the primary basis for making
investment decisions, which should reflect the investment objectives and financial situation
of the investor.
2
April 13, 2010
Trace Urdan
turdan@signalhiU .com
415.364.0365
Business Services Education Services
Industry Update
Our Call:
debVincome measure, and the 90% student loan repayment measures appear to be essentially
unchanged from the terms presented by the USDOE in January, a third alternative measure has
measures.
Though the devil will certainly be in the details, including how these items are to be considered
conclusion reached by US DOE.) Our contact indicated that the University of Phoenix (NASDAQ;
APOL; Buy) was not seen as affected at all in the USDOE analysis.
benefit as a result of the change. These include ITT Educational Services (NYSE: ESI ; Buy),
on this issue. Secretary Duncan needs, in our opinion, a diverse coalition of supporters to pass
very difficult to argue that a 50% graduation rate and a 70% employment rate is an onerous
burden. we think USDOE has effectively neutered the campaign to ditch the rule entirely.
risk in the event that the rules are passed.
Please see important disclosure tnformation on page 2 of this report.
April 13, 201 0
transactions. Signal Hill Equity research analysts receive compensation based on several factors, Including
Meaning of Ratings
Rating
BUY
HOLD
SELL
Disclaimer
Distribution of Ratlnga/18 Services
Signal Hill
Ceunt
77
47
Percent
61.6
37.6
0.8
18 Serv./Past 12 Mea.
Count
72
38
Percent
93.5
80.9
108.0
and financial situation of the investor. The opinions expressed herein are subject to change without notice. This
upon request.
Winters, Deborah
From:
Sent:
To:
Subject:
Attachments:
Importance:
(b)(5)
Gomez, Gabriella
Tuesday, April13, 2010 10:25AM
Rogers, Margot
Fw: Signal Hill - Post-Secondary Education: Relief: Gainful Employment Gains Alternative
Measure
Post-Secondary_Education-201 00413.pdf
High
Industry Update
Trace Urdan
415.364.9365
Our Call:
Management & Budget (OMB) last Friday 4/9 for review prior to their publication in the
Federal Register -- likely 5/15. A credible source close to OMB tells us that while the 8%
measures.
anticipate that the terms could be stricter in USDOE's they should be eminently
1
would only affect 6-8% of all for-profit programs, with culinary, automotive tech, and
Phoenix
While we expect all post-secondary school stocks to benefit from the news, we believe that
(NASDAQ: coco; Buy), and Career Education (NASDAQ: CECO; Buy) which recently heralded
graduation rates comfortably above se%. Though some individual programs may still fail all
was promising to be an area of real contention, as evidenced by House Republicans, members of
this issue. Secretary Duncan needs, in our opinion, a diverse coalition of supporters to pass
his signature
within typical party boundaries, he really does need a bipartisan coalition in both the House
and Senate education committees to pass his version of E5EA (NCLB). No concession at all
difficult to argue that a se% graduation rate and a 70% employment rate is an onerous burden,
We still expect industry to challenge the rule in public and likely later in court, but based
on our reliable source, we believe investors need no longer fear that significant revenues
could be at risk in the event that the rules are passed.
Please see end of this report for important
disclosure(s)
I, Trace Urdan, hereby certify that all of the views expressed in this research report
that no part of my compensation was, is or will be directly or indirectly related to the
Meaning of Ratings
BUY: We expect this stock to outperform its peers over the next 12
months:
months:
SELL: We expect this stock to underperform its peers over the next 12
months:
2
Rating
BUY(BUY)
HOLD( HOLD)
SELL(SELL)
Disclaimer
Count
77
47
1
Signal Hill
Percent
61.6
37 . 6
0.s
IB Serv./Past
Count
72
38
1
12 Mos.
Percent
93.5
80.9
100.0
its accuracy and it does not purport to be complete.
This report is published solely for information purposes and is not intended to be used as
the primary basis for making investment decisions} which should reflect the investment
objectives and financial situation of the investor.
3
April13, 2010
Trace Urdan
415.364.0365
Business Services- Education Services
Industry Update
Our Call:
debVincome measure, and the 90% student loan repayment measures appear to be essentially
unchanged from the terms presented by the USDOE in January, a third alternative measure has
measures.
Though the devil will certainly be in the details, including how these items are to be considered
conclusion reached by USDOE.) Our contact indicated that the University of Phoenix (NASDAQ:
APOL; Buy) was not seen as affected at all in the USDOE analysis.
benefit as a result of the change. These include ITT Educational Services (NYSE: ESI; Buy),
on this issue. Secretary Duncan needs, in our opinion. a diverse coalition of supporters to pass
very difficult to argue that a 50% graduation rate and a 70% employment rate is an onerous
burden, we think USDOE has effectively neutered the campaign to ditch the rule entirely.
risk in the event that the rules are passed.
