Headlines about fraud within for-profit education businesses appeared frequently in 2016. Stories of long overdue regulatory action conceal a history of regulatory inaction regarding fraud in for-profit education, which has both allowed and rewarded one of America’s biggest systems of consumer abuse.
One of the largest accreditors of for-profits, the Accrediting Council for Independent Colleges and Schools (ACICS), has ceased to be recognized by the U.S. Department of Education (ED). Globe University and Minnesota School of Business (MSB), one of ACICS’s client schools, just lost its license to operate in Minnesota due to its conviction on fraud charges. The largest settlement in a false claims case happened in 2016 as well, with Education Management Corporation (EDMC) agreeing to a $95 million penalty. EDMC was accused of committing fraud in recruitment and marketing at their for-profits including Argosy University, Brown-Mackey, the Art Institutes, and South University.
The settlements against scam schools are dwarfed by the enormity of the wealth transferred to these for-profits practicing an array of consumer abuses. David Halperin, writing for the Republic Report on Nov. 25, 2016, notes that the $95-million settlement with EDMC allowed the company to deny wrongdoing, admit nothing, continue to operate and receive federal funds, and pocket the $11 billion in profit received from government sources over the period covered in the lawsuit. Halperin also points out that unlike smaller operators convicted of frauds involving millions of dollars, as opposed to billions in EDMC’s case, the CEOs of EDMC are not going to jail. Further, the private equity owners of EDMC, including Goldman Sachs, were not even investigated in the lawsuit.
Senator Tom Harkin (D-IA) had, by May 2012, spent two years conducting a far-reaching study detailing the high costs, unethical practices, and propensity to deliver debt, default, and educational drivel at for-profit schools. His extensive report was titled, “For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success.”
The oversight framework of postsecondary education by private accreditation agencies, state agencies, and the federal Department of Education has received renewed scrutiny as study after study has detailed the ways for-profit schools are a terrible investment of government funds. Thomas L. Harnisch’s April 2012 policy brief for the American Association of State Colleges and Universities notes, “Critics of the current system believe the regulatory ‘triad’ lacks an appropriate distribution of responsibilities and sufficient capacity to adequately protect students from illicit practices, ensure institutional integrity and sufficiently advance students’ educational and economic well-being.” State regulators were described in Harnisch’s policy brief this way: “State governments remain in a strong, if underutilized, position within the regulatory framework.”
I found this assessment to be accurate when I made complaints about an “acupuncture school” in 2011. Unprofessional behavior and magical thinking by both students and instructors was a constant practice inside the school I attended. Grades deceived students into believing they were making academic progress. Tests were laughably formulaic or they were take-home tests. I finally complained about this prison of belief when the school owner upped the financial abuse of students in the school’s clinic, which used students as unpaid employees paying to work. I complained to both Minnesota’s attorney general and the Office of Higher Education (OHE). Neither the attorney general nor the OHE attempted to interview me concerning the details of my complaints or asked about other consumer abuses that were occurring at the school about which I complained. As far as I was aware, these offices simply forwarded my complaints to the owner of the school for a response.
That was a missed opportunity for Minnesota’s regulators to plumb the depths of consumer abuses happening at this group of proprietary schools. Years later I would read comments made by former acupuncture students across the country submitted a year before my complaints. These comments were submitted to the Department of Education’s public comment period for the 2010 gainful employment and program integrity rulemaking process. Commenters noted acupuncture schools had been misleading students inside these schools about earnings and job prospects. Many of these commenters repeated a simple plea: “Investigate these schools.”