Election 2020: Policy Memo

Veterans earn their GI Bill through service and sacrifice.  They deserve and expect quality education.  Indeed, they rely on the VA’s approval of a school for GI Bill benefits to mean the school is worthy of their GI Bill.  VA in turn relies on the Education Department and state approving agencies to decide which schools are qualified to be paid the GI Bill. But too many bad actors and low-quality schools are slipping through into the GI Bill program.

Improve and Clarify College Oversight by VA and State Approving Agencies

The Problem: The VA and State Approving Agencies (SAAs) work in tandem to oversee education benefits under Title 38. Federal statutes give both VA and the states approval and disapproval authority over programs, but there is confusion and disagreement over their roles. SAAs operate under contracts with the VA, which gives VA oversight authority over SAAs. Due to ambiguous statutory changes in 2011 and 2016, there is confusion as to the relationship and approval/disapproval authorities between VA and SAAs. We examined this relationship in our report and found a major source of tension is the disapproval authority of SAAs as compared to VA’s broad disapproval authority. VA has previously disagreed with individual SAAs’ decisions to disapprove programs. The VA Inspector General disagreed that SAAs are primarily responsible for approvals and asserted VA also has disapproval authority. Several implementing regulations, such as designations and licensure and certification, are also inconsistent with the statute.

A second problem is that SAAs spend the majority of their time conducting payment audits of institutions in their states that have been approved to enroll GI Bill beneficiaries. SAAs’ focus on payment accuracy has hurt their ability to enforce and monitor compliance with other statutory requirements thereby leaving student veterans potentially vulnerable to predatory actors. These compliance reports are very time intensive and leave little room for risk-based reviews needed to identify predatory behavior. As found by both a Government Accountability Office report and VA Inspector General report, the most common oversight shortcoming has been the failure to identify deceptive and misleading advertising to encourage individuals to enroll. Funding shortages for SAAs are another contributing factor, as many states don’t have the resources to properly undertake the reviews. For more information, see our report.

What You Can Do:

• Work with Congress to clarify the approval and disapproval authorities in statute.
• Prioritize risk-based reviews from SAAs instead of compliance surveys which take up a large portion of SAAs time and resources.
• Ensure VA and SAAs have the proper resources and funding to fulfil their statutory duties.

Require VA and States to Act on Early Warning Signs at Troubled Colleges

The Problem:  VA and most states ignore early warning signs that a college poses a risk to GI Bill beneficiaries and taxpayers. Some of these early warning signs may indicate that a school is at risk of closing down. In our report, we provided case studies of such risk factors, some that were obvious prior to a school’s sudden closure. In most cases, VA and SAAs did not take proactive measures to protect GI Bill beneficiaries. Some of the early indicators that a school is on the verge of closure include: federal and state law enforcement investigations and settlements; federal agency actions; and actions by accreditors and other state regulators. We documented these early warning signs in our 2018 case study, “Could Education Corporation of America’s Sudden Closure Have Been Avoided?” and in our 2016 case study, “The ITT Collapse: Lessons Learned and Dealing with Future Challenges.”

Recently shuttered schools exhibited a myriad of warning signs. For example, Corinthian College was subject to the following actions before it closed down in 2015: investigations by 22 state Attorneys General; actions prohibiting new enrollment and withdrawing GI Bill approval by California and Virginia SAAs in 2014; and investigations or lawsuits by the CFPB, Justice Department, SEC, and Department of Education. This litany of warning signs should have alerted VA to the risk of Corinthian’s closure, yet GI Bill beneficiaries remained enrolled up to its shut down.

Many factors contribute to VA’s failure to protect GI Bill beneficiaries and taxpayers, including the ambiguities in disapproval authorities discussed below and differing VA and SAA understandings of their ability to act on early warning signs. The consequence of not acting means that GI Bill beneficiaries attending these colleges are left holding the bag when the schools close.  They face daunting monetary costs, including the loss of living expenses to pay for housing and childcare, as well as the loss of their hard-earned GI Bill. Often their credits will not be accepted for transfer at other schools. Additionally, students may encounter psychological costs from having wasted time and energy if their school closed, forcing them to start over again or transfer to a different school.

What You Can Do:

• At the federal level, you can work with Congress and VA to improve VA and SAA risk-based reviews of college programs. Require VA and SAAs to heed a list of early warning signs and take action based on accreditors, federal and state law enforcement, and state regulators. SAAs can be required to conduct risk-based program reviews on schools who activate certain triggers such as being placed on heightened cash monitoring by ED. Further, SAAs could be authorized to suspend enrollment for more than 60 days without triggering a recession of the school’s eligibility for GI Bill benefits.
• At the state level, state higher education authorization agencies and state veterans affairs agencies can work to implement careful review when triggered by early warning signs.

