For-profit colleges face fraud complaints as DeVos weakens rules

Students filed nearly 24,000 federal fraud complaints over the past year, almost entirely against for-profit colleges, as enrollment falls. Education Secretary Betsy DeVos has proposed changes to Obama-era regulations that would bolster the struggling industry. 

First Look

For-profit colleges are facing complaints, lawsuits, and ongoing government scrutiny as Education Secretary Betsy DeVos engineers a seismic shift in the regulatory landscape that stands to benefit the multibillion-dollar industry.

Ms. DeVos's actions amount to an about-face from the Obama administration's push to clamp down on the industry and forgive student debt for those who were charged top dollar but left with worthless degrees.

In an ongoing lawsuit against Ashford University, California's attorney general accuses the online school of peddling "false promises and faulty information" to lure students who were eligible for federal financial aid, the school's primary source of revenue. Ashford denies the accusations.

The lawsuit's allegations are strikingly familiar to those that plagued now-defunct for-profit chains including Corinthian Colleges and ITT Technical Institute, spurring the Obama administration to craft sweeping rules to police the industry. And they're being echoed in other ongoing complaints against several of the biggest for-profit colleges.

Education Department documents obtained by The Associated Press through an open-records request show that students filed nearly 24,000 federal fraud complaints between President Trump's Jan. 20, 2017, inauguration and April 30 this year, almost entirely against for-profit colleges. More than 3,600 were lodged against DeVry University, while the University of Phoenix drew 1,100.

Separately, the Federal Trade Commission is investigating the University of Phoenix chain for possible deceptive or unfair business practices, a probe that began under the Obama administration.

And the Department of Veterans Affairs is in an extraordinary dispute with Ashford over the school's eligibility to receive federal GI Bill funding, which many military veterans use to pay tuition. The outcome could have major implications for Ashford if it's cut off from that funding.

The regulatory transformation that DeVos is pushing could be a lifeline for many for-profit schools already wrestling with image problems, sliding enrollments, and growing competition, even in online education.

Schools like the nonprofit Western Governors University, for example, have seen enrollment soar as they offer online programs with tuition as low as $6,500 a year. Meanwhile, at DeVry, which charges more than twice as much, enrollment has fallen by nearly 20 percent in the last year, according to its federal Securities and Exchange Commission filings.

Among most four-year, for-profit colleges, enrollment fell this spring by nearly 7 percent from the year before, to about 925,500, according to the National Student Clearinghouse Research Center. It continued a downward slide that began in 2010 as the US economy began to improve, steering adult students back to the workplace.

Most for-profit colleges opposed the Obama administration's industry crackdown but have eased up on lobbying since Mr. Trump brought his business-friendly approach to the White House. Steve Gunderson, president and CEO of Career Education Colleges and Universities, the industry's largest trade group, said for-profits have generally received a warm reception from Trump officials.

"That's been a very different attitude toward us," he said. "During the Obama administration, they declared war on our sector. We were fighting for survival."

Lobbying by for-profit schools – modest when compared to other industries – has averaged about $5.6 million since 2015, according to the political-money website Open Secrets. And with allies instead of adversaries in the executive branch, that total is expected to dip in 2018.

The Education Department proposed earlier this month to revoke a 2014 regulation that sought to cut federal funding to for-profit college programs that left graduates with high ratios of debt compared to their incomes. The department outlined in late July a plan to weaken another Obama-era rule that would have made it easier for students defrauded by schools to get their loans erased.

Both rules were created after thousands of students brought complaints of fraud against the Corinthian Colleges and ITT Technical Institute chains. The schools had been accused of lying about their job placement rates, using high-pressure recruiting tactics and other unethical behavior.

Although both chains collapsed under pressure from the Obama administration, the complaints haven't stopped under Trump. Roughly half the 23,970 federal fraud complaints made since Trump's inauguration were against Corinthian and ITT.

DeVos's department said its approach will better shield students from misconduct while protecting for-profit colleges from false accusations and from being targeted because of their tax status.

Mr. Gunderson's group applauded the changes, but student advocacy organizations and a coalition of attorneys general from 16 states and the District of Columbia criticized DeVos for prioritizing schools over students.

"For-profit colleges are the big winners," said Debbie Cochrane, vice president of The Institute for College Access and Success. "The department is much more receptive to their message."

This article was reported by The Associated Press.