Education Department's Ruling Could Leave California Students Vulnerable to Fraud

Lost in the controversy surrounding the Education Department's decision in the Nelnet case was another ruling that Department officials made this month that could put thousands of low- and moderate-income students in California in harm's way.

At issue is the future of a regulatory bureau that oversees for-profit colleges in the state of California.

In September Gov. Arnold Schwarzenegger vetoed a bill approved by the State Legislature that would have provided a one-year extension for the Bureau for Private Postsecondary and Vocational Education, which is set to expire on July 1. Mr. Schwarzenegger said the Bureau, which legally authorizes for-profit colleges (i.e. trade schools) to operate in the state, had fundamental flaws.

Just about everybody on all sides of the debate over the bureau's future -- consumer watchdogs and for-profit college lobbyists -- agree that it is flawed. Advocates for students say the bureau is not strong enough, and lacks the resources it needs to do its job effectively. At the same time, lobbyists for the trade schools complain that bureaucratic red tape at the agency stifles their institutions' attempts to expand in the state.

Still neither side could agree on how the bureau should be restructured, so California State legislators thought it was in the students' best interest to extend the agency's life for another year, while greater efforts could be made to find a common ground.

Proprietary-school lobbyists, on the other hand, were not interested in reaching a compromise, and instead urged Governor Schwarzenegger to veto the legislation.

The Governor's move was risky, though, because it has long been believed that if the Bureau was closed down, the relevant California trade schools would no longer be eligible to provide federal aid to students. The Higher Education Act requires that colleges be "legally authorized" by states in order to award aid.

So the Governor's office turned to the Bush Administration -- which has done many favors for its deep-pocketed friends in the for-profit higher-education industry -- for its interpretation of the law.

Not surprisingly, the Education Department told the Governor's office, and the Administration's proprietary-school allies, what they wanted to hear. In a letter to California State officials earlier this month, James Manning, the Department's acting Assistant Secretary for Postsecondary Education, wrote that "the abolition of the Bureau will have no effect on Title IV eligibility." As long as the institutions' are accredited, they will be able to continue to provide federal student aid, he stated.

Higher Ed Watch believes that while the Department's decision -- which is likely to put the final nail in the coffin of the oversight bureau -- may be technically correct, it's ill considered.

While the bureau may be imperfect, it does add a level of protection to students that the national accrediting agencies that oversee for-profit schools do not. In fact, many of these accreditors have had a sorry history in policing the campuses that they count as members. These agencies often appear to be the last to know about fraud and abuse occuring at the institutions they accredit.

Take, for example, the Accrediting Council for Independent Colleges and Schools. According to a 2001 article in The Chronicle of Higher Education, that agency turned a blind eye to misdeeds occurring at the for-profit Computer Learning Centers, which the Education Department effectively shut down for abuses by severely restricting its ability to award federal aid. According to the article, ACICS removed the centers' accreditation only after the schools declared bankruptcy.

More recently the New York State Education Department shut down the Taylor Business Institute, a two-year proprietary school, for failing to provide an adequate education to its students. Educators who were assigned to review the institute's performance last summer say they were shocked to learn that ACICS had never raised any red flags about the schools' performance.

Policy makers in California are now scrambling to see if they can put together a new plan to ensure that students attending for-profit colleges in the state have adequate protections.

Without having the threat of losing eligibility for federal student aid, the consumer advocates say, it's unlikely that trade-school lobbyists or their allies in the Governor's office and State Legislature will agree to an oversight bill with any teeth in it.

Robert Johnson, the president of the California Association of Private Postsecondary Schools, insists that his group is pushing for a new law to be put in place before the bureau expires. But in a memo to his members, he says leaving the sector unregulated is better than renewing the Bureau for another year.

"A failed Bureau would continue to generate Legislative and media criticism," he wrote. "A failed Bureau would also leave California as the only State in the Union which has seen a significant decrease in the number of private postsecondary institutions over the last five years."

Higher Ed Watch disagrees with this reasoning. The State of California's primary responsibility should be to protecting vulnerable students, who take out tens of thousands of dollars of loans each year to attend these institutions.

Policy makers in California would be well advised to follow the lead of the New York State Board of Regents, which has adopted new regulations to tighten oversight over for-profit schools. While some lobbyists for trade schools have fought these new standards, the leaders of some of the most respected for-profit institutions in the state have supported the regents' effort -- recognizing the existence of even a few bad apples sours the reputation of the entire industry.

"Those not in compliance with regulations should be dealt with quickly and appropriately," said Stephen J. Jerome, president of Monroe College and chairman of the Assocation of Proprietary Colleges, a group of 35 degree-granting, for-profit institutions in the state, wrote in a letter to the regents in December.