Senate bill would beef up state regulation of for-profit universities

With some for-profit colleges facing allegations of misleading recruits and operating as diploma mills, the General Assembly is targeting the lightly regulated industry with proposed penalties aimed at ensuring that its schools live up to promises made to Maryland students.

If the bill passes, Maryland would join the federal government and a growing list of states in the effort to gain a regulatory handle on an exploding sector of higher education. An undercover investigation last year by the Government Accountability Office found that four of 15 for-profit colleges actively encouraged fraudulent practices and that all of them made deceptive statements to applicants.


Those findings and the reaction in Congress caught the attention of state Sen. Paul Pinsky, a Prince George's County Democrat who submitted the Maryland legislation. Pinsky said he does not want to discourage for-profit schools from operating in Maryland.

"I just want to protect the consumer so no one gets hustled," he said. "Some of the recruiters from these schools make cold calls to kids and tell them whatever they want to hear. Then, they leave them saddled with debt and a degree that isn't what was promised. I want to stop that."


The state's laws governing higher education make little explicit mention of for-profit institutions, because when they were written, few people contemplated a booming market for online degrees offered by out-of-state sources.

Nationally, about 10 percent of postsecondary students now attend for-profit schools, up from 2 percent in 1986, according to the Center for College Affordability. State officials estimate that as many as 17,000 Maryland students are taking classes at for-profit institutions, more than are enrolled at all but three universities in the state system. Even more striking, students at for-profit institutions claim almost 25 percent of federal financial aid.

Pinsky said he submitted his bill in part to make it clear that the Maryland Higher Education Commission and the state attorney general have jurisdiction over providers such as the University of Phoenix, Kaplan University and Strayer University, all of which have faced allegations of improper recruiting in recent years.

Though lobbyists from the University of Phoenix and Kaplan objected to some aspects of the bill at a Feb. 23 hearing, they have not opposed the broad move to bring their schools under state regulations.

"We are committed to educating Americans, and to helping lead reforms that ensure transparency, accountability and student protections within higher education," said University of Phoenix spokesman Richard Castellano. "We are encouraged by this legislation and the additional student protections it provides."

Kaplan did not respond to calls for comment about the bill, which passed a committee vote last week and will next be considered by the full Senate. Only Phoenix and Kaplan sent representatives to the hearing on the bill, and several other for-profit universities failed to respond to calls seeking comment.

The legislation would require for-profit schools to pay into "guaranty" funds that could be used to reimburse students if the schools either fold or fail to live up to their contracts. It would give the Maryland Higher Education Commission power to levy $5,000 fines on for-profit schools if they violate state regulations. It also would prohibit all institutions of higher education from offering financial bonuses to recruiters based on the number of students they enroll.

That restriction is meant to address one of the most prevalent criticisms of for-profit schools — that they are diploma factories with little interest in finding students who are good fits academically and financially.


"It's worrisome that there are some schools that have sprung up solely based on the idea that there are Pell Grant dollars out there and they want to grab them," said Del. John Bohanan, a St. Mary's County Democrat who introduced a House version of Pinsky's bill. "That to me has nothing to do with education."

The GAO investigation of 15 unnamed for-profit schools found that four encouraged students to falsify financial aid forms so they would qualify for federal aid and that others made misleading statements about tuition costs, program durations and graduation rates.

The questions are not exclusive to the GAO investigation. A 2009 report by ProPublica, a website that produces investigative journalism, found that recruiters for Phoenix, the nation's largest for-profit school, misled potential students about financial aid and credit transfers from other schools. In addition, recruiting abuses at Kaplan campuses have been the subject of congressional hearings, and a group of shareholders filed a lawsuit in Florida against Strayer based on allegations of deceptive recruiting.

The lack of regulatory control over for-profit universities has been a hot topic on Capitol Hill lately, with Sen. Tom Harkin, an Iowa Democrat, holding hearings to scrutinize particular institutions. After one such hearing last week, Harkin questioned whether federal and state agencies are doing enough to protect students who do business with for-profit schools.

"It seems that many of these for-profit education companies are becoming multi-state corporations, and their main focus is becoming their bottom line rather than their students," Harkin said. "In their current state, are our accreditation agencies equipped to oversee billion-dollar, multi-state corporations? From the evidence that we've seen today … I don't think so."

Despite such concerns, some education analysts argue that for-profit schools serve a valuable role by giving students more choices and greater scheduling flexibility and by pushing traditional universities to be more consumer-friendly.


"Any attempt to expand participation of Americans in higher education would do well to seriously include for profit institutions in planning, and public policy should encourage, not discourage this sector's continued growth," wrote the authors of the 2010 study by the Center for College Affordability.

Pinsky and Bohanan said the more established players in the for-profit world seem to embrace regulation as a way of separating themselves from newer, potentially less scrupulous competitors.

"A lot of them seem to be saying, 'Look, we're legit, we're clean,'" Pinsky said. "They want to separate themselves from the fringe players."

The bill has drawn support from the state university system and from the state's private, nonprofit colleges and universities.

"It's almost as though there's another large university in Maryland, but it's unregulated," said Ben Birge, associate vice president for government relations at University of Maryland, University College. "The way I see this bill, it doesn't focus on the for-profits because they are doing something wrong. It just makes more sense to have all schools under the same regulatory umbrella."

As a largely online university, UMUC is perhaps the state's most direct competitor with many of the national for-profits. Birge said that one overlooked benefit of the bill would be the submissions of data about student enrollment and program offerings required from for-profit universities.


"Some of the data-gathering aspects of this bill should help better inform the state about what's going on in higher education," he said. "From my perspective, these are steps in the right direction."

Pinsky said that with the landscape of online education evolving so quickly, the legislation will probably have to be revisited, possibly as soon as next year. "We all acknowledge that this is just a first cut," he said.