When Schools Do Close, Ensure Orderly Closure

If early warning signs are missed and a does close, students often find out by showing up for classes only to find the building locked. Large school chains that have shut down without advance warning to students in recent years include the Art Institute, ITT Technical Institute, Corinthian Colleges, and Argosy University; and in most of these cases, students were left in the lurch, having paid for or taken out loans to pay for something they only partially received and left to figure out if transfer options even exist. When Argosy University closed its doors, students were left in financial ruin—including many veterans—while the company made sure to spend its last available dollars on corporate and executive bailouts.

In contrast to for-profit college chains, public or nonprofit closures are usually more orderly. Frequently, the decision to close is made in a deliberate manner that begins well in advance. The process takes into account everyone potentially affected, alternatives to closure, and alternatives for students in the event that a closure is necessary. Moreover, the process and decision-making is usually transparent, taking place in public forums, because these schools are governed by publicly accountable boards. In these cases, students know well in advance of an impending closure and are given time to make the next best move, and the school itself stops enrolling new students. In contrast, for-profit closures often take students by surprise, even though owners and investors often cash out before locking the doors.

What You Can Do:

Both federal and state government can protect students from abrupt closures by requiring schools to close in ways that minimize the harm for everyone involved. At a minimum, the following should be guaranteed:

• Students should be given notice before new semesters or terms begin.
• Students should be given suitable transfer options.
• Students should have free and easy access to academic transcripts.
• Students should not be required to pay back any money owed directly to a school that suddenly closes.
• Students should be refunded money paid to a school that abruptly closes.

A new law in Maryland provides a useful model:  It would protect students in the event of future catastrophic closures like those experienced by Corinthian College and ITT Tech students. Close to 3,000 Maryland students were affected by these two schools’ closures alone, and low-income and veteran students were disproportionately affected. The new Maryland law will intervene in future closures by canceling debts owed by students, refunding tuition paid, ensuring that students have transfer options and access to their academic records, and holding school owners responsible for what happens in the event their school goes out of business. The Maryland law applies to all colleges in the state, because abrupt closures can also happen in the nonprofit and public sectors.

Improve College Oversight 

The Problem: Students expect accreditation to mean quality, but the accreditation system is too lax. The current oversight conducted by the Department of Education fails to effectively monitor accreditors to make sure they are meeting the required standards. There have been recent examples of accreditors’ continuing to operate and approve manifestly underperforming and predatory schools.

ACICS is the most glaring example.  It was recently resurrected by Education Secretary Betsy DeVos to continue operations after previously being shut down by career staff at the Education Department for failing to meet the basic minimal requirements of an accreditor. ACICS had approved ITT Tech and Corinthian Colleges for operation despite ample evidence of poor outcomes and federal and state investigations before both shuttered. In our report, “Student Outcomes at Colleges Approved by the Accreditor ACICS,” we found that seventy percent of students at ACICS-approved colleges earn no more than a high school graduate, and ACICS students were twice as likely as other students to have unmanageable debt. Another report by the Center for American Progress found that 85 ACICS-approved colleges were unable to secure accreditation by any other accreditor. Most recently, one of ACICS’ schools was discovered to be a complete fake, with no teachers, no students, and no classrooms.

Recently, the Education Department rolled back protections on accreditation and state authorization of colleges. The new rules removed key language regarding states’ ability to enforce laws meant to protect students enrolled in online colleges as well as removed complaint procedures. Accreditors’ ability to conduct oversight was weakened by allowing colleges to operate out of compliance with accreditation standards for an extended period of time. The rules also made it easier for accreditors to be approved by the Education Department, thereby allowing potentially unqualified accreditors to oversee colleges.

What You Can Do:

Call for accreditors to enforce minimum outcome measures, maintain adequate oversight of accreditors to ensure they are complying with their federal mandates, and rollback the recent accreditation rules. As we wrote in our advice to accreditors memo, accreditors should move away from a desk-audit model to a real-audit model; focus their attention on colleges that show signs of risk; interview current and previous students to review potentially deceptive recruiting tactics; and more. Facilitating accreditors to better improve oversight of all colleges would do a great deal to improve student veteran outcomes.

State higher education authorization agencies should also increase the minimum standards they require of colleges, as Maine did in its new law.

Raise the Floor on Quality

The Problem:  Why do low-quality colleges continue to receive approval for federal student aid and GI Bill?

The current quality standards for allowing schools to access GI Bill and federal student aid need to be enhanced to prevent low-quality schools from costing taxpayers millions while not providing any value to students. Federal student aid and the GI Bill often pay for programs that advertise as preparing students for specific careers like nursing, yet once the students graduate they find they don’t have the qualifications or training necessary to become licensed in their state.

