California Challenges Feds’ Laxer Oversight of For-Profit Schools

California’s lawsuit claims a new Trump administration rule will make it easier for “predatory” for-profit colleges to receive federal funds while offering low-quality educational programs.

U.S. Secretary of Education Betsy DeVos answers questions following a visit to Forsyth Central High School in Cumming, Ga., Aug. 25, 2020. (Alyssa Pointer/Atlanta Journal-Constitution via AP)

SAN FRANCISCO (CN) — In one of its final lawsuits against the Trump administration, California on Friday challenged two provisions of a new U.S. Education Department rule that relaxes oversight of “predatory” for-profit colleges.

The “Distance Learning and Innovation” rule makes for-profit schools automatically eligible to receive federal funds if the Education Department fails to act on a recertification application within 12 months.

It also eliminates a cap that previously forbade for-profit institutions from outsourcing more than 50% of their courses to other schools. California says the removal of this cap means students can be forced to take all of their classes at a school they never enrolled in. It also enables “predatory institutions” to operate as “portals,” funneling students into low-quality, online programs, the state complains.

“One of the many shameful legacies of the Trump Administration is the extreme lengths taken by its Department of Education to expedite public money to predatory for-profit colleges,” California Attorney General Xavier Becerra said in a statement Friday.

The rule was finalized on Sept. 2, 2020, long before former Education Secretary Betsy DeVos resigned from her post earlier this month.

In August last year, DeVos called the rule a “permanent upgrade” for outdated rules that were no longer suited to the realities of 21st-century learning. The department praised the new automatic recertification provision, saying it would ensure prompt action on applications for schools to participate in federal programs. Applications previously languished for months or years without decisions, the department said.

“These regulations are a true ‘rethink’ of what is possible for students so that they can learn in the ways and places that work best for them,” DeVos said in a statement on Aug. 24, 2020.

In its 19-page lawsuit, California says many for-profit schools deliberately target low-income and minority residents with “deceptive information” about their programs. Students of color make up more than half of undergraduates at for-profit schools, according to a 2017 study by the National Center of Education Statistics.

The state says the new provisions will harm its public colleges and universities by diverting diverse and underrepresented students into potentially predatory for-profit schools that offer a lower-quality education at a higher cost.

“ED’s new rules harm California students by steering them away from our excellent public college and university system and into educational programs that are questionable at best, and outright scams at worst,” Becerra said. “ED’s last-minute attempt to dismantle oversight regulations on for-profit schools will not go unchallenged by California.”

A substantial portion of for-profit schools’ revenue comes from federal government sources. In 2009, federal programs accounted for 86% of revenue brought in by 15 of the largest publicly traded, for-profit education companies, according to a 2012 report by the U.S. Senate Health, Education, Labor and Pensions Committee.

Despite large subsidies from Title IV programs — including loans, grants and work-study programs — students who attend for-profit school are less likely to pay off their debt. In fiscal year 2016, more than 15% of for-profit college students defaulted on their loans compared to 9.6% of public college students, according to a 2019 report by the Federal Student Aid Office.

Because California ties eligibility for its $2.6 billion Cal Grant program to federal eligibility criteria, the state says it will have to spend substantially more money on students who enroll in “low-quality” educational programs. It will then have to spend more money down the road to provide additional job training and education to those students, the state argues.

California says automatic recertification of for-profit schools violates a provision of the Higher Education Act that requires the Education Secretary to “affirmatively certify that an institution is eligible to participate in Title IV student-aid programs.”

The state further complains that the department violated the Administrative Procedure Act by lacking proof to support its justification for automatic recertification. The department cited “uncertainty” for institutions “where the decision period is lengthy,” but offered no evidence or analysis of the impact on students, California argues.

On the provision that lets for-profit schools outsource 100% of their class instruction, the department said the previous 50% cap was “needlessly restrictive.” The department acknowledged some schools could “misuse” outsourcing, but said accrediting agencies could monitor that issue and “be wary” of outsourcing agreements.

“ED did not explain its departure from its prior position that the 50% cap was necessary to protect students,” California stated in its complaint.

The state seeks a court order declaring the two provisions of the “Distance Learning and Innovation” rule unlawful.

The U.S. Education Department, which is currently run by Acting Education Secretary Mitchell Zais, did not immediately return an email requesting comment Friday.

This is not the first time a Trump administration rule viewed by critics as favoring the for-profit college industry was challenged in court. In 2019, a federal judge invalidated a rule that made colleges no longer have to inform students if their programs meet state requirements or if they were sanctioned by a state or accrediting agency. 

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