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Obama plans tougher rules on for-profit colleges

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The Obama Administration is gearing up to produce tougher regulations that may reduce the amount of federal financial aid flowing to for-profit colleges such as locally-based ITT Educational Services Inc., cutting the companies’ annual revenue growth by as much as a third.

In response, the $29 billion industry and its supporters, including Republican senators, have enlisted top Washington, D.C., lobbyists and are courting black and Hispanic legislators to fight the proposed rules scheduled to be released as early as this month. The companies draw students from low-income and minority communities.

Federal aid to for-profit colleges has become an issue as it has jumped to $26.5 billion in 2009 from $4.6 billion in 2000, according to the Education Department, prompting concern that these students are taking on too much debt. Twelve higher-education stocks fell an average of 7.4 percent for the week ended April 30, according to Bloomberg data, following an April 28 speech by an Education Department official critical of for-profit colleges. In the same period, the Standard & Poor’s 500 Index dropped 1.7 percent.

“There’s an attempt to manage” for-profit colleges by the Obama administration, Robert Wetenhall, an analyst with BMO Capital Markets in New York, said in a telephone interview. The education companies’ influence in Washington has “radically changed,” from the years of the Bush administration, he said.

The tougher rules, which are expected to be released for public comment in the next several weeks, would require ITT Educational, Career Education Corp. and Apollo Group Inc.’s University of Phoenix to show that their graduates earn enough money to pay off their student loans. If for-profit colleges can’t meet the standard, they could lose federal financial aid, which typically makes up three-quarters of their revenue.

The proposed rules may disqualify for-profits from receiving federal financial aid if their graduates must spend more than 8 percent of their starting salaries on repaying student loans. The regulations may slow or even halt tuition increases at ITT, Education Management Corp., Lincoln Educational Services, Universal Technical Institute, and Career Education because many graduates take low-paying jobs in criminal justice, cooking and medical office work, Trace Urdan, an analyst at Signal Hill Capital Group in San Francisco, said in an interview.

Education companies have increased revenue by as much as 15 percent and enrollment by 8 percent to 10 percent on an annual basis, while raising tuition about 4 percent to 6 percent a year, Urdan said. The new rules may slow their revenue growth by one third by limiting their ability to raise tuition.

“The days of 4 to 6 percent annual tuition price increases are over,” Urdan said. “The new proposed rules will bring some school’s power to increase prices down to zero.”

Apollo closed at $58.32, up 91 cents, or 1.6 percent, in New York Stock Exchange composite trading yesterday. ITT closed at $104.22, up $3.09, or 3.1 percent. Career Education rose $97 cents, or 3.3 percent, to $30.24.

The Education Department plans to issue the regulations without Congressional approval, unlike student-loan legislation which passed in March.

“Congress has not held a single hearing on these new enforcement mechanisms,” Alexa Marrero, spokeswoman for John Kline, the ranking Republican on the House education committee, said in an e-mail. “No research has been offered by the department to justify the controversial proposal.”

U.S. Senator Lamar Alexander, who chairs the Senate Republican Conference, is trying to persuade U.S. Education Secretary Arne Duncan to reconsider the regulations, said a Republican aide on the education committee. If that doesn’t work, Alexander, who is on the education and appropriation committees, would try to kill the regulations by cutting off funding, the aide said.

Enrollment in for-profit colleges increased to 1.8 million in 2008, from 673,000 in 2000. Industry revenue will rise to $29.2 billion this year, from $9 billion in 2000, said Jeffrey Silber, an analyst for BMO Capital Markets in New York. The industry has grown in part by marketing to low-income students, including the homeless, who qualify for federal grants and loans.

The new regulations would shut 300,000 students out of classes and eliminate 2,000 educational programs, according to a study commissioned by the Washington-based Career College Association, which represents more than 1,400 for-profit colleges.

The proposal would reduce opportunities for women and racial minorities who want to go to college, the group said. For-profit colleges have proposed alternative regulations that would require companies to disclose more information about students’ debt and job prospects.

The Career College Association has retained the Podesta Group, a Washington lobbying firm headed by Anthony Podesta, whose brother, John, was President Bill Clinton’s chief of staff, according to federal filings. Clinton will be a keynote speaker at the association’s annual meeting in June. Podesta’s Paul Brathwaite, former executive director of the Congressional Black Caucus, is also lobbying on the association’s behalf, records show.

The University of Phoenix, the largest for-profit college in the U.S. by enrollment, awarded 25 full-tuition scholarships worth $1.25 million in the fiscal year ended August 31 to the Congressional Black Caucus Foundation, which selects the recipients, Apollo spokeswoman Sara Jones said in an e-mail. More minority students earn degrees from Phoenix than from any other U.S. university, she said.

In March, several members of the Congressional Black Caucus sent a letter to Duncan, saying the regulations would reduce educational opportunity.

Regulators need more tools to oversee publicly-traded education companies receiving increasing amounts of federal money, Robert Shireman, deputy undersecretary of the education department, said in a speech on April 28.

“I don’t think we have the firepower that we need,” he said, according to a transcript of his remarks.

The speech was “highly negative” and was “drawing inappropriate and unwarranted parallels between developments in higher education and the causes of the recent financial crisis,” Harris Miller, president of the Career College Association wrote in an April 29 letter to Duncan.
 

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  • Thank you, Obama!
    As being a victim of one of these school I must say, THANK YOU OBAMA!
  • Students are left out
    As a former instructor, program chair, and dean of academic affairs, I have the luxury of experiencing all sides of this equation. I encourage tighter regulations on academic institutions --- too many students graduate from colleges (for-profit and not-for-profit alike)without a career clue. Herding students in and out without concern of their future goes against moral and ethical standards. In my opinion, all colleges should offer career transition classes, including resume development, interviewing, networking, job search strategies, etc. in order to better prepare each as they go out and market themselves. Giving a piece of paper without the knowledge to leverage is counter-productive and all I can say is "shame on the many institutions for practicing such bad behavior and thank you Obama for placing a little thing called responsibility on the shoulders of academic institutions."
    I left as a dean of academic affairs when the for-profit institution I was working for decided that student development needed to be replaced by the dollar.

    Conclusion: students are the ones being left out. Career schools
  • ITT is goin down
    I also go to ITT and I feel that they can do way more for the students than what they do now. They dont even have decent computers and still teaches Windows xp and server 2003. How played out is that????? I thought this was a technical school?
  • bye bye ITT
    It was nice knowing you...I wish you well (not really)
  • Why stay
    It is evident you are not getting much bang for your buck with your education -- you still don't know how to use the capital letter I. If ITT is so horrible and cost so much, why you don't drop out, there are schools all over the country that cost far less.
  • They are not colleges
    These for-profit "colleges" are nothing more than job training institutes (and not very good ones at that) designed primarily to suck up federal tuition support and do as little as possible for their students.

    If they are really so concerned about educating minorities and low-income people, why are they for-profit? All educational institutions should be not-for-profit: this does not mean that they cannot charge tuition, only that any excess of income over expenses gets invested back into the mission of the institution instead of going to line someone's pockets. If they want to remain for-profit, they need to get out of the game of taking money from the government.

    You can't run on public money and also be exempt from regulation. That's not what a free market is.
  • ITT Stinks
    I go to itt tech and it is not worth my time. it cost way to much. the education i am getting there is not worth the $80,000 that i will be spending.

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