Please see important disclosure Information on page 2 of this report.
Apri113, 2010
Meaning of Ratings
Rating
BUY
HOLD
SELL
Disclaimer
Distribution of Ratlnga/IB Servlcn
Signal Hill
Count
77
47
Percent
61.6
37.6
8.8
IB Serv./Paat 12 Mo&.
Count
72
38
Percent
93.5
88.9
180.0
and financial situation of the investor. The opinions expressed herein are subject to change without notice. This
upon request.
Winters, Deborah
From:
Sent:
To:
Subject:
Rogers, Margot
Wednesday, June 17, 2009 11:48 AM
Ritsch, Massie
FW: Article about For Profit Fervor
http://www. i nsidehighered. com/ news/2009/06/16/cca
June 16, 2009
ORLANDO -- The last few weeks have witnessed a trury remarkable discussion in Washington and on Wall Street surrounding forprofit
higher education.
Reports (and sometimes rumors) about the prospect of tougher federal regulation of career colleges by the Obama administration have
made the rounds among Wall Street analysts, driving the stocks of the largest. publicly traded companies in the sector down by more
That step did not calm the markets, though, In large part, many observers of the for-profit market assert, because several "short sellers"
-- investors who bet that the value of a certain stock or group of stocks will fall -- have been doing their best to promote uncertainty on
Association. which represents most of the country's for-profit institutions.
"I can stand here and tell you that I've been at the Department of Education for 30 years, and I have never heard any one of our policy
officials say, 'We've got to get that sector. Let's put it to the for-profits.'" said Dan Madzelan, who is the acting assistant secretary for
postsecondary education. "That i s not how any of our policy officials operate. They're concerned about what's best for students and
taxpayers, and agnostic with respect to the kind of institution affected. They are not interested in singling out any one sector."
That language differed little from the words that Robert Shireman-- the deputy under secretary for education and the person whose
-- used in last month's calls with investors.
our overall goal at the Department of Education in postsecondary education is to make sure that students-- potential students -
whether young or old, have access to college, they have the Information they need to make good choices, and that they have good
quality postsecondary education that serves both them as students and taxpayers as well." Shireman said. "If that' s not the case, if
there is not quality, we want to know about it and if we can, we want to do something about it. Whether that involves a publi c institution,
a nonprofit, a for-profit, a two-year, a four-year, a trade program, whatever type or sector of institution, we want to do all we can to make
So why haven't department officials' repeated assertions that they aren't out to get for-profit colleges managed to reassure some
Those are other questions were much discussed by at least some of those attending thi s week' s Career College Association meeting,
companies whose campuses are found just off the highways in many American cities -- the University of PMenix. DeVry, Kaplan
Higher Education, to name several -- the vast majority of career colleges are still the mom-and-pop truck driving, beauty and.
increasingly, allied health schools that have been mainstays of many towns for decades. While those institutions. too, are subject to
5
Education Department regulation of higher education, they have little to no stake in what Wall Street analysts say or think about their
bigger cousins.
Cramer's "Mad Money." has been comparing for-profit education companies to health care companies that make excessive profits by
feeding at the public trough (in the colleges' case, through the Pell Grant and federal student loan programs).
Chanos' s thesis, which has been embraced by several other analysts who follow the for-profit sector, Is that the Obama admi nistration
conference last month features an i mage of Obama in a cowboy hat under the tag line 'There's a new sheriff i n town.") Obama's chief
deputy in higher education in thi s li ne of argument i s Shi reman, and it was hi s appointment to the Education Departmenr s leadership in
earl y February that started the Wall Street decline.
over possible changes to federal regulations governing policy areas, such as incentive compensation paid to student recruiters, that are
cast the review as big trouble for the industry and others began bombarding the department with calfs seeking clarification, Shireman
But Shireman's insistence i n the calls with for-profit investors and analysts that he would be an equal opportunity regulator was offset
for some Wall Street watchers by a Deutsche Bank analyst' s report that , in a call the day before with officials of traditional nonprofit
colleges, he had talked about the department's desire to find "victims'' who had been wronged by for-profit colleges that give incentives
According to several accounts of the calf with nonprofit college leaders, though, Shireman spoke of ''victims and lawyers for those
Department offiCials have expressed increasi ng frustration that thei r assertions that they do not plan to si ngle out for-profit colleges are
keep getting ignored or twi sted i n meaning. Experts on career coll eges offer differing reasons why.
