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Controversial “Free College” Program Canceled by Feds

Recently we’ve covered several colleges with online divisions that ran into trouble with federal and state regulators and law enforcement agencies. These schools include the University of Phoenix, DeVry University, Ashford University, and the now-defunct ITT Technical Institute.

Like these four schools, most colleges that face such regulatory challenges are private, for-profit institutions. So we were surprised to learn of an unusual enforcement threat that had forced a public college into an August 2023 settlement agreement with the U.S. Department of Education.

That this college had operated for almost eight years in violation of Title IV of the amended Higher Education Act of 1965 (HEA) raises important questions about whether federal and state regulators and accrediting boards are focusing sufficient scrutiny on nonprofit online education programs.

Ohio’s “Free” College That Wasn’t

In 2022 the Education Department had called for Eastern Gateway Community College of Steubenville, Ohio to end a controversial “free-college” trade union partnership. That arrangement increased enrollment from only 3,000 students in 2015 to more than 40,000 students—virtually all online—from across the nation in 2020.

EGCC had offered its free college program exclusively to members of the American Federation of State, County, and Municipal Employees. AFSCME mostly consists of government employees like police officers, firefighters, and public healthcare workers. Affiliated with the AFL-CIO, AFSCME counted 3,400 locals across 46 states and 1.3 million members in 2021, making it the largest public employee trade union and one of the largest labor unions in the United States.

Michael Vasquez, a senior investigative reporter with the Chronicle of Higher Education, points out that EGCC’s sales pitch was simple. Members of the union and their families could earn a two-year associate’s degree without any debt. But to do so, they had to apply for federal financial aid.

Because many of these workers and their families “displayed exceptional financial need” under federal guidelines, they qualified for Pell Grants that defrayed much of the cost of their tuition. Next, the union would purportedly offer members “tuition assistance.” EGCC would then waive the remaining balance if the Pell Grants and union financial assistance didn’t pay all the charges.

Education Department officials claim that EGCC funded its “free” courses by collecting federal financial aid from only the students awarded Direct Loans and Pell Grants. In cases where students didn’t qualify for financial aid, the Department says that the school claimed outside benefactors like the union were funding these non-recipients through “scholarships.”

However, the agency’s investigation revealed that no such scholarships existed. That fact meant neither the union nor other third-party benefactors had provided any funding. Instead, the college simply wrote off the charges for these non-qualifying students.

According to a scorching letter to EGCC’s president Michael Geoghegan by the Education Department’s division chief Dr. Jeremy Early, that means the free program “violates the Title IV prohibition against assessing charges to Title IV recipients that are higher than those charges assessed to non-Title IV recipients.” In other words, since the school only collected funding from the federal aid recipients, the program is unfair because it forces the recipients to pay the charges on behalf of all students.

That lack of fairness makes intuitive sense. Some aid recipients who took out Direct Loans in order to attend Eastern Gateway could be stuck paying back those loans for decades, even though EGCC used a portion of the money they borrowed to cross-subsidize the costs generated by students who did not qualify for aid. The non-Title IV recipients in this latter group ended up attending classes and potentially earning credentials for free, and that’s not fair to all the borrowers who subsidized the costs of educating the students in the free cohort.

Vasquez also reports that most of the 40,000 students enrolled in 2020—a staggering 13 times the school’s enrollment only five years earlier—were from the “free” online program. Moreover, most of those students lived outside Ohio, meaning that state funding—even if any had been available—could not possibly have defrayed any portion of those non-recipients’ charges.

What Was EGCC’s Administration Thinking?

Incredibly, instead of moving to quickly settle, Eastern Gateway’s attorneys actually attempted to defend the program. They unsuccessfully argued to federal regulators that the school’s “free” college program was similar to free college programs currently operated statewide in California and Tennessee, such as the California College Promise Grant and the Tennessee Promise Program.

To understand why the Education Department had pursued a vigorous enforcement action against EGCC—and why the school’s defense failed—it first helps to understand a little more about college promise programs such as those in California and Tennessee.

Essentially, “College Promise” programs are free tuition programs offered by state and local governments to deserving students who enroll at state universities, community colleges, and technical schools. Launched in 2014 and providing free community college enrollment for all of the state’s high school graduates, Tennessee’s program was an early pioneer, and it turned into a model for a federal program first proposed by the Obama Administration in 2015.

As government policymakers search for incentives that encourage college enrollment, degree attainment, and workforce preparation, the growth trend of these programs has dramatically accelerated in the last few years. For example, a July 2023 survey by College Promise—an interest group working to make higher education as affordable and accessible as high school—found that 425 free college programs now operate in all 50 states. That’s an eight-fold increase from the 53 programs the organization found nationwide in its first survey during 2016.

