|From the speech invoking Theodore Roosevelt:
"Inequality also distorts our democracy. It gives an outsized voice to
the few who can afford high-priced lobbyists and unlimited campaign
contributions, and it runs the risk of selling out our democracy to the
highest bidder. It leaves everyone else rightly suspicious that the
system in Washington is rigged against them, that our elected
representatives aren't looking out for the interests of most Americans."
NY Times December 9, 2011
With Lobbying Blitz, For-Profit Colleges Diluted New Rules
By ERIC LICHTBLAU
WASHINGTON — Last year, the Obama administration vowed to stop
for-profit colleges from luring students with false promises. In an
opening volley that shook the $30 billion industry, officials proposed
new restrictions to cut off the huge flow of federal aid to unfit programs.
But after a ferocious response that administration officials called one
of the most intense they had seen, the Education Department produced a
much-weakened final plan that almost certainly will have far less impact
as it goes into effect next year.
The story of how the for-profit colleges survived the threat of a major
federal crackdown offers a case study in Washington power brokering.
Rattled by the administration’s tough talk, the colleges spent more than
$16 million on an all-star list of prominent figures, particularly
Democrats with close ties to the White House, to plot strategy, mend
their battered image and plead their case.
Anita Dunn, a close friend of President Obama and his former White House
communications director, worked with Kaplan University, one of the
embattled school networks. Jamie Rubin, a major fund-raising bundler for
the president’s re-election campaign, met with administration officials
about ATI, a college network based in Dallas, in which Mr. Rubin’s
private-equity firm has a stake.
A who’s who of Democratic lobbyists — including Richard A. Gephardt, the
former House majority leader; John Breaux, the former Louisiana senator;
and Tony Podesta, whose brother, John, ran Mr. Obama’s transition team —
were hired to buttonhole officials.
And politically well-connected investors, including Donald E. Graham,
chief executive of the Washington Post Company, which owns Kaplan, and
John Sperling, founder of the University of Phoenix and a longtime
friend of the House minority leader, Nancy Pelosi, made impassioned appeals.
In all, industry advocates met more than two dozen times with White
House and Education Department officials, including senior officials
like Education Secretary Arne Duncan, records show, even as Mr. Obama
has vowed to reduce the “outsize” influence of lobbyists and special
interests in Washington.
The result was a plan, completed in June, that imposes new regulations
on for-profit schools to ensure they adequately train their students for
work, but does so on a much less ambitious scale than the administration
first intended, relaxing the initial standards for determining which
schools would be stripped of federal financing.
“The haranguing had zero effect,” said Cass R. Sunstein, the White House
official who oversees rule making. Rather, he and other administration
officials said they listened to what they viewed as reasonable arguments
and decided to narrow the scope of the original plan.
But Robert Shireman, a former Education Department official who helped
shape that original plan, said the intense politics surrounding the
issue played a part in “watering down” the final result.
“From early on, the industry was going to friends inside and out of the
administration and saying, ‘They’re out to get us,’ and creating the
impression that these regulations were unfair or irrational,” said Mr.
Shireman, who left the department before the plan was finished.
“They decided to raise holy hell,” he said in an interview.
Many colleges saw the federal government’s attacks as “Armageddon for
the industry,” said Avy Stein, a partner at a private equity fund that
owns a network of schools called Education Corporation of America.
The industry was on the defensive after a series of federal
investigations portrayed it as rife with abuse. They found that
recruiters would lure students — often members of minorities, veterans,
the homeless and low-income people — with promises of quick degrees and
post-graduation jobs but often leave them poorly prepared and burdened
with staggering federal loans.
In response to the rising concerns, 18 months ago the Obama
administration proposed its tough restrictions linking tens of billions
of dollars in federal student aid to formulas measuring students’ debt
levels and income after graduation. Colleges whose students were not
earning enough money to start paying back their loans would be in danger
of losing federal aid altogether.
The proposal was aimed at ensuring that the for-profit schools were
providing “gainful employment” in a wide range of vocational fields they
taught, like medical testing, massage therapy, business management and
cosmetology. The joke in Washington, however, was that the industry
effort to defeat the plan mainly ensured “gainful employment” for the
capital’s Democratic lobbyists and political consultants.
