Obama Student-Aid Rule Riles For-Profits, Spurs Most Letters Since 1983

Matthew Kapral, a student at Education Management Corp.’s Art Institute of Pittsburgh, was walking to class in July when a school representative sat him in front of a computer and coached him on a letter opposing limits on federal student aid to for-profit colleges.

“They kind of started it off with a paragraph, and I added a sentence or two myself,” said Kapral, who estimated that his bachelor’s degree in graphic design will cost him $84,000.

For-profit colleges are enlisting students and teachers to lobby against proposed limits on student aid, and may at times be using misleading tactics, the U.S. Department of Education said. The proposed government crackdown on aid has generated about 26,000 letters to the department, the most on any topic since 1983.

College representatives and lobbyists also are flocking to lawmakers’ offices in the U.S. capital and their home districts. Donald Graham, chairman and chief executive officer of Washington Post Co., owner of the Kaplan education business as well as the Washington Post newspaper and other media, met Aug. 3 with Senator Tom Harkin, an Iowa Democrat, to discuss the proposed regulations. The newspaper ran an editorial criticizing the department’s efforts to crack down on companies.

“There’s an immense sense of urgency and recognition by the schools that if the rules goes into effect as is, there are substantial threats to their business model,” Jarrel Price, an analyst with Height Analytics LLC in Washington, said in a telephone interview.

Education Management, based in Pittsburgh, fell 5 cents, or less than 1 percent, to $8.20 at 10:19 a.m. New York time in Nasdaq Stock Market composite trading. Washington Post Co., based in Washington, fell $9.07, or 2.3 percent, to $379.84 in New York Stock Exchange composite trading.

Details of Proposal

The proposed regulations, announced July 23, would make for-profit education programs qualify for government aid either by showing that a certain percentage of former students are repaying their loans or that the average former student earns enough to repay.

No programs would lose eligibility before the 2012-2013 school year, and, to give colleges time to adjust, a maximum of 5 percent of programs can lose eligibility in the first year of implementation, the Education Department said in a statement.

Data released by the government show that, if the rule were in place now, loan repayment rates at Education Management and Apollo Group Inc. would put their programs in danger of U.S. loan restrictions, and Washington Post programs might lose eligibility.

Sales Tactics

U.S. Education Secretary Arne Duncan received so many letters asking him not to cut off funding to for-profit college students, without mentioning the proposed rule, that the department began calling the writers to clarify their purpose, said David Bergeron, acting deputy assistant education secretary for policy, planning and innovation in the Office of Postsecondary Education.

“They had been told the rule was going to take away all financial aid to students at for-profit colleges,” Bergeron said in a telephone interview. “We’re concerned that some people are misrepresenting the rule to generate comment.”

The department wouldn’t say which schools’ students had been called.

One letter to the department, dated Aug. 10, was written by Jacqueline Bledsoe, of Fort Lauderdale, Florida, who is “an online PhD student at a for-profit institution while working full time,” according to the letter.

Keiser Role

“Very few schools where I live had the program, format, schedule, and accreditation I was looking for, and I finally found a for-profit that was appropriate for me,” Bledsoe wrote. She didn’t disclose that she is also associate vice president of student services at Keiser University, a for-profit college in Fort Lauderdale.

Bledsoe said in an e-mail that she stood by the comment she posted “as a student.”

Coaching students to write letters is needed to help them protect their interests, said Harris Miller, CEO of the Washington-based Career College Association, an industry group of 1,500 education companies with 3.2 million students. The group has been reaching out throughout Congress and encouraged schools to support letter-writing campaigns, including those from students and teachers, Miller said in an interview in his Washington office.

“Commenting on a Federal Register notice is not something you learn in a civics class,” Miller said. “We’ve encouraged people in our outreach to make this as easy as possible.”

Post Editorial

In an Aug. 22 editorial, “How to Discourage College Students,” the Washington Post newspaper criticized the effort to rein in lending to for-profit college students, saying it would remove an important educational option for poor and working students.

