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Over the past several years, thousands of for-profit college students have had their education disrupted or learned that their degrees weren’t worth much in the labor market as their schools collapsed amid allegations of fraud. Meanwhile, taxpayers are footing the bill for the more than $1 billion the students are owed in student loan relief.
But the executives in charge of the schools have walked away relatively unscathed, in some cases, popping up at the helm of other colleges and education companies.
“You often see this cast of characters show back up in other places,” said David Bergeron, most recently a senior fellow at the Center for American Progress, a left-leaning think tank, who worked at the Department of Education for decades.
Below are some examples:
Kevin Modany served as ITT’s chief financial officer when the FBI raided the company’s corporate offices and some campuses in 2004 looking for job placement rates, graduation figures and other metrics. The United States Attorney’s office in Houston, which led the investigation, ultimately closed it. A little more than a year after the FBI raid, Modany was promoted to be the company’s president and chief operating officer. In 2007, he became the company’s chief executive officer.
ITT collapsed in 2016, a few weeks after the Department of Education barred the school from enrolling new students receiving federal financial aid, amid concerns from its accreditor about the school’s financial management and scrutiny from federal agencies and states attorneys general.
Two years later, Modany paid $200,000 to settle allegations brought by the Securities and Exchange Commission that he misled investors about the impact of a private loan program that ITT financially guaranteed. He was also barred from serving as an officer or director of a public company for five years. As part of the agreement, Modany didn’t admit or deny the SECs claims.
Meanwhile, the Department of Education recently cancelled $500 million in debt for 18,000 former ITT students. The agency discharged the debt after finding that between 2005 and 2016, ITT misled students about the jobs and earnings they could expect to obtain after graduation.
Todd Nelson, the chief executive officer of Perdoceo Education, which owns multiple college chains, headed the University of Phoenix’s parent company during a period the company was accused of breaking rules against paying recruiters to lure students and misleading investors.
Nelson later served as the chief executive officer of Education Management Corporation, the former owner of the now-defunct Dream Center schools, during a period when whistleblowers accused the company of violating the incentive compensation ban. Students and advocates are now pushing to hold executives accountable in the collapse of schools run by Dream Center Educational Holdings. They’re up against a proposed settlement as part of the organization’s receivership — a process similar to bankruptcy — that would shield the executives from liability and end pending lawsuits students filed against the executives, alleging they were harmed by their conduct.
Andrea Smiley, University of Phoenix’s vice president of public relations, said in a statement, that current ownership and leadership at the company is “intensely focused” on student outcomes, affordability, academic support and responsible marketing practices. The University of Pheonix’s parent company, Apollo Education Group, was taken private in 2017.
“We believe that all institutions should be accountable for delivering quality education and any student intentionally misled should be afforded relief,” Smiley said in the statement. “University of Phoenix (UOPX) is solely focused on our mission and priority of making career-focused higher education more accessible for adult learners — a historically overlooked and underserved population. UOPX is determined to see our students succeed and reach their career goals.”
Brian Mueller, the chief executive officer of Grand Canyon Education and the president of Grand Canyon University, became the president of Apollo Education Group, the University of Pheonix’s parent company when Nelson resigned in 2006.
Bob Romantic, a Grand Canyon University spokesman, wrote in an email that the University of Phoenix “pioneered online education” and delivered it to working adult students long before other universities considered doing so, allowing these students to improve their lives and careers.
“They did not need aggressive enrollment tactics,” Romantic wrote, adding that the school “ushered in a new era, opening the door for other universities to delve into this delivery model, which proved to be invaluable during the pandemic. Without the University of Phoenix laying the groundwork, we would not have been nearly as prepared.”
Andrew Clark, who recently stepped down as the chief executive officer of Zovio, an education technology company, overlapped with Mueller and Nelson at Apollo and University of Phoenix, where he eventually rose to become a regional vice president, according to an early 2010s Senate investigation into the for-profit college industry.
