Defending for-profit schools paid dividends for Carolina lawmakers | McClatchy Washington Bureau

Two large operators of for-profit career colleges were quick to see the threat in 2009, as the new Obama administration and Senate Democrats examined complaints that the industry had left many ex-students buried in debt with no diplomas to show for it.

In the seven years since, the two companies have led their industry in a determined battle to fend off tighter regulation, spending millions of dollars on lobbyists and doling out more than $2.2 million in political donations, including $59,000 to two veteran North Carolina Republican lawmakers.

The top North Carolina recipients of political money – Sen. Richard Burr and 5th District Rep. Virginia Foxx – were key players.

In early 2015, they pushed companion Senate and House of Representatives bills that would have blocked implementation of an Education Department rule aimed at ensuring that for-profit schools’ oft-pricey, mostly online classes live up to their promise to train students for well-paying jobs.

Burr and Foxx, both members of education committees, said at the time that they were acting to ease overly burdensome government regulations. Burr’s re-election campaign cited the report of an academic task force he had helped create. It pointed to the Education Department’s 930-page rule targeting for-profit schools among prime examples of regulatory overkill.

The industry, however, has been plagued by complaints about soaring dropout and student-loan-default rates, as well as allegations that school recruiters used misleading marketing tactics and preyed on military veterans at bases including Fort Bragg and Camp Lejeune.

Both school operators – the Phoenix-based Apollo Education Group Inc., which runs the widely advertised University of Phoenix, the industry’s biggest school, and San Diego-based Bridgepoint Education Inc. – have been drawn into the controversy.

The University of Phoenix has been on the industry’s leading edge, at one point swelling its nationwide enrollment to more than 477,000, mainly through online classes. In 2010, the company reported a staggering $4.9 billion in revenue and recorded $521 million in profits.

But a Brookings Institution study found that by 2014 nearly 1.2 million current and former University of Phoenix students had borrowed $35.5 billion in federal student loans, far more than any school in the nation, and that 45 percent of the students who’d enrolled in its classes five years earlier had defaulted on their loans.

For all for-profit, four-year schools, the average six-year graduation rate of 27.8 percent among 2008 enrollees lagged far behind the 55.2 percent of students who earned degrees at public institutions during the same time frame.

At the University of Phoenix, just 17 percent of the more than 107,000 students who enrolled in the school’s main online Arizona campus in the fall of 2008 received associate’s degrees, bachelor’s degrees or certificates within six years, according to Education Department data derived from the school’s reports. The figure fell to 10 percent for those seeking bachelor’s degrees.

The university, whose student population has shrunk by more than half since scrutiny tightened, contends the department data is flawed because it doesn’t count outcomes for students who take more circuitous educational paths. It says 41.1 percent of students seeking bachelor’s degrees graduated within those six years.

In early September, Bridgepoint agreed to a consent order issued by the Consumer Financial Protection Bureau alleging that its Ashford University had deceived students into taking private loans costing more than advertised. Bridgepoint, which did not admit or deny any of the agency's findings of fact, agreed to pay more than $23.5 million in loan forgiveness.

For-profit schools, including about 1,300 two- and four-year colleges and universities that offer degrees, serve an estimated 2 million students and are financed almost entirely by taxpayers.

Since 2010, the cumulative award of income-based student Pell Grants and federally backed student loans for those attending for-profit universities has exceeded $100 billion, according to Education Department data. Hundreds of millions of dollars more in annual GI education benefits help military veterans and active duty troops to enroll.

Now, in an election year, after the collapse of a number of large for-profit schools and a 20 percent enrollment drop at the industry’s four-year schools, Burr, Foxx and other politicians who fought against the regulations may feel some heat.

Deborah Ross, Burr’s Democratic opponent in his bid for a third term in the Senate, has begun to publicly attack him for his role.

Burr and Foxx are standing firm in defending their actions.

From the Obama administration’s earliest months, the Education Department bucked resistance from congressional Republicans. The agency has gradually escalated enforcement measures, leading a number of schools big and small to shut their doors. The latest casualty, Indianapolis-based ITT Technical Institute, closed 130 campuses in 38 states after it was barred from accepting new students with federal aid.

To the department’s critics, Education Secretary John King has a ready retort: “Schools looking to cheat students and taxpayers will be held accountable.”

The administration’s cause was boosted by revelations of a rash of complaints and lawsuits from former students at Trump University, the unlicensed, now-defunct school owned by Republican presidential candidate Donald Trump. They have alleged they were misled into squandering $35,000 on tuition for little value.

The controversy around more established for-profits burst into public view in 2011, when Democrats holding a majority on the Senate education panel conducted hearings to unveil results of a two-year investigation of the industry.

The committee detailed how Bridgepoint, whose majority shareholder was a Wall Street hedge fund, grew Ashford University’s enrollment from 332 students to 78,000 mainly online students in five years with $600 million in federal subsidies. In 2010, the firm’s top five executives shared $36.7 million in compensation, and Bridgepoint reported $216 million in profits.

Republicans assailed the investigation, led by then-Committee Chairman Tom Harkin of Iowa, with Burr deriding it as “a witch hunt.”

But the Obama Education Department already had begun to craft tighter regulations and formally proposed a rule in 2011 to tighten the noose around for-profit schools that were saddling students with debt without setting them up in careers.

