For-profit colleges spend millions to beat regulation attempt

The for-profit education industry has spent millions over the past year to quash regulations that would withhold federal funds from colleges that saddle students with debts they cannot repay.

The lobbying push comes at a critical moment for for-profit universities. Activists and lawmakers have called for tighter regulation of the burgeoning for-profit educational sector in the wake of a Government Accountability Office report finding that four for-profit institutions encouraged their students to lie on financial aid forms so they could get more money from the federal government. (For-profit lobbyists are suing the GAO, saying the report was inaccurate.) A Businessweek reporter also recently found that the University of Phoenix and other schools recruited students from homeless shelters and signed them up for thousands in federal loans, leaving taxpayers on the hook when the loans weren't repaid.

The Department of Education wants to withhold some of the billions in annual federal subsidies that get disbursed to for-profit colleges that have high student debt and low loan repayment. Nearly half of all for-profit students will default on their loans, suggesting that their outstanding loans outpace their earning power.

So it's no great shock, per a report in the Minneapolis Star Tribune, that for-profit colleges shelled out $6 million in 2010 on lobbying. For-profit colleges also spent millions on congressional candidates' campaigns in the 2009-2010 election cycle—with more than $100,000 going to GOP Rep. John Kline of Minnesota, who is now the chair of House Education Committee.

Kline has vowed to undo any Department of Education efforts to withhold funds for for-profit educational institutions—a financial lifeline for the schools, as federal funding accounts for as much as 90 percent of total revenue in some instances. "We've looked at the regulations, and they're not just aimed at bad actors," he told the Star Tribune. "They're aimed at everyone."

The new House Higher Education Subcommittee chair, Rep. Virginia Foxx, a Republican from North Carolina, also received campaign donations from the for-profit industry, and is also an industry ally, resisting the case for tighter regulation and reduced federal funding.

But two powerful Senate Democrats, Tom Harkin of Iowa and Richard Durbin of Illinois, say they will defend the regulations, according to the Chronicle of Higher Education. And in a weird twist, the Star Tribune reports that famous short-seller Steve Eisman has argued for the regulations while joining hedge fund giants in taking short positions on the companies' stock. Any regulation would most likely cause the stocks' value to plunge, and the hedge funds would then profit.

The for-profit industry says withholding the federal funds will prevent many lower-income students from attending their schools, and perhaps from getting a higher education altogether. For-profit students take 25 percent of federal higher-education Pell Grants, even though they account for just 10 percent of the college population.

(Aja Holmes studies for her University of Phoenix online class in Raleigh, North Carolina: AP.)