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With the Democratic takeover of Congress in 2006, for-profit school executives shifted their lobbying tack. Rather than being entrepreneurial heroes, they became champions of poor students. That year, Apollo Group, which owns the University of Phoenix, appointed former state Senate President John Burton, who is now chairman of the California Democratic Party, to its board of directors.
In 2008, Corinthian spent $1.3 million on lobbying, according to the Chronicle of Higher Education, while its political action committee donated more than $60,000 to candidates.
Today, for-profit schools no longer fear a new Democratic cop on the beat.
"In general, we continue to view the political and regulatory environment as favorable for our company," said Corinthian executive chairman Jack Massimino during the Aug. 25 conference call. "There's every indication that we're at the table as full participants in the legislative and regulatory process, and that we have ample opportunity to make our views known."
He added, "There is nothing to suggest that the department's regulatory agenda is designed to put any particular type of school or sector at a disadvantage."
That's an extraordinary thing for a Corinthian executive to say, given that the stimulus package was supposed to be subject to rigorous accountability and oversight.
It's not as though government isn't aware of for-profit schools' problems. In August, the Government Accountability Office issued a report saying the Department of Education's regulation was so lax as to "place students and federal funds at risk of potential fraud and abuse."
"We need people who know how to fix things," Nassirian said. "And that was the initial policy justification for subsidizing these kinds of schools — to provide training in the trades. But, like everything else, that got pushed aside by multibillion-dollar corporations.
"During the 2000s, a Republican Congress paired up with the Bush White House, created an environment in which whatever meek enforcement had been taking place was terminated, and the system went into autopilot. Enrollment shot up," Nassirian said, jokingly adding, "Dog grooming schools began offering Ph.D. programs."
Regulation of for-profit schools wasn't always lax. In 1952, as Congress extended the GI Bill following the Korean War, legislators were concerned that veterans seeking education might be suckered by unscrupulous operators offering courses of little value merely to capture government benefits. For-profit trade schools already had a reputation as a huckster's paradise.
So the 85/15 rule was established, limiting federal aid only to schools where 15 percent of students paid their own way. Supporters said the rule would combat abuse and weed out those schools whose offerings were so uncompetitive that they could survive only with federal subsidies.
"It was predicated on the notion that programs that couldn't find other paying customers were inherently suspect," Nassirian said, that "if something has market viability, surely somebody will pay for it. The industry figured out that it couldn't, with a straight face, say they were 100 percent dependent on federal dollars. So they semantically redefined federal dollars as private."
Over time, the 85/15 rule was changed to the 90/10 rule, which came to mean merely that only 90 percent of total dollars could come from federal aid. Further, the industry lobbied to have some types of government aid reclassified as "private" money, thus allowing schools to operate almost entirely on government aid.
In mid-September, in the latest such insult to precise use of English, a bill sponsored by Rep. George Miller (D-Martinez) further weakened the requirement that private money actually come from students' own pockets, making the rule all but meaningless.
"We are also concerned about the bill's evisceration of the 90/10 rule," George Boggs, president of the American Association of Community Colleges, wrote recently to Miller. "This is another in a continuing weakening of provisions designed to limit fraud and abuse in the student aid programs."
In the case of Corinthian, however, even reported income consisting of 89 percent federal aid has not been enough to retain students. The company itself has taken on debt, with $120 million in such private in-house student loans now outstanding.
In 1989, the government again sought to rein in what news stories and government studies suggested was an industry rife with fraud. A study found that 950 schools had default rates (measured as portion of enrolled students who fail to repay their government-backed loans) of more than 40 percent — a rate that would disqualify them for future federal aid under current rules. Schools had marketed programs to academically underqualified students, urged them to obtain the maximum possible loans and grants, gave them an inadequate education, and sent them on their way with little means to pay back thousands of dollars in debt. The Department of Education instituted a rule that schools would stop receiving federal grants if their default rate exceeded 25 percent for three years, or 40 percent for a single year.
Again, the idea was to weed out fraudulent operators. It worked at first: 1,580 schools became subject to sanctions between 1992 and 1999.
But in 1998, Congress changed the way the default rate was calculated. That year, lawmakers redefined "default" as a student who had failed to make payments for 270 days, as opposed to the previous 180 days. Additional time required for the government to address troubled loans meant that a student who never made a payment wouldn't be officially in default until 420 days after the first installment was due. Further muddying the waters, defaults were counted only during the first two years of the life of the loan, meaning a student who obtained a deferral, a forbearance, or who merely stopped making payments after two years didn't count as a default.
With this in mind, Corinthian reports in its financial statements that it makes use of an "outside professional default management firm," which closely follows all ex-students to detect "changes in circumstance that may allow the student to apply for deferments" until the brief government-recognized default period is over.
"This is not an act they [Corinthian] can sustain over the years," Nassirian said. "But if they can sustain it for six months, until that person is out of the two-year window, and then drop the person, they're in the clear."
