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Free-Market Colleges Sue Education Dept. Over Political Agenda

Free-Market Colleges Sue Education Dept. Over Political Agenda

Secretary of Education John B. King Jr. (Rex Features via AP Images)

By    |   Thursday, 01 September 2016 08:41 AM

The Center for Excellence in Higher Education, an owner of a chain of career-training colleges, filed a federal lawsuit accusing the Department of Education of pursuing an agenda to put them out of business, according to The New York Times.

The lawsuit argues that the Department of Education aims to deny the colleges' access to federal student aid money by not classifying them as nonprofit educational institutions.

The Center for Excellence in Higher Education was created in 2006 as a charity to promote free-market principles throughout higher education, according to the Times.

Six years later, the Center bought out a number of colleges, including Stevens-Henager, California College, and CollegeAmerica, from entrepreneur and Ayn Rand devotee Carl B. Barney, the colleges' founder. Almost the whole $636-million purchase price came from donations and loans from Barney, the Times reported.

In 2015, Barney canceled more than $337 million of that debt, according to the Times.

In buying the for-profit chain of colleges, the Center for Excellence in Higher Education restructured itself as a tax-exempt, nonprofit educational center with Barney as chairman. The Internal Revenue Service approved the change, but the Department of Education denied it, according to a U.S. Department of Education news release.

In the news release, Secretary of Education John B. King Jr. said, "This should send a clear message to anyone who thinks converting to nonprofit status is a way to avoid oversight while hanging on to the financial benefits: Don't waste your time."

The Department of Education declared that Barney retained control of the colleges and continued to profit from them, from debt payments and leasing income from use of the institutions' buildings.

The Center for Excellence also filed a lawsuit in Utah's U.S. District Court, saying that the Department of Education's decision was "arbitrary and capricious," according to the Times. The Center is asking the court for the colleges to be regulated as nonprofit institutions.

For-profit colleges can not get more than 90 percent of their revenue from federal financial aid funding, and are subject to "gainful employment" rules that make access to federal funds a condition of graduates' success at getting jobs, according to a Department of Education fact sheet.

Barney told the Times he did not profit from the deal, despite the Department of Education's ruling, saying that costs and lost revenue left him "out of pocket about $77 million."

"I built up the schools, I put my own money in. I don't want to just walk away. There is no reason I can't continue to be in charge," Barney said told the Times.

Law professor and Center for Excellence board member Todd J. Zywicki dismissed the Department of Education's claims that the Center for Excellence's merger was intended to sidestep federal oversight and that the Center paid too much for the colleges and did not get an independent valuation first.

Zywicki told the Times the Department of Education, "had a predetermined conclusion and never got all the facts."

The Denver branch of CollegeAmerica is being sued by Colorado's attorney general's office on charges of deceptive advertising and poor job placement and graduation rates. According to the Times, the Department of Education previously demanded that the Center for Excellence guarantee $42.9 million, 30 percent of the federal student aid that the colleges received in 2013, to protect taxpayers and students if the schools end up failing financially.

Vocational and technical colleges, which offer certificates and degrees in subjects such as cosmetology and nursing, argue that they adapt better to changing job markets and are better at serving the poor, minority students, and military veterans, reports the Times.

Consumer and education advocates say that many of the centers put students in debt and do not provide them with promised training and jobs, according to The Times.

The Department of Education has said that about 1,400 programs would not pass the "gainful employment" standards, and it has moved to hold them more accountable.

The Department has barred a prominent for-profit education company, ITT Educational Services, from enrolling students who use federal financial aid, according to the Times.

After that move, ITT halted enrollment of new students. "I don't see any way they survive this," research analyst Peter Appert told CNNMoney.

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The Center for Excellence in Higher Education, an owner of a chain of career-training colleges, filed a federal lawsuit...
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Thursday, 01 September 2016 08:41 AM
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