Bridgepoint and Apollo ramped up their political activity. Bridgepoint’s political action committee, which had given $29,900 to members of Congress in 2009 and 2010, contributed $1.26 million from Jan. 1, 2011, through June 30 of this year. Apollo’s PAC has donated $929,476 since 2009.

Spokesmen for Apollo and Bridgeport, both of whose schools have made improvements since the federal crackdown, declined to comment on their campaign donations.

Soon after the 2011 rule was issued, Foxx won House passage of a measure to block its implementation, though it went nowhere in the Senate. Rep. Alcee Hastings of Florida was among a few Democrats who supported Foxx’s bill, giving it a bipartisan look. Since that year, Hastings has received $26,000 from Apollo’s and Bridgepoint’s PACS.

An industry suit, however, stalled the rule-making process.

In November 2013, Burr, Senate Education Committee Chairman Lamar Alexander of Tennessee, along with Democratic Sens. Barbara Mikulski of Maryland and Michael Bennet of Colorado, took a different tack. They announced they were creating a broad task force of college and university presidents and chancellors to evaluate the degree to which regulations were burdening schools.

Bridgepoint’s and Apollo’s PACS have donated $21,000 to Bennet’s political committees. Bennet’s office did not respond to requests for comment.

A federal judge ultimately upheld a revised version of the Education Department’s rule. On Oct. 30, 2014, the agency formally proposed the recrafted “gainful employment” rule, which would require all career colleges to show that typical graduates spend no more than 20 percent of their discretionary incomes or 8 percent of their total earnings on student loan payments.

Programs failing to meet the guidelines would be at risk of losing eligibility for student financial aid, a virtual death sentence. The department estimated that about 1,400 programs serving 840,000 students, nearly all at for-profit schools, were at risk.

Burr and Foxx fought back yet again. On Feb. 25, 2015, Burr introduced his bill, with no Democrats among the 28 co-sponsors, to prevent implementation of the rule for at least two years. Over the preceding 3 1/2 weeks, his campaign received $9,000 from Bridgepoint’s PAC, and the task force issued its report assailing the maze of Education Department regulations and modifications piling up at the rate of a page each day. The 16-member panel, including then University of North Carolina system President Thomas Ross, called the pending for-profit rule “fundamentally flawed” and urged its repeal.

Jesse Hunt, a spokesman for Burr’s campaign, said 299 nonprofit schools in North Carolina “are burdened by President Obama’s 800 pages of bureaucratic red tape” – collateral damage under the gainful employment rule.

Burr thought the added regulatory burden “could cause tuition to rise on North Carolina’s campuses,” Hunt said.

“Sen. Burr has long understood there are bad actors in higher education, and those actors must be dealt with,” Hunt said. “But when the federal government increases the cost of a college education for families, everyone loses.”

Burr’s campaign cited a long list of academic groups, including the American Council on Education and the Council for Higher Education Accreditation, that supported his bill.

But weeks later, a longer list of consumer, veterans, faculty and staff groups signed a letter of opposition, saying that almost all career programs at public and nonprofit schools pass the new regulation’s test “for the simple reason that they are serving students far better.”

Ross, who hopes to unseat Burr, said she hears “from family after family in North Carolina about the crushing burden of student loan debt – and it’s clear that the last thing students and families need in Washington is a typical politician like Richard Burr, who makes things worse by standing up for his campaign contributors in the for-profit college industry rather than protecting students and veterans here in North Carolina.”

Foxx’s spokeswoman, Sheridan Watson, said the congresswoman believes “the Department of Education has intentionally targeted and sought to dismantle the for-profit college industry with arbitrary regulations that threaten student choice, innovative schools and an American economy that stands to benefit from responsive higher learning institutions.”

Since 2009, Burr has received $34,000 from Phoenix’s and Apollo’s PACs and another $6,000 from a PAC for a trade group representing other for-profit colleges, now known as Career Education Colleges and Universities.

Foxx, a former community college president who is a leading candidate to ascend to the chairmanship of the House Education and the Workforce Committee next year, has received $25,000 from Bridgepoint’s and Apollo’s PACs and $16,000 from the trade group’s PAC.

The two corporate PACs also rewarded others who sought to protect the industry.

Alexander, chairman of the Senate education panel, received $42,000 from the two company PACs and $3,000 from Apollo executives, according to the PACs’ filings with the Federal Election Commission.

Minnesota Rep. John Kline, the chairman of the House panel on Education and the Workforce, who is retiring from Congress at year’s end, received $149,600 from the two PACS, $52,600 from Apollo executives and $42,499 from the trade PAC.

Spokespersons for both men did not respond to requests for comment.

Following ITT’s failure in September, Education Secretary King blamed the administration of former President George W. Bush for taking steps “that made it possible for schools to take advantage of students.”

He lamented that rather than going to school to “make progress in the economy,” in many cases, “students have actually ended up worse off .”

Three days after ITT’s shutdown, Gaston College, which has its own technical school, held an information session for displaced students at its Belmont, North Carolina, campus.

Darren Stewart, a financial aid specialist at Gaston, said “a lot of them are kind of in the fog right now about where they’re going to go.”

CORRECTION: An earlier version of this story inaccurately described Bridgepoint Education Inc.’s position in agreeing to a consent order with the Consumer Financial Protection Bureau. The company did not admit or deny any of the order’s findings of fact. The earlier version also misstated the University of Phoenix's peak enrollment, which was more than 477,000, and its parent company's profit that year, which was $521 million.