Obama’s Fake Education Reform

Published May 26, 2011

Despite providing excellent opportunities for atypical learners and improved graduation rates among minorities, for-profit colleges have become synonymous with “diploma mills,” thanks in large part to a determination to destroy them, evidenced by the Obama administration and its congressional allies. The federal government is positioning itself to destroy an industry that has done more for minorities and the economically disadvantaged – who often find it difficult to get admitted to and afford old-fashioned nonprofit colleges – than any act of government could hope to achieve.

Enrollment in for-profit schools – such as the Art Institutes and University of Phoenix – has skyrocketed in the past 10 years, growing by 21 percent between 2008 and 2009 alone. The rise in popularity and increased competition with traditional tax-funded universities has gotten a good deal of attention from politicians quick to call for regulation.

Last year, after an error-laden Government Accountability Office report targeting for-profit college admissions practices, Congress and the Obama administration began the witch hunt. Their plan: If we can’t beat them, regulate them to death.

One regulation to be applied only to for-profit schools would assess the likelihood that graduates will be gainfully employed and able to repay debt. Although the exact language of the regulation is not yet available, it carries the very real threat of removing for-profit colleges from loan eligibility and thus making college-level programs unaffordable to populations most in need of affordable higher education options.

The most vocal witch hunters, Sen. Tom Harkin, Iowa Democrat, and Sen. Richard J. Durbin, Illinois Democrat, are masquerading as protectors of the innocent, but in such cases, it’s always important to ask cui bono – who benefits? As it happens, very powerful groups of people will be helped if government undermines this industry.

Union power

Union membership is becoming increasingly limited to public-sector jobs. Well more than 300,000 higher-education faculty members belong to unions, and of those, 94 percent work for traditional, tax-funded public universities, according to the 2006 Directory of Faculty Contracts and Bargaining Agents in Institutions of Higher Education. For-profit colleges are far less likely to have unionized faculty.

The largest higher-education unions – such as the American Association of University Professors (AAUP); American Federation of State, County and Municipal Employees; and American Association of University Women – have been active in rallying Democrats against the threat of an efficient, market-oriented form of higher education. The largest union specifically for higher-education, the AAUP, has called “universities as commercial enterprises” the “primary peril” in higher education today. The AAUP and many higher-education faculty unions are affiliated with the American Federation of Teachers, which in 2010 gave $2.8 million to Democrats and just $7,500 to Republicans.

As we’ve seen in the kindergarten-through-grade-12 reform battles, what unions want, Democrats give them. Ninety-five percent of their political donations make their way to the pockets of Democrats at the expense of the most obvious education reforms, such as merit pay, the elimination of seniority and the “parent trigger,” which allows parents with children at a troubled public school to initiate intervention. Meanwhile, student achievement is much lower than it was a half-century ago, before the rise of teacher-union power. With higher-education unions pouring the same kind of money into politicians’ coffers, we can expect similarly dismal results.


When the federal government needs a quick influx of cash, nothing is easier than the forced takeover of a profitable industry. Confronted with the enormous price tag on Obamacare, for example, the Obama administration did just that. A sidecar bill to Obamacare quickly and quietly took over the nation’s entire student loan process. As Timothy P. Carney wrote, “Over the next decade, between reduced subsidies to private lenders and interest collected from [the loans of] students, the expected profit is $60 billion.”

The vicious cycle of ever-higher public tuition causing higher subsidized lending is really just a way of placing some of the cost of Obamacare squarely on the shoulders of recent college grads. The for-profit sector isn’t part of that plan. Loan defaults by students at for-profit institutions might shed additional light on the real costs of Obamacare.

But there’s another group with even more to gain from the attacks on for-profit higher education.

Financial gain

Some investors appear to have made big money from this crusade. Late last year, Citizens for Responsibility and Ethics in Washington (CREW) and other ethics groups began mounting a campaign to investigate shady short-sellers and their relationship to legislators pushing new regulations on for-profit colleges. In March, the National Legal and Policy Center’s Ken Boehm announced he had asked the Securities and Exchange Commission (SEC) to “investigate the activities of short-sellers, including Steven Eisman, who profited from the collapse of share prices of companies that are in the for-profit education field.”

Mr. Boehm’s letter to the SEC alleges a cozy relationship between short-sellers – who have profited hand over fist from the regulation-induced decline in for-profit investment – and the government officials sponsoring the new regulations. Mr. Eisman, for example, was invited to testify against for-profit colleges before a Senate committee. He gained notoriety as a leading short-seller during the mortgage crisis, profiting from others’ misfortune. In the five months after Mr. Eisman’s Senate testimony, “the value of 13 publicly traded for-profit educational stocks fell by $7.9 billion, or approximately 27 percent.”

Marc Oestreich is legislative specialist on education policy for the Heartland Institute.