The federal government has ramped up its efforts to protect consumers from unfair and deceptive for-profit colleges in recent years: implementing so-called gainful employment rules this summer, discharging millions of dollars in student loans for students who were defrauded by Corinthian Colleges and restricting the University of Phoenix’s ability to participate in tuition-assistance programs for active-duty servicemembers. Still, these steps appear to have done little to keep questionable for-profit colleges from getting their hands on billions of dollars in funding straight from the government. 

In fact, the 152 for-profit colleges currently under investigation by federal and state regulators received $8.1 billion in federal student loan and grant payments last fiscal year, according to a new report from the New York Times.

Schools receiving these funds run the gamut: small beauty programs, online law schools and behemoth chains like University of Phoenix or ITT Technical.

While many of the schools have been scrutinized for unfair practices, like inflating graduation and job placement rates, the New York Times reports the Department of Education can’t withhold funding from colleges without definitive proof of wrongdoing.

It’s a difficult situation as the for-profit industry sees the agency as unfairly targeting for-profit colleges that provide educations for some of the country’s most-underserved consumers, while consumer advocates say the Dept. isn’t doing enough to protect often vulnerable students.

The Department has attempted to rein in the bad actors by restricting their ability to expand their programs or the number of campuses, capping the number of students eligible for student loans or requiring them to post letters of credit in order to receive federal aid, the Times reports.

But consumer advocates say that schools – especially large for-profit chains – can simply sidestep these efforts through loopholes, most notably when it comes to student loan default rates.

The government can withhold student loan payments when a college’s default rate surpasses 30% three years in row. But this standard has all but been considered inadequate by advocates who say for-profit schools in trouble have simply pushed students into deferments or forbearance so they don’t count against the three-year time frame.

According to the Times, nearly 100 schools with default rates above 30% received $116 million in federal aid last year.

The Department’s other measures – including a cash-monitoring list and financial sanctions – have also failed to make a difference, advocates say.

Last, year 98 for-profit schools on the Education Department’s financial responsibility watch list received a combined $600 million. Another 35 schools with limited access to federal money in advance still received $15 million.

For some advocates, the answer to cutting of the funding is simple: team up with state regulators.

Maura Healey, Massachusetts Attorney General, says the findings of abuse by attorney general’s offices and other authorities should be enough for the government to cut off funding.

But it’s not – at least for the time being – and that’s evidenced by the tens of millions of dollars collected by allegedly dishonest for-profit colleges over the last year.

Education Management Corporation, the company behind the Art Institutes and Argosy schools, received $1.25 billion in federal funds last school year despite being investigated or sued by 12 states in recent years, the Times reports.

Likewise, ITT Education Services, the company behind ITT Technical Institute, has been the target of a federal fraud investigation by the Department of Justice and had executives sued by the Securities and Exchange Commission this year. Still, the Times reports, the campuses earmarked for issues received $592 million in the last 12 months.

And it’s not just well-known, large for-profit colleges that receive big bucks from the government.

Alta Colleges, which operates campuses and online schools in several states, is being sued by the Illinois attorney general for alleged “deceptive, unfair and abusive practices in the marketing and selling of their criminal justice program.”

Nevertheless, the school received more than $104 million in federal aid in the last school year, according to the Times.

“These schools exist on the back of U.S. taxpayers,” Healey, the Massachusetts attorney general, said. “It’s time to turn off the spigot of federal student loan that are flowing into these for-profit colleges.”

For-Profit Colleges Accused of Fraud Still Receive U.S. Funds [The New York Times]

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