secret of his disgust with the larger corporate culture that contributed mightily to last fall's financial meltdown, and Shireman, as a
former Congressional and Clinton White House aide and as an advocate for low-income students, has long fought for policies that
Trace Urdan, who analyzes for-profit colleges for Signal Hill, describes this line of thi nking about the career college sector as being a
microcosm of fears about the Obama administration's overall approach to corporate America. "It's as much about Wall Street's paranoia
about Obama as about the Education Department, he said. 'The fear isn' t about the details of incentive compensation. The fear is that
Shireman thinks that somehow Apollo Is robbing students and taxpayers."
But other analysts and many leaders i n the career college sector offer a more nefarious explanation for the drumbeat of assertions that
the department is gunning for for-profit colleges. They attribute the stream of analyst reports to "short sellers" (investors who buy and
sell stocks in patterns that rev.oard them when the stocks tumble) who have been trying (unsuccessfully) for several years to drive down
t he price of shares of the publicly traded higher education companies. which have generally outperformed the overall stock market for
more than a decade.
At a time when the enrollments of for-profit colleges are growing and the government is pouring billions more dollars into PeU Grants
and other programs that aid the low-income students who populate career colleges, these Investors are turning to "nonsense" like the
6
Association. said in an interview Monday after Madzelan's speech.
"I don't know how the department could be any clearer in its public statements" than it has been, Miller said. "To me you just have to
take them at their race.''
"We've been working well with the department," said Arthur Keiser, president of Keiser Colleges, a Florida-based chain of colleges that
Jeffrey Volshteyn, a vice president at J.P. Morgan, is among the analysts who thinks that ~ p e o p l e are just reading way too much into
Jeffrey Silber of BMO Capital Markets, who is among the longest-serving analysts of the career college sector, tends to agree with
department's agenda for rule making (an agenda that will take shape, In part, out of public hearings that begin this week) and the
general inclination toward regulation of a Democratic administration are likely to provide plenty or fodder for those who seek to keep for-
profit colleges -- and their stocks -- on the defensive.
"Could you see increased regulation" of for-profit colleges? he asked rhetorically. sure, though probably on the margins. But this thing
is not going to be resolved for months, and there' s no telling what kind of noise will be generated in the meantime."
7
Winters, Deborah
From: Private- Duncan. Arne
Sent;
To:
Duran, Maribel
Subject: Fw: Article about For Profit Fervor
Please print
To: Miller, Tony; Private - Duncan, Arne; 'Martha Kanter' <kantermartha@gmail.com>; Rose, Charlie; Cunningham, Peter
Cc: Hamilton, Justin; Shireman, Bob
5ent: Wed Jun 17 08:40:59 2009
Subject: Article about For Profit Fervor
Thought everyone would be i nterested in this; I think it is worth your taking 5 minutes to read it. I have pasted below
http:ljwww.insidehighered.com/news/2009/06/16/cca
June 16, 2009
higher education.
made the rounds among Wall Street analysts, driving the stocks of the largest, publicly traded companies in the sector down by more
than 20 percent and prompting the U.S. Education Department two weeks ago to hold unorecedented conference calls with investors
That step did not calm the mali<ets, though, in large part, many obseNers of the for-profit market assert, because several "short sellers
-- investors who bet that the value of a certain stock or group of stocks will fall-- have been doing their best to promote uncertainty on
"I can stand here and tell you that I've been at the Department of Education for 30 years, and 1 have never heard any one of our policy
officials say, 'We've got to get that sector. Let's put it to the for-profits, said Dan Madzelan, who is the acting assistant secretary for
postsecondary education. That is not how any of our policy officials operate. They're concerned about what's best for students and
taxpayers, and agnostic with respect to the kind of institution affected. They are not interested in singling out any one sector.
0
-- used in last month's calls with investors.
whether young or old, have access to college, they have the information they need to make good choices. and that they have good
quality postsecondary education that serves both them as students and taxpayers as well ," Shireman said. "If that's not the case, If
there is not quality, we want to know about it and if we can, we want to do something about it. Whether that involves a public institution,
a nonprofit, a for-profit , a two-year, a four-year, a trade program, whatever type or sector of institution, we want to do all we can to make
So why haven't department officials' repeated assenions that they aren't out to get for-profit colleges managed to reassure some
people in the sector? Do most career college officials believe that their institu1ions have a target sign on their back in the Obama
8
Those are other questions were much discussed by at least some of those attending this week's Career College Association meeting,
companies whose campuses are found just off the highways in many American cities-- the University of Phoenix, DeVry, Kaplan
Higher Education, to name several --the vast majority of career colleges are still the mom-and-pop truck driving, beauty and,
increasingly, allied health schools that have been mainstays of many towns for decades. While those institutions, too, are subject to
Education Department regulation of higher education, they have little to no stake in what Wall Street analysts say or think about their
bigger cousins.