In our report, “The GI Bill Pays for Degrees That Do Not Lead to a Job,” we found that 20% of 300 GI Bill-approved degree programs we examined lacked the appropriate accreditation and, as a result, graduates were unable to obtain the state licensure or professional certifications needed to land a job. These low-quality programs covered a wide range of fields: clinical psychology programs that were not APA-accredited, law programs that were not ABA-accredited, and much more.  This report led to passage of the 2016 “Career Ready Student Veterans Act” (section 409 of P.L. 114-315)  VA adherence to this law has been inadequate. In our 2018 follow-up report, “Despite a 2016 Statute, the GI Bill Still Pays for Degrees That Do Not Lead to a Job,” we found that about half of the problematic programs identified in the 2015 report were still enrolling GI Bill students even though they did not qualify graduates for state licensure or certification.

On a broader scale, students who attended a for-profit college in 2016 accounted for only 9% of total students but 33% of student loan defaults. Students defaulting on their loans shows that they are not receiving quality educations preparing them for meaningful employment.  Additionally, our research team documented that at trade schools certificate programs that enroll GI Bill beneficiaries, less than half of students earned more than a high school graduate 10 years after enrolling.

Recent rollbacks of Department of Education rules such as the Gainful Employment Rule have left students more susceptible to attending low-quality programs. 28 veterans groups wrote to Secretary DeVos to urge her not to weaken regulations that would allow low-quality colleges to defraud veterans, but the Trump Administration rescinded the Gainful Employment rule. The rule was promulgated in 2014 to ensure that career education programs – programs that do not lead to a degree but train students specifically for a trade or field – actually fulfill their promise of placing students in jobs in their field.  The two-part rule required both accountability and transparency. The rule measured graduates’ debt compared to their income. Programs were given several years to come into compliance with the rule if their graduates had too high of a debt-to-income ratio. Additionally, the rule required schools to provide publicly available information about graduates’ earnings, debt, and job outcome data. It applied to all colleges (public, nonprofit, for-profit) that offer career education programs. According to the New York Times Upshot column, “data released . . . shows that the existing rules have proved more effective at shutting down bad college programs than even the most optimistic backers could have hoped.”

The Trump Administration repealed the Gainful Employment Rule in 2019 after attempting to delay the implementation of the 2014 Rule, which was struck down in October 2018. The new rule gets rid of the central parts of the 2014 rule (as there are now no eligibility limitations based on graduates’ debt or earnings level) and lessens the disclosure and reporting requirements under this new framework. As we wrote to ED in 2018, this new rule will allow programs that previously would have closed (due to not providing students with viable careers) to remain open as well as cost taxpayers billions of dollars in federal aid to these schools.

What You Can Do:

• Promulgate a new Gainful Employment Rule to ensure career education programs are actually providing students with meaningful employment opportunities and not leaving students worse off than if they attended the program.
• Require minimum quality standards of colleges that seek taxpayer funding and veterans’ hard-earned GI Bill. A college fails if most students cannot pay at least $1 of their debt. Call for legislation that, at the very minimum, requires schools to have higher graduation rates than student loan default rates.
• At the least, graduates should be eligible for a promised job. The Defense Department statute (10 USC 2006a) and similar “Career Ready Student Veterans Act” at VA (38 USC 3676(c)) should also be required of the Education Department, to ban funding to programs unless graduates are eligible for the promised job.

Spend Education Funds on Education 

The Problem: Taxpayers and students expect schools to use federal student aid to educate students. However, some colleges receiving significant GI Bill funds spend less than 20% of a veteran’s tuition on their education. For example, our report, “Should Colleges Spend the GI Bill on Veterans’ Education or Late Night TV Ads?,” found that, among the 10 schools receiving the most GI Bill funds over the past decade, the top three spent less than 20% of gross tuition and fees on instruction and seven of the ten schools spent less than one-third on instruction.

Billions of taxpayer dollars flow to schools that spend very little on instruction. As our report found, the worst schools spend less than 10% of the tuition they collect on the student’s education.  Unsurprisingly, these schools – Colorado Technical University, American InterContinental University, Capella University, and ABCO Technology – provide students with poor outcomes and actually leave the students worse off than they found them. Of the VA-approved schools that spend less than 10% on education, only 51% of their students earn more earn more than a high school graduate while only 26% of students who enrolled in these institutions left with a credential. Conversely, we found that proprietary schools that spent more on instruction had at least 50% of students graduating and earning more than a high school graduate.

Further, we found 107 institutions allocated less than 20% of tuition revenue towards instructional expenses. These schools allocated $562 million for non-instructional expenses. When regulators are examining schools with poor outcomes, instructional spending can be a helpful measure to discern which of these schools are making good-faith efforts to educate their students versus schools that are spending large amounts of money on executive compensation and other areas. Third Way released a report on this, stating agencies could use a “resource test” to make sure penalties are applied equitably to schools that choose not to improve students’ educational outcomes and fail to invest in instruction.