Clark founded Zovio in 2003 as Bridgepoint Education, according to the Senate report. He described the origins of the company to Inc. Magazine in 2008, saying “in 2002, I wrote a business plan for a company that would offer inexpensive, high-quality degree programs…I started knocking on the doors of investors and soon forged a relationship with Warburg Pincus,” the private equity firm, which ultimately provided significant backing to the venture, according to the Senate report.
By 2011, Tom Harkin, then the chair of the Senate’s committee on Health, Education, Labor and Pensions, was holding a hearing on Bridgepoint’s practices, calling the company “an absolute scam.” He noted that the HELP committee’s investigation found that of four-year students who enrolled at the school in 2008 and 2009, 63% had left the school by 2010. Clark didn’t attend the hearing.
Clark ran the company until earlier this year. It continued to be dogged by regulators during his tenure. In 2017, the California Attorney General sued Bridgepoint over accusations that one of its schools, Ashford University, made false promises to convince students to enroll. In 2016, the Consumer Financial Protection Bureau ordered Bridgepoint to provide $23.5 million-worth of relief to students who took out private loans from the school that the CFPB alleged cost more than advertised.
Clark left Zovio a few months after the company sold Ashford to the University of Arizona in a transaction that turned Ashford into the nonprofit University of Arizona Global Campus and provided Zovio with a 15-year contract with the school to provide recruiting and backend technology services for the school’s courses.
Clark stepped down with a separation agreement that included a $3.1 million payment.
Perdoceo Education and Zovio did not respond to multiple messages seeking comment.
Advocates want the Biden administration to hold execs accountable
The history of executives continuing their careers in the industry after allegations of wrongdoing is part of why lawyers representing former for-profit college students, staffers at think tanks focused on higher education accountability and others are urging the Biden administration to hold executives accountable when the colleges they run collapse.
It’s a step advocates say officials have the authority to take, but would represent a more aggressive posture towards for-profit college oversight than ever before. Representative Bobby Scott, a Virginia Democrat, and chair of the House Committee on Education and Labor, wrote to the Department of Education Monday urging the agency to use this authority.
Supporters of holding executives liable say it would ensure taxpayers have more recourse when students who were misled by their schools about graduation rates, job placement success and other data clamor for the relief from their federal student loans. Students who attended schools when they closed also have the right to have their debt cancelled.
When the loans are discharged, the government foots the bill. Though the Department of Education attempts to get some of those funds from the failing institution, by the time it’s collapsing, there’s usually not much money left. By ensuring that executives leading colleges are held personally liable when their schools close, the government would have access to another source from which to recoup the funds.
In addition, if executives knew they would be held personally accountable when their schools fail, they may be less inclined to engage in risky or predatory behavior, the National Student Legal Defense Network argued in a memo last year.
‘An extreme measure’
Executives who have violated the law and knowingly engaged in wrongdoing shouldn’t be immune from legal scrutiny, said Jason Altmire, the president of Career Education Colleges and Universities, a trade group representing for-profit colleges. But he said the proposal to hold executives personally responsible for funds their institutions owe the government “goes well beyond that.”
Though the Department of Education could arguably pursue personal liability for owners and executives based on provisions Congress added to the Higher Education Act in 1992, Altmire said his concern is that “this is an extreme measure that they appear to be trying to make more commonplace than it was designed to be” under that law. “And certainly than it’s designed in corporate law.”
“That is somewhat of an aberration from the traditional rules governing personal responsibility in corporate law in America,” Altmire said of the proposal.
Typically, executives and owners of a corporation aren’t held responsible for a company’s debts or obligations. Altmire said he worries what’s being suggested by Scott and consumer advocates could be a first step in a broader approach to the for-profit college industry that involves holding corporate leaders liable — what’s known as piercing the corporate veil — something that courts have been wary to do.
“Americans have generally been a little hesitant about it because it threatens innovation and decision-making in a business setting especially with regard to publicly traded companies,” Altmire said.
