Dems Target For-Profit Colleges, May Enrich Crony Wall Street Traders

Maryland Rep. Elijah Cummings, who is the ranking Democrat on the House Oversight Committee, has launched an investigation into the compensation of executives at private sector colleges and universities.

Rep. Elijah Cummings


The New York Times reports:
"The American taxpayers fund these schools through billions of dollars in tuition assistance, but there is little evidence that lavish executive pay is linked to the well-being of the students they are supposed to educate,” Mr. Cummings said in a statement. He said he wanted to determine whether executive compensation was “appropriately tied to the performance of students they educate."

Strangely, Cummings’ interest in ensuring that students receive good educations and taxpayer dollars are wisely spent does not extend to public community colleges, which are 100 percent taxpayer funded and have comparably low graduation and employment rates. Why do these institutions, which service the same market of students as for-profit colleges and are much more directly under government control, get a free pass?

While he’s at it, why doesn’t Cummings see fit to investigate the absurdly inflated salaries of athletic coaches at many public colleges? Answer: because that wouldn’t be as politically expedient.

This push from Cummings comes a few months after the Department of Education passed its stringent new “gainful employment” rule that disproportionately targets for-profit institutions, holding them to much higher standards regarding graduation rates and future employment than are applied to either private or public colleges.

From the New York Times:
Under the new rules, programs would lose their eligibility to dispense federal student aid — and as a practical matter, be shut down — if, over the next four years, their graduates fail to meet new benchmarks for loan repayment and ratio of debt to income.

The witch-hunt against for-profit colleges has long been a cause célèbre among Democrats pushing for more government control of the private sector under a banner of saving taxpayer dollars.

This particular Department of Education ruling was not only unjust but bore the hallmarks of being influenced by Wall Street short-sellers who stood to make millions from for-profits’ downfall, including noted short-seller Steven Eisman, who testified in front of the DOE and Congress as the "gainful employment" rule was being written.

Business Week reported nearly a year ago:
On April 16, Eisman met with Education Department officials, including acting deputy assistant education secretary David Bergeron, according to Justin Hamilton, a department spokesman. He sent multiple e-mails to a number of Education Department officials, including Duncan, on May 28, two days after airing his views at the Sohn conference in New York. He warned against the watering down of gainful employment, according to the documents obtained through a Freedom of Information Act request...

‘He shared a PowerPoint that he intended to use for a speech he was planning to give in May,’ Bergeron, the acting deputy assistant education secretary, said in a telephone interview. “It would have been inappropriate for us not to meet with someone that indicated that he had done serious research on the industry.’”

Democrats making policy to appease cronies and campaign donors? Say it's not so! In light of the above, imagine our complete lack of surprise when industry publication Inside Higher Ed reported the following turned up about Iowa Sen. Tom Harkin, a virulent critic of for-profit colleges, a few months ago:
"JNK Securities will host Senator Tom Harkin, Chairman of the Health, Education, Labor and Pensions Committee on September 20th at 2:30pm in NYC for a roundtable discussion," one of the firm's managing directors wrote to a group of investors last Friday. "Discussion topics to include for profit higher education institutions and finance."

When one potential participant wrote to sign up for the event at a French bistro, the JNK official, Don Hood, said in a followup e-mail: "I can confirm you but for our DC Access events such as this we are charging $10k for attendance."

The suggestion that Harkin would share his thoughts on the for-profit higher education sector with a group of mostly short selling investors -- who benefit when the stocks of the higher education companies go down -- troubled advocates for for-profit colleges. That's especially true given that the senator, by Sept. 20, will have collected much of the mountain of information he has asked the companies to provide as part of his continuing investigation into the colleges' practices -- information that could prove damaging to the colleges.

As soon as word of the event became public, Harkin’s people denied any knowledge of it and attempted to portray JNK as a rogue actor. Maybe so, but how realistic is it that a well-known securities firm would simply take it upon themselves to issue invitations, reserve a venue, and actually collect admission costs from its investors knowing full well that they would ultimately be embarrassed when the Senator didn’t show? Its possible, sure, but a scenario that makes a whole lot more sense is that Harkin was trying to sneak this short-seller powwow into a New York fundraising trip and got spooked when the details threatened to come to light.

At the end of the day, this debate is about ensuring a good education for our students, particularly those students that do not have the capacity or resources to pursue a traditional college degree. Lack of a properly educated workforce is a key reason companies cite when they outsource operations overseas; it is vital to ensure American competitiveness.

From a survey of community college directors issued this month by the University of Alabama:
Nearly three-fourths of survey respondents agreed that in the face of such challenges, community colleges are being pushed to offer "quick" job training without academic credit. That limits colleges' ability to invest in more expensive long-term programs, the report says, in fields like allied health, engineering, and information technology—the very fields that need more workers and tend to offer better pay. Forty-two members indicated that their states need more funds to expand programs in those areas.

If community colleges were doing the job adequately, there would be less of a need for the for-profit sector, but the fact of the matter is that community colleges are failing and for-profit programs have stepped in to fill the skills gap. For-profit colleges have the resources to invest in the aforementioned long-term programs and turn out workers that are better prepared for the jobs that are out there. They deserve the chance to fairly compete without being targeted for daring to operate in the private sector.

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