State leaders can also step up.  Maine enacted a law that requires the state higher education regulator to take school priorities into account. College spending on instruction, along with the graduation rates and student loan and employment statuses of graduates, will be used to inform students and to aid state regulators in determining whether schools are meeting educational standards. While other rules are to be determined by the state’s higher education commission, the law stipulates that 50 percent of a school’s total spending must be on instruction.

What You Can Do:  Colleges should not be allowed to charge veterans (and taxpayers who fund the GI Bill) a tuition that is more than double what the college spends on the veteran’s education. Currently, some schools are skimming an 80% profit off the backs of veterans.  By analogy, in health care, no more than 20% of patient premiums can be spent on costs other than patient care and quality improvement. Look up your school here.

State leaders can follow Maine’s lead in implementing new requirements of colleges to spend tuition funds on the students.

Require “Skin in the Game” by Colleges 

The Problem:  Schools should have “skin in the game” by owning a percentage of student loan defaults over some threshold.  A college fails taxpayers and students if it consistently produces students who earn less than high school graduates. Please note: While risk-sharing is an indicator of quality, it is a lagging indicator and should not substitute for front-end gatekeeping, such as improved quality standards.

ITT Tech and Corinthian Colleges had very poor outcome metrics for students long before they both closed due to bad behavior. Even with years of poor outcomes and students unable to pay down their debt – in addition to many federal and state investigations and lawsuits – these schools still operated for years without the proper oversight actions taken. If a risk-sharing program had been in place, some of the harm these institutions caused could have been mitigated.

According to a 2017 report, there are currently too few real consequences for schools that fail to graduate the majority of their students and leave students with unmanageable debt. An outcome-based metric based on student debt could be used to determine potential risks and sanctions to schools. Colleges that continually provide poor outcomes should own a portion of debt and defaults.

What You Can Do: 

• Require colleges to own a portion of the student loan debt and defaults they produce if they produce more than a reasonable threshold. Establish a system that rewards high-performing schools, implements risk-reduction plans for at-risk schools, and risk-sharing payments. More here. Ultimately, if a school is unable to improve its outcomes, it should be sanctioned with loss of Title IV and VA educational benefits.
• Second, at a minimum, VA should be granted the same “letter of credit” authority that ED has to require risky schools to secure private financing to cover VA’s costs in the event of closure – as we documented in our report.
• Third, apprenticeships and career programs should operate under “pay for performance,” as required by the Department of Veterans Affairs High Technology Pilot Program authorized in the Forever GI Bill (sec. 116 of P.L. 115-48). The pilot holds back half of the tuition until the student secures a job in the field of study.

Provide Greater Oversight of Nonprofit Conversions

The Problem: There is an alarming trend of proprietary institutions’ converting to nonprofit status yet maintaining the same profit structures and failure to invest in student learning. The Century Foundation issued a report showing many for-profit colleges are converting to nonprofit status in order to evade regulatory oversight while continuing to receive the financial benefits of operating, under the radar, as a for-profit. Such “covert for-profit” schools fail to meet the nonprofit and public standard of an independent board of trustees. Instead, these schools typically have profit-seeking executives who financially benefit from school decisions. Conflicts of interest arise when profit-seeking third-parties are intimately involved in the operations of the college or enter contracts whose terms are so one-sided as to ostensibly be a for-profit structure. Such “covert for-profit” schools also typically fail to meet the nonprofit and public standard of devoting all revenue to the educational mission, instead maintaining their for-profit executive compensation and unethical spending choices.

The IRS, decimated by staffing cuts, tends to rubber-stamp for-profit to nonprofit conversions, even when there are close relationships between the holding company and the nonprofit entity. Recently, there have been numerous examples of troubling conversions from for-profit to nonprofit status that demonstrates that greater oversight is necessary. One recent convert, Grand Canyon University, was approved as nonprofit by the IRS, but the Education Department properly ruled that it will continue to treat the school as a for-profit entity due to its structure.

What You Can Do:

• Stricter oversight by the IRS and Education Department will help, to prevent “covert for-profit” universities from proliferating. Using their monitoring and enforcement authorities in both divisions could go a long way to addressing the issue.
• You can also call on the U.S. Federal Trade Commission to investigate covert for-profit schools that engage in deceptive advertising because Commission precedent allows it to “pierce the veil” of nonprofits that operate as for-profits, as we detailed in our legal memo.
• State leaders can also step in to fill the gap, as Maryland recently did with its new law requiring the state’s higher education commission to create a process for schools to report information they collect for their 990s, allowing the commission to make annual determinations to ensure that nonprofits are not generating income for private individuals. California entertained similar legislation.