“The more options available to parents and students, the better,” the Post said in the editorial. “Particularly among some Democrats, that’s not always the prevailing view.”

Asked in an interview whether he influenced the editorial, Graham said Fred Hiatt, the editorial page editor, is in charge of the opinion columns and sets policy.

Congress and the administration of President Barack Obama have attacked what they call high-pressure sales tactics and low student loan repayments at for-profit colleges, which can receive as much as 90 percent of their revenue from federal financial aid programs.

Government Probe

A Government Accountability Office probe of 15 schools, including some owned by Education Management or Washington Post Co., found that recruiters at all 15 misled investigators posing as students as the recruiters tried to persuade people to enroll. Education Management is the second-biggest for-profit college in the U.S. by enrollment. No. 1 Apollo Group Inc. operates the University of Phoenix, which had 476,500 students as of May 31, according to a company filing.

The rule proposed by the Education Department might restrict or disqualify for-profit schools’ programs from participation in government-aid programs when fewer than 45 percent of their students are repaying principal on their loans. The rule is called “gainful employment,” because its intent is to show whether educational programs improve students’ job prospects. As of the close of U.S. markets Sept. 3, an index of 12 education company stocks had fallen 27 percent since the department announced the proposed rule July 23.

Iowa’s Harkin, the chairman of the Senate Health, Education, Labor and Pensions Committee, and his staff have had “numerous” meetings with education company representatives, according to e-mail statement from his office on Aug. 31.

‘Problem Areas’

“Our goal is to understand what’s happening with the federal investment in the sector, identify problem areas and work to craft solutions that bring students and taxpayers the best educational value for the federal dollars we’re investing,” Harkin said in the statement.

Graham said the proposed regulation would hurt all schools, both for-profit and not-for-profit, that serve low-income students. The gainful-employment rule won’t serve its purpose of getting students better jobs or reducing their debt, he said.

“There are a variety of changes that could be made that would have a much greater impact on reducing overall student debt, reducing the number of student defaults,” Graham said in a telephone interview.

Education accounted for about 58 percent of Washington Post Co.’s 2009 revenue of $4.57 billion, according to a company filing.

Biggest Response

Most Education Department proposals prompt about 400 to 600 comments, Bergeron said. The response to the gainful-employment rule may be the biggest to a department measure since 1983, when the Reagan Administration proposed cuts in funding for disabled children’s education, Education Department officials said. The White House was flooded with about 40,000 letters opposing the measure, according to a 1997 report by the National Council on Disability, a federal agency in Washington.

About six boxes of letters, along with compact discs containing thousands of comments both for and against the gainful employment rule, remain to be scanned and copied into the department’s computers, according to the department.

Education Management, whose biggest shareholder is Goldman Sachs Group Inc. in New York, hired DCI Group, a Washington- based company that advertises its ability to generate “direct contact -- phone calls, letters and e-mails -- from key community leaders.”

Writing Assistance

All Education Management employees could expect to receive calls during business hours from DCI Group representatives to assist them in crafting letters to Secretary Duncan on the rule, Todd Nelson, CEO of Education Management, said in an e-mail on Aug. 24.

The rule “could have a particularly negative effect on students who rely on federal grants and loans in the pursuit of their degrees,” Nelson said in the e-mail. “Likewise, the proposed rule could have a significant impact on those who staff and support academic programs offered at proprietary institutions, including ours.”

Education Management’s programs had about 136,000 students in October 2009. The company got about 89 percent of its net revenue from government sources in the year ended June 30, up from 82 percent a year earlier, according to a company filing. The legal limit is 90 percent.

The company “believes it is important during this public comment period on the proposed Federal Gainful Employment Rule that our students, faculty and staff be provided an opportunity to voice their opinion, if they choose to do so,” Jacquelyn Muller, a spokeswoman, said Sept. 1 in an e-mail.

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net.

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