DoD updating tuition assistance rules amid claims of ‘assault’ on for-profit colleges

The Defense Department’s top personnel official said Tuesday that the Pentagon used a flawed process when it decided to bar the nation’s largest for-profit college from military tuition assistance funds last year, and is drawing up new rules meant to be fairer to colleges while also ferreting out deceptive marketing processes.

Peter Levine, the acting undersecretary of Defense for personnel and readiness, told the Senate that department officials correctly followed DoD’s policies when they suspended the University of Phoenix’s participation in military tuition assistance programs last October — a decision it reversed several months later — because the school had, in fact, run afoul of the terms of its memorandum of agreement with the Defense Department.

The problem, Levine said, is that DoD never adequately warned the university that it considered the violations to be so serious that it was on the brink of banning new military students from enrolling at Phoenix at Uncle Sam’s expense.

“I think the process was crappy,” Levine said during a hearing of the Senate Armed Services Committee. “I don’t think that we should have a process which doesn’t provide advance notice to an institution before it’s placed on probation. That’s a significant decision which has a major impact on the private institution, and the Department of Defense should be more responsible than that.”

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He said the department has already changed its procedures to require that it give notice to any school before it places it on probation and gives it an opportunity to respond, and will formalize those changes with an official rulemaking process soon. Any decision to cut off DoD funds will be made by an assistant secretary or higher; in the Phoenix case, many of the key decisions appear to have been made by a GS-15 civil servant.

Sen. John McCain (R-Ariz.), the chairman of the Senate Armed Services Committee whose state includes the headquarters of the Apollo Group,  the University of Phoenix’s parent company, was unsatisfied with DoD’s response.

He said DoD unfairly targeted the school for piddling “technical violations” involving the improper use of DoD logos on its marketing materials and not following proper channels to gain access to military bases to host large events and recruit new students.

McCain also said the committee has seen letters showing that school officials had asked for meetings with Defense officials in the months leading up to the suspension so that they could describe how they were addressing the rule violations,  but were rebuffed by Pentagon officials who responded that those conversations would be premature — even though DoD was in the midst of a four-month inquiry into Phoenix’s recruiting practices.

“This represents a gross abuse of power through a flawed and arbitrary process with insufficient accountability,” McCain said. “The department came carelessly close to extinguishing one of its own valuable partners in voluntary education programs and the higher education option chosen by thousands of non-traditional students, especially active-duty service members. I shudder to think how a similar lack of transparency and accountability could manifest itself and other vital DoD missions.”

But Levine defended the criteria the department used to suspend Phoenix and three other schools — Heald College, Minnesota Business School and Globe University — saying the end goal is to ensure that the military services’ limited tuition assistance funds aren’t being spent on schools that deliver sub-par instructional courses or use deceptive, aggressive marketing practices.

Even if the majority of the 2,700 colleges in DoD’s tuition assistance programs behave ethically, Levine said the department doesn’t have the expertise to grade the quality of the education each of them delivers.

Because the Pentagon wants service members to be able to enroll in the school of their choice — oftentimes meaning colleges that offer convenient online programs — officials are left with few criteria to judge the quality of their instruction. So, Levine said, the department has reverted to proxies to measure their rectitude,  like their track records of complying with base access procedures and other provisions in their agreements with the Defense Department in order to sort the good from the bad.

“We’re not well positioned, because our expertise is in defense, not education, to rank institutions and to provide our service members with accurate and helpful information on which colleges to enroll in,” Levine said. “We need help in understanding how to rate and rank institutions and to determine which ones are providing us good product and which ones aren’t. In the absence of that kind of good information, we have chosen to rely on what I call ‘surrogate measures’ to try to protect our service members.”

The Pentagon’s concerns about making sure its tuition dollars only go to reputable institutions are partially due the very low graduation rates throughout its tuition assistance programs.

In 2015, the most recent year for which statistics are available, about 286,000 military members enrolled in higher education programs and paid for all or part of them with tuition assistance funds. But only 53,000 service members earned any sort of a degree or a certificate through the programs that year.

And adversaries of the for-profit education industry note that a large share of those funds flow to private, for-profit schools. About 46 percent of the military’s tuition assistance program went to for-profit institutions in 2014, said Sen. Richard Durbin (D-Ill.)