The publicly traded companies, however, have a great deal at stake in what the analysts and investors say, and in recent months, a
small number of them have been saying not-so-flattering things. Perhaps most prominent among them has been James Chanos. an
Cramer' s "Mad Money." has been comparing for-profit education companies to health care companies that make excessive profits by
feeding at the public trough (in the colleges' case, through the Pell Grant and federal student loan programs).
Chanos's thesis, which has been embraced by several other analysts who follow the for-profit sector, is that the Obama administration
over possible changes to federal regulations governing policy areas. such as incentive compensation paid to student recruiters, that are
colleges, he had talked about the department's desire to find "vict ims who had been wronged by for-profit colleges that give incentives
According to several accounts of the call with nonprofit college leaders, though, Shireman spoke of "victims and lawyers for those
victims" only in response to a question that used that phrase, saying that the department would seek to protect students who were
secret of his disgust with the larger corporate culture that contributed mightily to last fall's financial meltdown. and Shireman, as a
former Congressional and Clinton White House aide and as an advocate for low-income students, has long fought for policies that
Trace Urdan. who analyzes for-profit colleges for Signal Hill, describes this line of thinking about the career college sector as being a
microcosm of fears about the Obama administration's overall approach to corporate America. "It's as much about Wall Street's paranoia
about Obama as about the Education Department," he said. "The fear Isn't about the details of incentive compensation. The fear is that
Shireman thinks that somehow Apollo is robbing students and taxpayers."
9
the department is gunning for for-profit colleges. They attribute the stream of analyst reports to "short sellers" {investors who buy and
sell stocks in patterns that reward them when the stocks tumble) who have been trying (unsuccessfully) for several years to drive down
the price of shares of the publicly traded higher education companies, which have generally outperformed the overall stock market for
more than a decade.
At a lime when the enrollments of for-profi t colleges are growing and the government is pouring billions more dollars into Pell Grants
and other programs that aid the low-income students who populate career colleges. these investors are turning to "nonsense" like the
Association, said in an interview Monday after Madzelan's speech.
"I don't know how the department could be any clearer in its public statements" than it has been, Miller said. "To me you just have to
take them at their face."
'We've been working well with the department," said Arthur Keiser, president of Keiser Colleges, a Florida-based chain of colleges that
is privately held and therefore not subject to the recent stock swoon. "There' s a lot of paranoia out here, but I think we' re all focused on
the same thing: making sure students succeed. They want that and we want that. "
Jeffrey Silber of BMO Capital Markets. who is among the longest-serving analysts of the career college sector. tends to agree with
Volshteyn that the department is not taking particular aim at for-profit colleges. But he also said that t he uncertainty about the
department's agenda fOf rule making (an agenda that will take shape, in part. out of public hearings that begin this week) and the
profit colleges-- and their stocks-- on the defensive.
"Could you see Increased regulation" of for-profit colleges? he asked rhetorically. "Sure, though probably on the margins. But this thing
10
Winters Deborah
From:
Sent:
To:
Cc:
Subject:
Rogers, Margot
Miller, Tony; Private- Duncan, Arne; ' Martha Kanter'; Rose, Charlie; Cunningham, Peter
Hamilton, Justin; Shireman, Bob
Article about For Profit Fervor
h ttp:ljwww. in si d eh ighe red .com/ news/2 009/06/16/ cca
June 16, 2009
higher education.
made the rounds among Wall Street analysts, driving the stocks of the largest, publicly traded compank:!s in the sector down by more
and analysts to try to reassure them that department officials did not have lt In for for-profit colleges.
That step did not calm the markets, though, in large part. many observers of the for-profit market assert, because several "short sellers'"
- investors who bet t h ~ t the value of a certain stock or group of stocks will fall-- have been doing their best to promote uncertainty on
"I can stand here and tell you that I've been at the Department of Education for 30 years, and I have never heard any one of our policy
offiCials say. We've got to get that sector. Let's put it to the for-profits,' said Dan Madzelan. who is the acting assistant secretary for
postsecondary education. 'That is not how any of our policy officials operate. They're concerned about what's best for students and
taxpayers, and agnostic with respect to the kind of institution affected. They are not interested in singling out any one sector:
- used in last month's calls with investors.
