The Problems of Accreditation of For-Profit Institutions
And a Step to Improve It
In my most recent blog post, I compared financial aid data for the 2013-14 academic year with that of previous years. One interesting finding was that the share of Pell enrollments at for-profit institutions has declined by 22 percent since it peaked in 2009-10.
As explained in the blog, this decline coincides with the federal government’s efforts to crack down on students’ low-value use of Pell grants, specifically at for-profit institutions. For-profit programs, according to the federal Department of Education, “are most likely to leave their students with unaffordable debts and poor employment prospects.” To combat this, the Department has taken steps to regulate for-profit institutions, including mandating that they prepare students for “gainful employment” or lose eligibility for federal student aid.
An institution of higher education is eligible for federal student aid if it is accredited by a nationally recognized accreditor. With more than $160 billion allocated by the federal government in student aid funding in the 2012-13 aid year, accreditors have an important responsibility to students and taxpayers to police which institutions become accredited and provide adequate oversight of those already accredited. There is increasing evidence that accreditors of for-profit institutions are failing to uphold these responsibilities.
Students who attend for-profit institutions are more likely to face significant financial hardship after leaving the institution than those who attend not-for-profits. Students at for-profit institutions account for 44 percent of all federal student loan defaults while representing only 11 percent of the higher education population. What’s the connection to accreditation? A 2015 Center for American Progress report found that 20 percent of borrowers at colleges accredited by national accreditation agencies (which mostly accredit for-profits) defaulted within three years of leaving an institution, compared to 12 percent of borrowers at colleges accredited by regional accreditation agencies (which mostly accredit not-for-profits).
These higher default rates may be the result, in some cases, of deceptive practices by institutions that have gone unchecked by accreditors. The most egregious recent example is Corinthian Colleges Inc., which was ordered to pay $530 million as the result of a suit by the Consumer Financial Protection Bureau alleging that the company advertised “bogus job prospects and career services” and “used illegal debt collection tactics.” Despite the fact that actions by the Department of Education led to the closure or sale of all Corinthian colleges, not one of the 59 campuses controlled by Corinthian lost accreditation from the Accrediting Council for Independent Colleges and Schools (ACICS), the largest nationally recognized accreditor of for-profit institutions.
A ProPublica article published last month highlights one significant issue with accreditation: conflict of interest. Since 2010, two-thirds of ACICS’s commissioners, who are “the decision makers on whether a college receives accreditation,” have worked as high-ranking officials at for-profit colleges while serving as commissioners. According to the article, this does not violate federal rule because the Department of Education requires only a “small” fraction to be outside the industry.
Compounding the problem is the fact that accreditors like ACICS are funded through membership fees from the colleges they monitor. The more schools they monitor, the more money they receive. But, as Kevin Carey pointed out a few years ago, the situation bears a strong resemblance to bond-rating firms, such as Moody’s or S&P, assessing the risk of securities concocted by the firms that pay their fees.
It is important to acknowledge that these problems are not unique to ACICS and are not unique to accreditors of for-profit colleges. The accreditation system is built upon the notion of self-regulation. However, the prevalence of student loan defaults is much more acute at for-profit institutions, making the need for reform of accreditors of for-profits greater.
The Higher Education Act of 1965 and its reauthorizations regulate the accreditors of higher education institutions. The Department of Education assists in the implementation of the law and establishes additional regulations. As the latest extension of HEA was coming to an end in 2015, the Department of Education proposed a set of legislative reforms to increase the transparency and accountability, but Congress has not moved on HEA. While a complete overhaul of the process may be required to vastly improve accreditation of for-profits, there is an obvious and relatively easy step that can be taken: mitigate the conflict of interest. Currently, the Department of Education requires at least one commissioner be a representative of the public, and at least one-seventh of all commissioners be representatives of the public (although agencies recognized prior to 1991 may have this requirement waived). If the Department is serious about protecting students at for-profit institutions, it should require a majority of accrediting body commissioners to be independent of the colleges they oversee.