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A Regulatory Assault on For-Profit Education

August 30, 2010

On Friday, June 18, 2010, the U.S. Department of Education published proposed regulations for postsecondary education. Readers submitted eighteen thousand comments. This outpouring of public response reflected surprise and astonishment at the radical regulations developed by Deputy Undersecretary of Education, Robert Shireman. After a speech to the national press club by U.S. Senator Dick Durbin (D-IL), two hearings on for-profit education by the Senate Health, Education, Labor and Pensions Committee, and publication of four years of student loan repayment data by the U.S. Department of Education, the for-profit education industry knew it was in trouble.

These proposed regulations and likely Congressional action are designed to hamper for-profit education companies—many Internet-based—and will have long-term deleterious effects on how higher education is organized, financed, and whom it educates. (Private religious institutions also fear the enhanced interference these new regulations may bring.) It had seemed that such education providers—using new technologies and with access to public capital markets—would help reform of higher education by competition. Those prospects are now very dim.

Beginning in the first months of the Obama administration, Deputy Undersecretary Shireman took control of a process of negotiated rule-making. In doing so he ignored five years of legislative proceedings that in 2008 led to passage of the Higher Education Opportunity Act. Shireman understood that in American public administration, there are two ways to govern: by legislation and by regulation. The rule-making process produced a long list of proposed regulations that bypassed the U.S. Congress and, in effect, proposed a radical new regime with no claim to being representative of accepted practice in American higher education. In that regime there is no place for for-profit education paid for by student loans backed by the U.S. government.

One of those proposals published on June 18 directs the states to develop regulatory procedures that authorize or license degree-granting institutions. The states already require that of institutions authorized by them to offer degree programs. This proposal, however, asks them to engage in licensing institutions not domiciled in their states—i.e. for-profit Internet institutions and any non-profit institutions with online programs. Public universities are exempt.

That particular exemption throws into doubt the constitutionality of regulations aimed at only one sector in a particular industry and may explain why Robert Shireman resigned his position soon after he gave a speech revealing that intention.

In that speech, given on April 28 to the National Association of State Administrators and Supervisors of Private Schools, Shireman observed that the agencies that rate negotiable securities were compromised by the fact that they are paid  by the persons who issue them.  By analogy, Shireman argued, the system of academic accreditation is fraught with conflicts of interest and “federal and state governments cannot rely on accreditation to assure that consumers and taxpayers are protected…”

Shireman’s solution—perhaps a final solution for for-profit Internet-based higher education—was to utilize a “triad” of regulation that includes the states, the accrediting associations and the federal government.

Then Shireman stated that “we’re working with the inspector general at the department of education, taking a much closer look at data than ever before…”

Those of us who served as political appointees in the U.S. government, as did I in the administrations of Ronald Reagan and George H.W. Bush, are aware that inspectors general do not make agency policy.  Shireman was boasting to his audience that he had charged the inspector general of the U.S. Department of Education to threaten to revoke the charter of the largest accrediting association chartered by the U.S. Department of Education. The threat worked, and that association, the Higher Learning Commission (HLC) sent signals to the administration that it would not accredit for-profit Internet institutions and would no longer permit transfer of ownership from failing non-profit colleges to for-profit companies.

Shireman concluded his address by saying “Let’s not shirk our responsibility for regulating the industry.” By “industry,” he was not referring to higher education as a whole. Shireman meant one sector of the “industry”—for profit education.

Other regulations published on June 16 include restrictions on access to Title IV tuition assistance by students attending institutions with high default rates and attempts at defining a standard for “clock hours” of instruction.

In all aspects of his proposals Robert Shireman has revealed his animus toward for-profit education and an enhanced sense of the ability of government to do better what the private sector has proven it does exceptionally well.

The for-profit education industry pays more attention to its students than public institutions do; delivers high quality education products that successfully compete with those same public institutions; and services educational markets that traditional institutions have neglected. No recognition is given to these practices.

Private sector education entrepreneurs such as John Sperling (Phoenix), Kaplan (Stanley Kaplan), Bernard Turner (Walden), Glenn Jones (Jones International), Steve Shank (Capella), Herman A. DeVry (DeVry) and literally hundreds of businessman educators have challenged a moribund education establishment to improve its services.

For this Robert Shireman has proposed to hobble them by an additional layer of governance that will increase tuition costs, drive away new companies from entering the education marketplace, and protect public universities from competition.

Robert Shireman may have earned the applause of persons today who share his enthusiasm for an ideology-driven, overreaching government, but current and future generations of parents, grandparents, and students will have to pay a higher price for education because of him.

After his speech on April 28, Robert Shireman became the problem, not the solution, and he resigned.  At the time it was said that he intended to resign when he achieved what he set out to do. But, others suggest that he was forced out because he placed the Obama administration’s higher education programs at risk to constitutional challenges and that he gored too many oxen.

The Washington Post, which owns Kaplan Higher Education, saw its stock plummet when the Department of Education published for-profit default rates last week. Others with investments in for-profit education include venture capitalist, Richard Blum (husband of Sen. Diane Feinstein), and University of Phoenix founder John Sperling, who is an associate of George Soros and a supporter of Moveon.org. Then there are the millions of students at for-profit education institutions, not to mention the shareholders of stock in these companies who lost 25% of share value overnight. Within the Obama administration questions are being raised about this attack on for-profit education, which has a high percentage of minority enrollments and is popular with U.S. military personnel. A fighting force ready for immediate deployment doesn’t have the luxury of sitting in classrooms for sixteen weeks.

Traditional higher education’s business model of classroom-based instruction is outmoded and expensive, and by pushing it to accept millions of additional college students will simply cause its collapse—unless there is a relief valve of Internet-based education to service these new students.

Though the technologies that can transform higher education are available to everyone, the culture of higher education is not suited to using those technologies, if they threaten how traditional higher education is governed, conducted and financed.  If it suffocates this sector of higher education, the administration will assure the failure of its own education policies.

Also on the National Association of Scholars

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