Administration Wages War on For-Profit Education

Remember 19th century “Robber Barons” who monopolized the railroad, steel, and oil industries as they were developing? These tycoons ruthlessly crushed their smaller competitors and amassed great wealth.

But are you aware that there are robber barons to this day? These modern power brokers are punishing selected industries through manipulating government regulations and rules and then acquiring wrecked companies at bargain-basement prices. A case in point is for-profit colleges.

The Department of Education of the Obama Administration set stricter standards for for-profit colleges, while exempting most community colleges and traditional universities from these standards. The Administration reached back to the 1965 Higher Education Act for cover. The Education Act states that colleges can qualify for federal student aid as long as they “prepare students for gainful employment in a recognized occupation.” As of 2015 the new regulations state that the average yearly loan payment of graduates of for-profit colleges cannot be more than 8 percent of total income or 20 percent of discretionary income. The default on loans for these students can’t be more than 30 percent.

Although students of for-profit colleges do default on loans at a higher rate than private or traditional universities, this is a false comparison. For-profit colleges serve many more folks who are older or low-income and cannot afford to give up their jobs to complete postsecondary education full-time. When comparing these schools to community colleges that serve some of the same population, they match up more favorably. Community college students default on their loans at a rate of about 15 percent within two years of starting to pay off their loans compared with 13.6 percent of loan default by for-profit college students. Under the new regulations, to stay in business for-profit colleges will be forced to limit enrollment of the riskiest students, who need help the most.

As a case in point, the for-profit Apollo Education Group, Inc., parent company of the University of Phoenix, reveals an interesting story. The Obama Administration’s Department of Education and Department of Justice have spent the last seven years demonizing and developing new regulations to exploit for-profit education. Before the onslaught began, Apollo educated nearly one-half million students, and its stock price reached $78 a share. After the Administration’s bludgeoning of this industry, Apollo’s enrollment dropped to about 180,000, and its stock price dropped to $7 a share. The company lost approximately 90 percent of its value.

Enter a white knight to snap up the operation: a consortium of investors including the recently formed private-equity firm Vistria Group LLC based in Chicago. Why is this of interest? The founding partners of Vistria Group include Marty Nesbitt, President Obama’s longtime friend and pick-up basketball partner. Even more interesting is Tony Miller, Obama’s second-highest-ranking official in his Department of Education at the time war was being waged against for-profit education. Tony Miller is chief operating officer of Vistria. Just last month, Vistria Group made an offer to acquire Apollo Group at a very reasonable price. According to Business Wire, the transaction is subject to specific regulatory conditions and approvals including approval by the Obama Department of Education (little doubt there), after which Tony Miller will become Chairman of the Board of Apollo Education Group.

Apparently Mr. Miller has changed his mind about for-profit education. He has been quoted as saying of Apollo Group, “We are committed to accelerating and enhancing efforts to establish University of Phoenix as the leading provider of quality higher education for working adults and to continue supporting the organization’s commitment to operating in a manner consistent with the highest ethical standards.”

Of course these born-again entrepreneurs are welcome to the private sector, even though their tactics of arriving there are somewhat suspect. With so much bankruptcy and stressed restructuring in the industry, could coal mines be the next opportunity target?