CCA Recap: Federal Legislation Priorities and Next Steps

This last week at the 2010 Career College Association Convention, I was able to hear from Brian Moran, Executive Vice President of Government Relations General Counsel for the CCA. Mr. Moran gave a comprehensive and informative update on upcoming federal legislation that will undoubtedly have a profound effect on the for-profit higher education industry. To quote Mr. Moran (himself paraphrasing the great Charles Dickens) “it is the best of times, it’s the worst of times.”

The Best of Times
President Obama has suggested that we restore America’s leadership in higher education and regain lost ground by 2020, returning to its #1 ranking in the world in higher education (currently 14th). To help achieve this, the President has requested a 6% increase overall in Department of Education (ED)’s FY 2011 budget, with $2.1 billion directed at higher education programs. Not to mention the American Recovery and Reinvestment Act of 2009 (stimulus) funding of Pell grants for school year 2009-2010 is $33B up from $18B in 2008. The money and desire are there for the proprietary education industry to continue the phenomenal growth realized over the past decade, and that growth must come from continuing adult learners and for-profit institutions.

The Worst of Times
Depite the benefit that proprietary education brings to our country, there are a few “bad apples” that have inappropriately taken advantage of the current system, catching the attention of Uncle Sam and the mainstream media. As a result, in December 2009, ED held negotiated rulemaking sessions concerning 14 program integrity issues, claiming that current regulations cause fraud and abuse.

The issues are listed below (as well as whether a consensus was reached):

• Definition of High School Diploma – (Yes)
• Ability-to-Benefit – (Yes)
• Misrepresentation of Information to Students and Prospective Students – (Yes)
• Incentive Compensation – (No)
• Definition of a credit hour – (Yes)
• Agreements between Institutions of Higher Education – (Yes)
• Verification of Information included on Student Aid Applications – (Yes)
• Satisfactory Academic Progress – (Yes)
• Retaking Coursework – (Yes)
• Return of Title IV Funds, Term-Based Programs with Modules or Compressed Courses – (No)
• State Authorization as a Component of Institutional Eligibility – (No)
• Employment in a Recognized Occupation – (No)
• Return of Title IV Funds, Taking Attendance – (No)
• Disbursements of Title IV Funds – (Yes)

Most of the attention during Mr. Moran’s presentation was paid to Gainful Employment, but I’ve included some additional bullets on Incentive Compensation and Misrepresentation.

Gainful Employment Definition
The newly proposed Gainful Employment regulations were easily the hottest topic going into this session. However, it needs to be said that about 25 minutes into the presentation Mr. Moran received an announcement that Gainful Employment would not be a part of the new regulations due to be announced in the next couple of weeks, drawing a resounding applause from the audience. However, it was not clear whether or not the gainful employment regulation would resurge at another point during the rulemaking process.

The term “proprietary institution of higher education” means a school that provides an eligible program of training to prepare students for gainful employment in a recognized occupation. This is the statutory basis for the Department’s proposed gainful employment regulation, which stated that any programs failing to meet a gainful employment definition would lose Title IV eligibility. The gainful employment proposal establishes an 8% debt-to-earnings ratio using median loan debt, including all types of student loan debt incurred by a student.

What’s Wrong with Gainful Employment Proposal?
• Lack of Evidence or Statistical Foundation
• Statutory Authority Missing
• Creates Double Standard
• Confuses Excessive Borrowing with Excessive Debt
• Constitutes Tuition Price Fixing

CCA Approach: Real Data vs. Anecdotes
In order to combat the “broad stroke” that the for-profit industry is being painted with by the media and others, the CCA commissioned a study to get answers about any unintended consequences of the Gainful Employment Proposal. Major findings of the study show:

• Over 360,000 students a year would be displaced
• At historic growth rates, 5.4 million students displaced through 2020
• Limits access opportunities for education in critical professions, including Healthcare and Information Technology
• Disproportionate impact on minorities and women
• At-risk programs actually generate better loan repayment results

In short, the study commissioned by the CCA shows that, at least, the Gainful Employment rule needs to be revisited. And based on the fact that Gainful Employment won’t be part of the upcoming rule change, it’s safe to assume that someone was listening.

Incentive Compensation
• Rules surrounding incentive compensation deal with compensating enrollment advisors/recruiters based on number of students enrolled
• The current law states that compensation cannot be based solely on enrollment
• The current law also provides 12 “safe harbors” or clarifications on how the current law applies to certain situations
• The proposed change would eliminate those safe harbors, and further state that enrollments cannot be a factor at all in compensation
• This leaves a lot to interpretation and would make it difficult for schools to know if they are legally compliant

Misrepresentation
• The Federal Trade Commission has jurisdiction over private sector schools in areas of deceptive advertising, promotional marketing or sales
• ED wants to harmonize its rules with FTC and expand coverage to all institutions
• ED’s over-reaching language covers direct or indirect misrepresentation to a student, prospective student, any member of the public, an accreditor, a state agency or ED
• ED’s language also adds employability of graduates to areas covered

In closing, Mr. Moran gave a brief picture of what to expect moving forward. Rules should be announced within the next two weeks, after which there will be a period for public comment. The rules must then be voted on by November of 2010 in order to take effect in July of 2011. Regardless of the outcome, it behooves anyone involved in the for-profit education industry to take note of this legislation, as it will undoubtedly have an affect on how we do business.