“The University of Phoenix is not the only  education company that poses a risk to service members and taxpayers,” Durbin said in a statement Tuesday. “The high-profile bankruptcies of Corinthian Colleges and ITT Tech were the end result of years of predatory and deceptive corporate practices that put profits above students. Their closures left tens of thousands of students, including service members, in the lurch. But it hasn’t stopped there. Other for-profit education companies participating in TA are accused of engaging in similar fraud and have closed or are on the brink of closure.”

McCain charged that DoD’s tuition assistance suspensions — all four of which have involved for-profit schools — are part of a broader “ideological” attack on profit-making colleges by the Obama administration and congressional allies, chiefly Durbin.

As evidence, he pointed to a federal interagency task force on which DoD sits, and that the Department of Education has said is focused mainly on for-profit schools.

But Levine said the Defense Department takes no position on whether for-profit colleges are good or bad, and it’s raised internal objections about the task force’s name.

“We are concerned about some educational institutions — whether they’re for-profit or not-for-profit. I don’t want to rule out the case of potential abuse by not-for-profits,” Levine said. “We see for-profits and not-for-profits as providing a valuable role, but we want them to comply with our policy. We don’t believe there’s any inherent reason to believe that a non-profit is providing a better education than a for-profit. We want a quality product.”

As one way to achieve that, beginning in January, the department will revamp the procedures it uses to ensure that all of the 2,700 schools who have signed memoranda of agreement with DoD are complying with the tuition assistance “principles of excellence” the department told all colleges it expected them to abide by in 2013.

Stephanie Barna, Levine’s chief deputy, said the new framework will include audit triggers and risk assessment models developed by private industry.

“We will be using industry-based best practices, both to routinely inspect on a very transparent basis, based on very transparent criteria, to inspect many of our schools,” she said. “We will also have spot checks or risk-based assessments that will go on in addition to these more routine inspections.”

That differs from DoD’s current approach in which only about 1 percent of schools receive any scrutiny at all — and those that the department decides to investigate are based solely on complaints from service members, media reports, and other anecdotal information.

“We believe that our new third party complaints compliance system will enable us to address 10 percent of our schools annually and to do so in a much more fair, equitable and a much more transparent manner,” Barna said.

But Defense officials declined to express a view on whether the federal government should alter its “90/10 rule,” saying the subject was a matter of governmentwide policy that’s beyond DoD’s purview.

The longstanding rule requires for-profit schools to get at least 10 percent of their revenues from students whose tuition isn’t funded through federal sources, such as the Department of Education’s student aid programs. But under current rules, DoD’s tuition assistance program and VA’s GI Bill count as independent sources — not federal programs. Some advocates say that structure creates a perverse incentive for colleges to aggressively market themselves to veterans and military members.

“I’m a bit flabbergasted that DoD does not have a position on whether the 90/10 loophole should be closed,” said Sen. Martin Heinrich (D-N.M.). “I understand the department is not going to weigh in on elementary education policy, but this specific loophole directly impacts service members and their livelihoods and their futures.”

In opening Tuesday’s hearing, McCain asserted that the DoD suspension was, in large part, responsible for the University of Phoenix’s declining fortunes: the Apollo Group, he noted, had seen its share price decline from $86 in 2009 to a low of $6 shortly after the Pentagon announced that Phoenix was being put on suspension.

“Countless veterans and active-duty service members were prevented from enrolling in University of Phoenix courses [for the duration of the suspension,]” McCain said. “Not surprisingly, this also did significant harm to the university’s reputation and financial position.

But student populations in the for-profit college sector have been on a gradual downward slide for several years: enrollment at the University of Phoenix has shrunk 70 percent since 2010. Another major player, ITT Technical Institute, closed its campuses in September, as did Corinthian College earlier this year.  Since 2014, DeVry has closed 39 campuses and plans to shutter more in the upcoming year.

Industry advocates have blamed many the for-profit educational sector’s troubles on new federal regulations, including bans on paying college recruiters based on the number of new students they enroll, cutbacks in federal funding to colleges whose graduates are routinely unable to parlay their degrees into gainful employment and proposed regulations that would force colleges to repay student debt if they’re found guilty of fraud.

The for-profit college industry’s fortunes are beginning to turn around, however. The sector and its investors see new prospects under what they expect to be a lighter regulatory regime under President-elect  Donald Trump, and some stocks have begun a rebound. Shares in the parent company of DeVry, for instance, jumped 30 percent in the weeks after the presidential election, to their highest value in more than a year.