How financially troubled colleges rip off veterans

How Betsy DeVos's Education Department makes it possible by propping up for-profit educational companies.

Published August 5, 2019 6:30AM (EDT)

Betsy DeVos   (AP/Alex Brandon)
Betsy DeVos (AP/Alex Brandon)

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Education Secretary Betsy DeVos’s move to reverse Obama-era restrictions on for-profit colleges and reinvigorate the shady industry has backfired spectacularly.

Since DeVos and team greenlighted the accreditation of one of the nation’s largest chains of for-profit colleges, Dream Center Education Holdings, and its purchase of schools, thousands of students have been affected by school closures and conversion to nonprofit status. One group of students that have been greatly affected are military veterans, who have racked up useless credits and massive debts that can become the burden of taxpayers and the federal government to the tune of hundreds of millions of dollars.

The deregulation efforts of the for-profit college sector began back in 2017, soon after Dream Center — a charity affiliated with a Los Angeles-based megachurch with no higher-education experience — acquired some colleges from a major for-profit player in bankruptcy. DeVos had made it a priority to bolster for-profit schools, according to an article by The New York Times. In addition to relaxing oversight on the sector, DeVos also allowed for-profit schools to convert to non-profit status by loosening the rules of that process.

"School closures also cost taxpayers and our federal government hundreds of millions of dollars in financial losses in discharged federal student loans."

It’s also come to light that a DeVos aide, Diane Auer Jones, a former lobbyist and executive for for-profit colleges, was granting personal favors to help Dream Center, which controls more than 100 campuses with 50,000 students, to help the company gain accreditation. DeVos, before becoming Education secretary, had invested in companies with ties to for-profit schools.

Back in 2016, Dream Center had its eyes on the failing ITT Technical Institutes but the Obama administration astutely blocked that acquisition as part of its crackdown on the for-profit college sector. And ITT ultimately shuttered its doors. But Dream Center found a new deal that would be blessed and moved forward by DeVos and team to purchase three large for-profit chains, the Art Institutes, Argosy University and South University from the bankrupt Education Management Corp.

Fast forward to the present. Dozens of Dream Center’s campuses are out of money and set to close, more than a dozen more campuses have already been sold — some to a New York private equity firm in a deal arranged by DeVos and team — and more than 40 other schools are under the control of a court-appointed receiver. In total, some 26,000 students have been affected by the demise of Dream Center Education Holdings.

Thousands of those students left scrambling to salvage their education plans are Post-9/11 GI Bill recipients, who are hard targets of the predatory for-profit schools because they can use the GI Bill funds to collect up to 100% in federal aid. For-profit schools must pull in at least 10% of their funding from sources outside of federal aid, the so-called 90/10 rule. But Congress wrote a big loophole, excluding GI Bill funding from the 90% limit, and for-profit schools actively seek-out veterans as students.

“For-profit schools really aggressively target veteran students and spend a ton on marketing, but spend little on instruction,” Walter Ochinko, research director at Veterans Educations Services, told DCReport. “They have large marketing teams that do robocalls all the time and use lead generators to reach out to veterans.”

With the closures of ITT Technical Institutes schools and the failing of Corinthian Colleges Inc., another 12,000 GI Bill students were affected by the failings of the for-profits in the past few years.

“Deregulation efforts have created a situation where vets are being harmed, they don’t have much recourse,” Ochinko said. “When a school closes, there’s only a partial restoration of benefits for veterans. Essentially they are left out in the cold.”

When these schools close, students transferring from for-profit to public schools could lose an estimated 94% of their credits. And if they retain their credits, they often don’t apply toward fulfilling their degree requirements toward their majors, according to a report filed in June by the U.S. Government Accountability Office (GAO). For many veteran students, school closures and transfers can exhaust their GI Bill benefits.

School closures also can cost the federal government and taxpayers hundreds of millions of dollars in financial losses due to discharged federal student loans.

Lax oversight

For GI Bill beneficiaries, the Department of Education works with the Veterans Business Affairs agency and State Approving Agencies (SAA), known as “the triad.” State Approving Agencies, state employees under contract with the VA, have the authority to shut down schools and remove GI Bill benefits, the VA does not. But DeVos’ deregulation efforts would undermine protections for GI Bill beneficiaries by making it more difficult for state approving agencies to hold schools accountable, according to a report by Veterans Education Success, which works with military service organizations to educate federal and state policymakers to ensure the success of the GI Bill and its beneficiaries.

The Office of the Inspector General of the Department of Veterans Affairs (VA) conducted an audit of the Veterans Business Affairs and state approving agencies oversight of all programs for military veterans from February 2015 through January 2016, and estimated 44 of the 51 state agencies “did not adequately oversee the education and training programs to ensure only eligible programs participated in the Post-9/11 GI Bill program.”

The report, published in December 2018, found that out of an estimated $585 million paid for these “improper payments,” a staggering 81% or $473.8 million went to for-profit schools. If the Veterans Business Affairs agency does not implement oversight and better recommendations to the SAAs about $2.5 billion in related improper payments will go to potentially ineligible programs over the next five years, “putting billions of dollars at risk for fraud and waste and hindering efforts to provide quality education to eligible students,” according to the audit.

Poor performance

Then there’s the problem of performance at these schools. The for-profit colleges examined in the GAO report showed the lowest graduation percentage of any type of college, at 22% for a four-year program, compared with 73% for public schools and 66% at nonprofit schools. Retention rates for full-time students also lagged, at 56%, compared with 88% for public schools and 85% for nonprofit schools.

The Department of Education recently filed a regulation in June stating plans to loosen requirements and oversight of accreditation agencies, which will only create more incentives for the Dream Centers of the nation.

“Essentially, they are up a creek,” Ochinko said. He and his organization, Veterans Education Success, recommend that Congress restore full benefits to GI Bill students in these circumstances.

Rep. Donna Shalala (D-Fla.) recently introduced a bill to close the 90/10 loophole at for-profit colleges, a small step in the right direction.

By Jillian S. Ambroz

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