Another reason that policymakers find these programs attractive involves their economic justification. One analysis by Georgetown University’s Center for Education and the Workforce concluded that a nationwide free college program would boost America’s economic output by a whopping $170 billion annually for the next ten years. It would also drive up income tax revenues by $66 billion per year.

On the other hand, most of the current government Promise programs operate with substantial budgets, especially the statewide programs. For example, Tennessee’s Promise budget averaged $22.6 million annually during the program’s first six years of operation prior to 2020. Moreover, in its first year of 2018-2019, the California Promise launched with a $46 million budget even though California charges community college students much less in tuition and fees than many other states, such as Vermont.

A key issue that President Biden campaigned on while a candidate during the 2020 election was free college tuition for two years. Costing $109 billion, in 2021 that provision did not survive the Build Back Better budget negotiations under the threat of a filibuster. The proposal has been stalled in Congress ever since because of those costs, and it doesn’t look like that situation will change before the 2024 election.

The point here is that whether we’re talking about state or federal programs, free college programs require substantial resources from actual income sources. Unlike the programs in California and Tennessee with large sources of actual income, Eastern Gateway did not have the benefit of a multi-million-dollar government budget that backed its operations—a key fact disclosed by the Education Department’s investigation.

Without such an income source, it remains unclear why EGCC’s counsel thought it could successfully argue to regulators that its operations were similar to the statewide programs in those two states when such a parallel did not exist. It also becomes clear as to why Dr. Early cites the inequitable cross-subsidization of the non-Title IV students—an outcome that no state program with an actual income source would ever need to accomplish—as prohibited under the amended Higher Education Act. Here is that key language:

All programs cited by EGCC are funded by an actual income source, whether it be from the institution’s foundation or the state, and those funds are used for qualifying students. In none of the programs are charges for non-Title IV students written off entirely, resulting in Title IV students being charged and non-Title IV students not, a result that is prohibited under the Title IV Statute.

EGCC’s Accreditation Threat

The enforcement action from the Department of Education was by no means the first problem that Eastern Gateway had encountered from regulators. In many ways, the college also now faces a more serious threat from a pre-existing regulatory challenge that occurred three months before the launch of the Education Department’s investigation.

It turns out that the Department had started its review of EGCG’s “free” college program in February 2022. ED probably found out about the program the preceding December, when EGCC’s accreditor—the Higher Learning Commission—had placed the college on probation and notified the Department as it was required to do under federal regulations.

In a blistering ten-page letter, HLC attacked EGCC’s uncontrolled growth and criticized the school’s lack of rigorous academic standards. Citing an extensive laundry list of performance aspects out of compliance with HLC’s minimum requirements, President Dr. Barbara Gellman-Danley’s letter continued:

The institution presented no evidence to support that the present business model provides a high-quality educational experience for students. Concerns have been raised about faculty and staff hiring and development; the number of full-time faculty for several academic programs; lead faculty to adjunct faculty ratios; student dissatisfaction with the quality of advising and engagement with adjunct faculty; lack of ongoing, consistent review of learning outcomes; and low long-term completion rates.

Then in November 2023, as reported in this video news report from WFMJ-TV in Youngstown and this letter from the Commission, HLC had extended the college’s probation. Eastern Gateway now faces another review by the accreditor in May 2024, and the WFMJ report suggests that after losing half of its enrollment following the “free” college program’s termination, a college shutdown may be possible.

Questions About Scrutiny

It is unclear just how long Eastern Gateway had operated under serious deficiencies relative to accreditation standards, such as those cited in exhaustive detail by the Commission. But notwithstanding that aspect, we do know from the Education Department’s investigation that EGCC had functioned for nearly eight years in violation of the amended Higher Education Act. This was in no way a fluke occurrence that happened during only one or two semesters.

In view of how long this violation dragged on, and in light of EGCC’s huge increase in enrollment that had attracted press coverage over several years, it’s reasonable to raise questions about whether educational regulators currently focus enough scrutiny on nonprofit as well as for-profit online education degree programs.

Douglas Mark

While a partner in a San Francisco marketing and design firm, for over 20 years Douglas Mark wrote online and print content for the world’s biggest brands, including United Airlines, Union Bank, Ziff Davis, Sebastiani and AT&T.

Since his first magazine article appeared in MacUser in 1995, he’s also written on finance and graduate business education in addition to mobile online devices, apps, and technology. He graduated in the top 1 percent of his class with a business administration degree from the University of Illinois and studied computer science at Stanford University.