'For-profit' school lobbyists flock to OMB

Lobbyists, lawyers and senior executives for the for-profit school industry swarmed the Office of Management and Budget (OMB) days before the Obama administration announced new regulations to clamp down on the sector.

In a nine-day stretch last month, there were 16 meetings between administration officials and representatives of major for-profit schools that have lobbied heavily against the “gainful employment” rule, according to records kept by OMB’s Office of Information and Regulatory Affairs (OIRA). 

When the administration announced the finalized rule last week, proponents for stronger regulation of the industry said it had been weakened from its draft form.

First proposed in 2010, the rule has set off an aggressive lobbying campaign by for-profit schools. Some of the sector’s biggest names — DeVry Inc., Kaplan Inc. and ITT Educational Services Inc., among others — sent their CEOs and lobbyists to OMB’s offices in May to talk with officials from the White House and the Education Department about the regulation.

Penny Lee, managing director for the Coalition for Educational Success, said the original proposed rule was “onerous” and required the industry to speak out.

“It was unworkable. It was ungovernable,” Lee said. “This is a rule that will have a far-reaching impact, so that is why we saw many people weigh in on this.”

Under the rule, for-profit schools will have to show that their students are finding “gainful employment” in order to pay back government loans. If the schools fail that standard, they could be cut off from federal aid, which came to $30 billion for the industry last year.

Last month, OIRA reviewed the regulation, as it does with other proposed rules submitted by federal agencies in the administration. 

One of the most significant changes made to the regulation concerns how long for-profit schools have to comply. Federal funding to an institution would be cut off in 2015, not next year as originally planned, if the school fails to meet the rule’s criteria. In addition, for-profit schools would have to fail several tests in the same year for three out of four years before losing their eligibility for federal aid.

At least 19 for-profit schools or trade groups representing the industry have met with administration officials to discuss the rule last month, according to OIRA records. Also present in some of the meetings were members of some of the most well-known lobby and law firms in town, including DLA Piper, the Podesta Group, Heather Podesta + Partners, Wexler & Walker and Williams & Connolly.

Prominent chief executives for some of the companies were in the meetings, such as Gary McCullough of Career Education Corp. and Kevin Modany of ITT. Executives from the Apollo Group, which owns the University of Phoenix, also went to a meeting.

On May 12, Don Graham, chairman and CEO of the Washington Post Co., was in a meeting with several administration officials, including Cass Sunstein, OIRA’s administrator, to discuss the regulation, according to OIRA records. Also in the meeting was Andy Rosen, chairman and CEO of Kaplan — the for-profit education company owned by the Washington Post Co. — and Kevin Baine, a Williams & Connolly partner who was representing Kaplan.

Kaplan prepared a 35-page memo for the meeting that said the regulation “creates uncertainty” and that “there are less burdensome and more effective alternatives” to the rule.

The OIRA meetings are the likely outcome of what has been a massive lobbying effort by the for-profit education sector to stop the regulation.

The schools and their industry trade groups that went to the meetings spent more than $2.4 million together on lobbying in this year’s first quarter alone, according to lobbying disclosure records. Career Education Corp. is the biggest K Street spender among the for-profit education providers that attended IORA meetings so far this year, spending $410,000 on lobbyists last quarter.

Advocates who have pushed for stronger standards for the for-profit sector have criticized the finalized rule.

“This regulation is now the model of what the industry likes: ineffective, pointlessly complex, and decorative. They continue to carp about it only to keep the pressure on, and to cover up the enormity of their windfall as a result of the meltdown of the administration’s resolve,” said Barmak Nassirian, associate executive director for the American Association of Collegiate Registrars and Admissions Officers.

Nassirian was in attendance at one of the OIRA meetings last month that was scheduled for those who wanted stronger regulation of for-profit schools.

“We got one bite of the apple. Once you go around and introduce yourselves, most of the meeting is shot,” Nassirian said, noting the meeting lasted about 30 minutes.

Meetings to discuss the regulation were so frequent — sometimes two or three a day last month — that attendees began to bump into each other at OMB.

“When we came out, there were two people from the for-profit schools waiting outside for their respective half-hour meeting,” Nassirian said.

Opponents of the regulation were not fans of the rule-making process behind it, either.

“You are fighting against the dark and swinging against air,” said Lee, who attended one of the meetings. “It is an odd process. Transparent, it is not.”

Meg Reilly, an OMB spokeswoman, defended the agency and said it was responding to meeting requests from the public. 

“OIRA staff meet with any and all parties that requested a meeting during the regulatory review period. Meetings held are a direct reflection of requests received from the public,” Reilly said. “The purpose of the public comment period is to allow interested parties to weigh in on a proposed rule. Final regulations always reflect both internal deliberations and feedback from the public.”

Capitol Hill might weigh in on the finalized rule with legislation. Attached to the House Republicans’ budget provision earlier this year was a measure to nix the regulation, but it was tossed from the compromise package that prevented a government shutdown.

Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Tom Harkin (D-Iowa) is not satisfied with the rule. At a Tuesday hearing, he called it a “modest” step.

“The Department of Education has taken a modest first step,” Harkin said.

He said it was “a step back from what the proposed rule was,” although it was “better than nothing.”

Harkin noted that 47 percent of student loan defaults occur at for-profit colleges, which only have 10 percent of all college students. Student debt can never be erased, even by bankruptcy, so it is a drag on the economy, according to the Iowa senator.

“I really think this is the second coming of the subprime crisis,” Harkin said. “We need to take additional action.”

A Harkin aide said the senator plans to introduce legislation on the issue to guard against abuses by the for-profit higher education sector. Harkins bill will be based off findings from a series of hearings that the Senate HELP Committee chairman has held, according to the aide. 

Erik Wasson contributed to this report.