For Profit Schools Unfairly Targeted by Department of Education
05-02-2011 at 02:57 pm - David Williams - Posted in: David Williams, Education, Taxpayers Protection Alliance - 0 Comment

The for-profit education industry has been under attack.  The Department of Education (DOEd)  proposed  “gainful employment” rules which require for-profit schools to prove their graduates are either paying back loans or are capable of doing so.  If not, the schools will lose access to federal student aid.  The hook is that it is only the for-profit schools that are required to do so.

Former special counsel to President Clinton Lanny Davis pointed out in a November 18, 2010 Huffington Post article, that DOEd is targeting only for-profit career colleges:

  • “First, the panel of negotiators involved in developing the ‘gainful employment’ regulations with the Department, included only one representative out of 14 members -- a panel that the law empowers to write the regulation if there is ‘consensus…’
  • Then proponents of the Department's rules claimed that students at for-profit schools default on their student loans at a higher rate...
  • The Department then stated that it plans to eliminate job training programs using statistics schools and the public cannot access….
  • In addition, the Department's drafted rules propose that only loans in which principal payment reductions are occurring will be deemed to be in compliance. That is contrary to the government's menu of loan repayment options -- such as interest only and income based -- that recognize that an education's value is realized over time or hardship deferrals or forbearance….”

Now it appears that much more has been going on behind the scenes.  The National Legal and Policy Center (NLPC) sent a letter which “asked the Securities and Exchange Commission (SEC) to investigate the activities of short sellers, including Steven Eisman, who profited from the collapse of share prices of companies that are in the for-profit education field.”  The letter in part read, “A major feature of the short-seller effort has been to promote Department of Education policies that would result in draconian new standards for education loans applicable to students at for-profit schools. This intended slashing of funds would have the effect sought by the short-sellers: a collapse in the share prices of the listed for-profit trade school companies resulting in a direct monetary benefit to the shorts.  It is also beyond debate that the tactics of the short sellers and their allies appear to have worked insofar as share prices of affected companies have lost billions of dollars.

Also, check out NLPC’s blog“Harkin-Orchestrated GAO Study on For-Profit Colleges Was Hatchet Job” about Sen. Tom Harkin’s (D-Iowa) role in the process.

Citizens for Responsibility and Ethics in Washington (CREW) has also weighed in on the issue with a March 1, 2011 press release: “Citizens for Responsibility and Ethics in Washington (CREW) sent letters to the Director of Enforcement for the Securities and Exchange Commission (SEC) and U.S. Department of Education Secretary Arne Duncan to share records CREW obtained through its Freedom of Information Act (FOIA) lawsuit against Education.  These documents show high-level Education officials colluded with Wall Street short-sellers, improperly leaking the contents of highly controversial gainful employment regulations in advance of their publication.”

And, now it appears that somebody was listening.  According to the Daily Caller on April 29, 2011, “The Education Department’s inspector general is investigating Wall Street short sellers’ role in strict new regulations of the for-profit college sector, sources confirm to The Daily Caller.  The investigation could reveal the extent to which the investors, who are hoping to profit when the for-profit firms’ stock goes down, influenced the process or received advance knowledge about regulatory actions by the department.”

Time for DOEd to stop the witch hunt against for-profit schools.

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