For-Profit College Watchdog Nears Death After Education Department Ruling

(Bloomberg) -- Nearly 250 colleges are at risk of shutting down after a top official at the U.S. Department of Education on Thursday formally endorsed a plan to terminate their oft-criticized accreditor’s authority to act as a gatekeeper for federal student aid.

The move immediately imperils their long-term access to the roughly $130 billion in federal student loans and grants that annually flows to schools, threatening their ability to stay in business. Analysts said that affected schools unable to find a new accreditor will either merge with other colleges or close their doors.

Emma Vadehra, chief of staff to Education Secretary John King Jr., decided to withdraw the department’s recognition of Washington-based Accrediting Council for Independent Colleges & Schools (ACICS), which oversaw schools owned by Corinthian Colleges Inc. and ITT Educational Services Inc., following earlier recommendations from department staff and an outside group that advises the department on accreditation issues.

ACICS plans to appeal the decision, the organization said in a prepared statement. "We are confident that if given the opportunity to do so, we will be able to demonstrate major reforms and ongoing progress towards compliance with the department’s recognition criteria,” said Roger Williams, the accreditor's interim president.

Accreditors such as ACICS, which largely accredits for-profit colleges and career schools, are paid by colleges to evaluate their fitness to receive taxpayer funds. Accreditation is crucial for colleges because students are unable to use federal student aid to pay for classes at unaccredited schools, giving accreditors substantial power to keep dodgy schools in operation.

Last year, ACICS-accredited schools received nearly $4.8 billion in federal student loans and grants, according to the Education Department. In June, department officials said the accreditor wasn’t properly supervising its schools and had failed to unearth or act on “questionable and fraudulent behavior at a significant number” of its colleges.

The Center for American Progress, a Washington policy organization with close ties to the Obama administration and Hillary Clinton’s presidential campaign, declared in June that students who attend ACICS-accredited schools have the worst outcomes of any group of students who attend schools overseen by a major accreditation agency, when measured by their graduation, loan repayment, and loan default rates.

"With its lengthy track record of shoddy oversight—that has led to billions of taxpayer dollars squandered–ACICS had abused the public's trust and could not be allowed to continue granting access to federal dollars,” said Ben Miller, senior director for postsecondary education at the Center for American Progress. The collapse of Corinthian and ITT shows that the nation’s accreditation system is “riddled with flaws,” Miller added.

ACICS has faced a tremendous amount of criticism from lawmakers and regulators over the past year for its allegedly lackluster oversight of schools that state and federal agencies have sued in court, claiming they defrauded students with false promises and misleading claims about graduation and job-placement rates. 

Several factors have contributed to the Obama administration's recently aggressive pursuit of allegedly poor-performing for-profit colleges, including the fact that the administration is in its final year and is seeking to burnish its reputation before leaving office. The 2016 presidential campaign has also been animated by many of the same issues, such as mounting student debt. Finally, new research has cast doubt on the effectiveness of for-profit higher education.

ACICS has 30 days to appeal Vadehra’s decision, but the appeal will be ruled on by Education Secretary John King Jr., her boss, former Yale Law School classmate, and the official who picked Vadehra to determine ACICS’s fate. King can take as long as he’d like to consider the appeal, but he told reporters on Wednesday that he expects “it would get resolved quickly.” King’s decision may eventually be appealed in court.

If ACICS ultimately loses its ability to accredit schools, its colleges will have 18 months to find a new accreditor or face a potentially fatal halt in federal funds.

To contact the author of this story: Shahien Nasiripour in New York at snasiripour1@bloomberg.net.

To contact the editor responsible for this story: Josh Petri at jpetri4@bloomberg.net.