Predatory Colleges In the COVID Economy: What Is a State Regulator To Do?
written by Robert Shireman, director of higher education excellence and senior fellow at The Century Foundation
Discussions about the fate of higher education in the COVID economy frequently focus on the likely decline in enrollment at all but the most elite residential colleges and universities. The bulk of the nonprofit schools will see a decline in tuition revenue. Some of them, already struggling, will fold or merge with other institutions, leaving to state regulators the task of ensuring that academic records are retained, and students are transitioned to appropriate programs.
Losing some small colleges with long and storied histories is unfortunate, but their closures are usually long coming and not calamitous. Assets of nonprofit entities are legally protected from the pillage of owners, so the state and the school’s trustees have the same overall goal of a smooth transition, with every penny reserved for that purpose. This summer, state agencies that oversee private colleges should make sure that trustees are realistic about whether their institution is going to survive, and ensure that they have taken steps to protect students in the event closure becomes imminent. To assess the danger, states should require schools to provide them with current information about their liquidity level: their ability to pay bills over the coming months without new income.
A bigger, more difficult problem is on the way, though. As the nation emerges from its economic shutdown, millions will be looking for jobs and seeking ways to become more financially secure for the long term. Uncertain about the future, they will be highly receptive to the advice and suggestions of institutions with a “college” or “university” label demonstrating their legitimacy through accreditation and eligibility for the GI Bill or other federal aid.
In the Great Recession, enrollment at for-profit colleges skyrocketed. The most aggressive companies had learned that the way to grow quickly was to spend heavily on recruiting students — especially the students who would pay entirely with federal grants and loans, making it easy to dodge any serious analysis of the tuition price compared to other options. What the students did not know was that at these predatory schools, the education itself was an afterthought, and the claims of a robust job-placement operation was a ruse to create the impression that enrolling and graduating was a near-certain conduit to financial security. The result was disastrous for hundreds of thousands of students who were loaded up with debt but without the means to repay or to reclaim their lost opportunities. Many of them are still seeking compensation.
While predatory college recruiting leads to people being ripped off, the recruiting operations themselves frequently do not involve explicit conspiracies to cheat students. Instead, typical business metrics like marketing tests and sales targets steer administrators and owners to make what turn out to be predatory choices about what programs to offer to whom, how much to charge, how to advertise and recruit, how to advise potential students, or how to deliver the education.
States can help to protect against a new epidemic of predatory college recruiting by adapting and adopting a set of policies described in a state policy toolkit just released jointly by The Century Foundation and Veterans Education Success. The state of Maryland has been particularly active in identifying needs and adopting reforms, with three laws featured in the toolkit:
● Protecting consumers and especially veterans by closing the loophole in the 90–10 rule. The federal rule is supposed to bring a modicum of market accountability at for-profit schools by requiring at least a 10% private customer base, but a loophole that fails to count the GI Bill has allowed schools to be completely funded with federal grants and loans. The new Maryland law prohibits schools from enrolling additional Maryland residents if it fails to meet the test while including veterans.
● Incentivizing orderly rather than calamitous closures of schools. The toolkit reviews ways that states can prepare for closures, and links to Maryland’s new law that incentivizes responsible management by canceling any debts that students owe to a school that closes without adequate notice and preparation.
● Protecting the integrity of nonprofit institutions. A decline in charity oversight by the IRS has allowed some for-profit college owners to claim nonprofit status without actually separating profit-making from the governance of the institution. Legitimate nonprofit control is an important consumer protection mechanism. Maryland’s law triggers state review of any nonprofit school with conflicts of interest or insider transactions.
Upgrading the oversight of online schools is one of the most important steps a state should take immediately. Some state officials mistakenly believed that they were protecting their distance education students by joining a multistate reciprocity agreement, NC-SARA. However, that agreement mostly just gave its own in-state colleges access to other states’ residents, and vice versa. It is still up to states to keep watch for online colleges that are not eligible for NC-SARA or that lose eligibility.
The state agencies that oversee private postsecondary education vary in their authority; the recommendations in the state policy toolkit may require action by the state legislature. If that is the case, the state agencies should take it upon themselves to brief key committee chairs in the legislature about the predatory college marketing that is likely to emerge in coming months and the policies they can consider adopting to protect consumers.
Hard times have hit every community in the country, which means that millions of Americans will be looking for ways to regain their economic footing. College or job training can be a promising avenue, but the promise of education can also make it too easy for slick operators to lure students into programs that are not a good fit or are overpriced. State higher education agency officials should be on high alert and updating their laws and regulations with consumer protection guardrails like those in the state policy toolkit.
Robert Shireman is director of higher education excellence and senior fellow at The Century Foundation working on education policy with a focus on affordability, quality assurance, and consumer protections. He served in the Clinton White House as a senior policy advisor to the National Economic Council, and in the Obama administration as deputy undersecretary of education. In 2004 he founded The Institute for College Access & Success, and in 2011 launched the policy organization California Competes. Under Shireman’s leadership, in 2018 The Century Foundation won a contract with the State of California to develop recommendations for reforming the state’s approach to college affordability. In addition to his role at Century, Shireman serves on the board of uAspire, a national nonprofit that helps low-income students find quality, affordable college options, and The Opportunity Institute, an education policy think tank. Shireman holds a bachelor’s degree in economics from the University of California at Berkeley, a master’s in education from Harvard, and a master’s in public administration from the University of San Francisco.