In a coordinated approach that also included Capitol Hill protests,
petition drives, newspaper ads and more, industry advocates stressed
that jobs that would be lost if the institutions were put out of
business. They questioned why nonprofit schools were untouched. And they
accused the administration of highlighting some abuses to stigmatize an
industry that educates second-chance students shunned by traditional
“It was a demonization of our sector,” said Penny Lee, who leads an
industry coalition and has extensive ties to Democratic politics as a
former senior aide to Senator Harry Reid of Nevada.
The industry’s mobilization helped produce a record 90,000 public
comments to the Education Department — overwhelmingly negative — on the
The battle got so testy that Senator Tom Harkin, the Iowa Democrat who
has led Congressional hearings into the colleges, got into a heated
exchange with Mr. Stein, the Education Corporation investor.
The senator said that during a hallway conversation after lunch in the
Senate dining room, Mr. Stein promised to “make life rough for me” if
Mr. Harkin kept up his attacks.
“I took it as a threat — it was one of the most blatant comments ever
made to me in my years in the Senate,” Mr. Harkin said.
Mr. Stein, a frequent Democratic donor who had bought the lunch with the
senator at a charity auction, would not discuss the details of the
conversation. But he said Mr. Harkin’s account was “totally incorrect,”
adding: “Under no circumstances would I would ever threaten a U.S. senator.”
Officials at the White House and the Education Department described the
industry’s aggressive efforts as unusual even by Washington standards.
Mr. Sunstein, the White House official, characterized the intensity as
That response reflected the enormous financial stakes for an industry
that has become big business in the last decade, with online schools and
traditional campuses offering degrees to about three million students.
Schools receive as much as 90 percent of their revenues from federal aid.
Once small, local operations, many of the colleges are now multistate
networks owned by Wall Street firms looking for big profits. Consumer
groups sought tougher restrictions, but found themselves outmatched.
Pauline Abernathy, vice president with the nonprofit Institute for
College Access and Success and an industry critic, said: “We always knew
that we couldn’t compete with the colleges in terms of money or
lobbyists, but we thought we had the facts on our side.”
The colleges pushed back at critics, finding errors, for instance, in
conclusions from a Government Accountability Office investigation last
year, forcing the office to revise some of its statements about industry
Schools also questioned the motives of a key witness at Mr. Harkin’s
hearings, the noted hedge-fund trader Steve Eisman, who blasted the
colleges’ sky-high profit margins and likened them to subprime mortgage
lenders. After Mr. Eisman acknowledged he held financial positions in
the industry, the colleges charged that he stood to make millions by
battering their reputations and short-selling their stocks.
Ms. Dunn, the former White House aide hired by Kaplan, played a key role
in helping shape the colleges’ message.
In an interview, she said she worked to refute media reports casting the
abuse problems as industrywide and to show they were limited to “a few
While some people in the industry pushed to see the regulations killed
altogether, she said that most executives realized that there were going
to be regulations they had to live with” and aimed to blunt the impact.
While Ms. Dunn visited the White House about 80 times since leaving the
administration, she said she was careful to avoid talking to former
colleagues about the issue because she is not a lobbyist and such
contact would violate the ethics policies put in place by Mr. Obama
regarding lobbying by former advisers.
Tony Podesta, who met last May with White House officials and sent
lobbyists at his firm to other meetings, faced no such restrictions.
“The administration realized they had overdone it,” he said, “and,
wisely in my view, they took a second look.”
In the end, Mr. Duncan and his department, after working for months with
White House budget, economic and domestic policy officials, decided that
the initial criteria for determining how effectively schools prepared
students for jobs simply went too far.
The original framework “would have unnecessarily eliminated many, many
good schools along with the bad,” said Justin Hamilton, an Education
The final standards leave a maximum of 5 percent of schools facing
financial sanctions at the start; the original plan would have meant
penalties against an estimated 16 percent.
The rules also pushed back the penalties to 2015 from 2012, while
requiring schools to disclose more data about loans, defaults and job
Donald Heller, a Penn State education professor who studied the plan,
said the industry did largely what it set out to do.
“This was the beachhead the colleges were going to defend, and they were
somewhat successful in that they got the regulations weakened,” he said.
“The Department of Education really bent to the lobbying push.”
Barclay Walsh contributed research for this article.