"Our overall goal at the Department of Education in postsecondary education is to make sure that students- potential students --
Whether young or old, have access to college, they have the information they need to make good choices, and that they have good
quality postsecondary education that serves both them as students and taxpayers as well." Shireman said. "If that's not the case, if
there is not quality, we want to know about it and if we can, we want to do something about it. Whether that involves a public institution,
a nonprofit, a for-profit, a two-year, a four-year, a trade program, whatever type or sector of institution, we want to do all we can to make
sure that we good quality and get the degrees and certificates that we need in this country.''
So why haven't department officials' repeated assertions that they aren't out to get for-profit colleges managed to reassure some
people in the sector? Do most career college officials believe that their institutions have a targel sign on their back in the Obama
Those are other questions were much di scussed by at least some of those attending this week's Career College Association meeting,
companies whose campuses are found just off the highways in many American cities-- the University of Phoenix, DeVry, Kaplan
Higher Education, to name several-- the vast majority of career colleges are still the mom-and-pop truck driving, beauty and,
increasingly, allied health schools that have been mainstays of many towns for decades. White those institutions, too, are subject to
Educalion Department regulation of higher education, they have little to no stake in what Wall Street analysts say or think aboul their
bigger cousins.
11
Cramer's "Mad Money." has been comparing for-profit education companies to health care companies that make excessive profits by
feeding at the public trough (in the colleges case, through the Petl Grant and federal student loan programs).
Chanos's thesis, which has been embraced by several other analysts who follow the for-profit sector, is that the Obama administration
over possible changes to federal regulations governing policy areas, such as incentive compensation paid to student recruiters, that are
The announcement of the new regulatory review was made quietly (as is the norm} in the Federal Register. but after some analysts
But Shireman's insistence in the calls with tor-profit investors and analysts that he would be an equal opportunity regulator was offset
colleges, he had talked about the department's desire to find Kvictims who had been wronged by for-profit colleges that give incentives
According to several accounts of the call with nonprofit college leaders, though. Shireman spoke of "victims and lawyers for those
Department officials have expressed increasing frustration that their assertions that they do not plan to si ngle out for-profit colleges are
secret of his disgust with the larger corporate culture that contributed mightily to last fall's financial meltdown, and Shireman. as a
former Congressional and Clinton White House aide and as an advocate for tow-income students. has tong fought for policies that
see themselves as watchdogs of the for-profit sector, which went through a wrenching scandal in the late 1gsos that flushed many bad
Trace Urdan, who analyzes for-profit colleges for Signal Hill. describes this line of thinking about the career college sector as being a
microcosm of fears about the Obama administration' s overall approach to corporate America. "It's as much about Wall Street's paranoia
about Obama as about the Education Department. he said. "The fear isn' t about the details of incentive compensation. The fear is that
Shireman thinks that somehow Apollo is robbing students and taxpayers:
the department is gunning for f o r ~ p r o f i t colleges. They attribute the stream of analyst reports to "short sellers" (investors who buy and
sell stocks in patterns that reward them when the stocks tumble) who have been trying (unsuccessfully) for several years to drive down
the price of shares of the publicly traded higher education companies, which have generally outperformed the overall stock market for
more than a decade.
At a time when the enrollments of for-profit colleges are growing and the government is pouring billions more dollars into Pell Grants
and other programs that aid the low-income students who populate career colleges, these investors are turning to "nonsense" like the
assertions about increased regulatory scrutiny to drive down the institutions' stocks. Harris N. Miller, president of the Career College
Association. said in an interview Monday after Madzelan's speech.
12
"I don't know how the department could be any dearer in its public statements" than it has been, Miller said. "To me you just have to
take them at their face."
we've been working well with the department," said Arthur Keiser, president of Keiser Colleges, a Florida-based chain of colleges that
the same thing: making sure students succeed. They want that and we want that.''
this." and that the department will "enforce the rules just like it always has," for the for-profit colleges and all others.
Jeffrey Silber of BMO Capital Markets. who is among the longest-serving analysts of the career college sector, tends to agree with
department's agenda for rule making (an agenda that will take shape, in part, out of public hearings that begin this week) and the
profit colleges-- and their stocks -- on the defensive.
"Could you see increased regulation" of for-profit colleges? he asked rhetorically. "Sure. though probably on the margins. But this thing
13

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Winters, Deborah

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