For-Profit College Group Sues to Block U.S. Rules

The Association of Private Sector Colleges and Universities, a trade group of for-profit colleges, said it sued to block U.S. Education Department rules issued last year that it calls unlawful and unfair.

The lawsuit focuses on a regulation that bars for-profit colleges from paying their recruiters based on the number of students signed up, according to an e-mailed statement by the group. The suit also challenges rules that bolster state oversight of higher education and tighten restrictions on what recruiters can tell prospective applicants, the group said.

The regulations “will have a chilling effect on job creation and innovation, forcing our schools to waste resources defending themselves against frivolous lawsuits at the expense of investment in students, faculty, facilities and technology,” the group’s president, Harris Miller, said in the statement.

About 1.5 million students are enrolled in for-profit colleges owned by 15 publicly traded U.S. education companies, and another 33 for-profit schools are partially or fully owned by private-equity firms or hedge funds, U.S. Senator Tom Harkin, chairman of the education committee, said last month in a speech. Harkin said investment firms’ pursuit of short-term gains interferes with the stated educational goals of the for- profit colleges they invest in.

Crushing Debt

Harkin and Education Secretary Arne Duncan have said that some for-profit colleges lure students into expensive educational programs that don’t increase employability, while leaving graduates and dropouts with crushing debt.

Companies in the $33 billion for-profit college industry get as much as 90 percent of their revenue from federal student grants and loans.

Justin Hamilton, an Education Department spokesman, said in an e-mail the department is “confident that the published regulations will do the best job of protecting students and taxpayers.”

Members of the association include publicly traded Career Education Corp., Corinthian Colleges Inc., Education Management Corp., ITT Educational Services Inc. and Kaplan Higher Education Corp., a unit of the Washington Post Co., according to the association’s website.

An index of 13 for-profit colleges’ stocks fell 26 percent in the past year. The index was little changed today at 3:29 p.m.

Honest Mistakes

The rule governing recruiters’ sales pitches to students is too restrictive and doesn’t distinguish honest mistakes from deliberate falsehoods, Miller said.

“It treats you the same way for telling someone your credits are transferable, when they aren’t, or you tell them you have a vending machine in the cafeteria when you don’t,” Miller said in a telephone interview.

The Education Department has tried to expand federal oversight of state educational regulatory bodies before, Miller said. The department’s rule would put government grants and loans at risk for all students, at for-profit and nonprofit schools, where state officials fail to comply with government standards for oversight, he said.

The filing of the complaint couldn’t be confirmed in electronic court records.

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net; John Lauerman in Boston at jlauerman@bloomberg.net.

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net

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