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On September 30, 2010, the Senate Health, Education, Labor and Pensions (HELP) Committee, Chaired by Senator Tom Harkin (D-IA), held its third in a series of hearings that examined the federal investment in the for-profit education sector. The discussion in this hearing focused on student success at for-profit institutions and their claim that this sector provides needed higher education instruction to lower-income students. In June 2010, Senator Harkin began investigating whether the rapidly growing investment in for-profit colleges is benefiting taxpayers and students. At the June 24, 2010 hearing, the Senator released an initial report, Emerging Risk? An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profit Higher Education. A second hearing was held on August 4, 2010, which was focused on recruitment and marketing practices and featured a report by the Government Accountability Office (GAO) on its investigation of 15 for-profit colleges where it found deceptive, misleading or fraudulent recruitment practices at each one.
Chairman Harkin described the results of a report that his Committee prepared called The Return on the Federal Investment in For-Profit Education, Debt Without a Diploma. On August 5, 2010, Chairman Harkin issued a document request to 30 for-profit education companies to better understand the range of practices across the for-profit sector. The Committee report is the result of the analysis of information provided by the companies in response to the request. [It should be noted that there were no comparisons made to data in the non-profit or public sectors.] It focuses on the eight largest publicly traded and the eight largest privately held for-profit education companies that offer certificate, associates, or bachelor’s programs. Data based on the 16 companies showed the following:
- Enrollment is growing even more quickly than previously understood, which masks high withdrawal rates. “Fourteen out of 16 schools analyzed recruited a greater number of new students than their entire starting enrollment in 2008-2009, however their net enrollment only increased by 22 percent.”
- Students at for-profit colleges leave without a diploma at an alarming rate. According to the report, “more than half of students withdraw within two years of enrollment.” Senator Harkin stated that based on his staff calculations of 16 of the 30 institutions in which he received data, 57 percent of students who enrolled between July 1, 2008 and June 30, 2009, had withdrawn.
- Almost all students at for-profit schools take out student loans to pay high tuitions and amass significant debt. The report pointed out that more than 95 percent of the students at two-year for-profit institutions and 93 percent of the students at four-year for-profit institutions took out student loans in 2007, as compared to 16.6 percent of the students at community colleges and 44.3 percent of the students at public four-year institutions during the same period.
- High enrollment and withdrawal is driving up the amount of federal dollars going to for-profit institutions. Eight of the schools more than doubled the amount of Pell grant dollars they received between 2006 and 2009.
- For-profit institutions are “raking in record profits,” despite “dismal student outcomes.”
- For-profit revenues are largely made up of federal revenues. Across 14 schools that were analyzed, the report noted that federal dollars averaged 87.4 percent of 2009 revenues with a range of 85.2 percent to 93.1 percent of revenues.
Ranking Member Mike Enzi (R-WY) countered that the Committee was looking at the issue of student loan debt in a vacuum and noted that debt remains too high across all education sectors. Senator Enzi said that protecting the interests of the students requires a serious inquiry into the increasing costs of higher education and removing bad actors from all institutions of higher education. Senator Enzi also addressed the absence of Republican witnesses on the panel, saying that in two prior hearings, witnesses invited by Republicans received hostile treatment. [A statement by Senator Enzi released following the hearing indicated that “Majority members of the Committee chose to mischaracterize testimony and attempted to lead the witnesses representing for-profit schools into misstatements.”]
Senator Al Franken (D-MN) said that he did not want to see federal money wasted. John McCain (R-AZ) said that abuses should be stopped, but for-profit institutions should not be killed off. Senator McCain noted that the hearing exemplifies the “broad, sharp divisions between our two parties and our two philosophies of government.” Senator Harkin responded to Senator McCain by asserting that he hoped not to get into a debate about this issue because students are taking on too much debt, defaults are high, and students are not finding jobs. Senator Richard Burr (R-NC) accused Democrats of undertaking a “witch hunt.”
Dr. Arnold Mitchem, President of the Council for Opportunity in Education, said he was troubled by the over concentration of low-income students in for-profit schools. “In too many instances, enrollment in a for-profit school does not provide upward mobility.” He stated that in many cases, low-income students have limited information on college options and funding opportunities. He said that he was concerned that student enrollment in a for-profit school can leave students worse off due to the student loan debt.
Danielle Johnson, a student and single mother at Kaplan University said she was misinformed by school officials about where she would complete her nursing certification. She said that she never would have enrolled if she would have been given all of the facts. Kathleen Bittle, a school representative from EDMC, said that there was a systemic problem because there were too few counselors to serve the thousands of students. [EDMC sent a letter to congressmen, which stated that an internal investigation found no support for Ms. Bittle’s accusations. In fact, the EDMC letter noted that Ms. Bittle would not cooperate with its investigation.]
Lauren Asher, President of The Institute for College Access and Success, noted that research has found that for-profit students tend to have higher default rates and student loan debt levels than their counterparts in other education sectors. She also pointed out that these students were more likely to take out private loans than other students, and she stated that several for-profit institutions make private loans to their own students knowing that they will not be able to repay them.
Senator Harkin promised to sponsor legislation relating to for-profit institutions next year. But he asserted that there was a need for further hearings because he was not sure what needs to be done. He announced that the next hearing would be in early December, which would focus on the increasing amount of military assistance flowing to for-profit colleges.
Legislation is likely but the November elections may determine the outcome. Republicans have been more supportive of for-profit colleges than the Democrats. Passing legislation would be more difficult if the Republicans take over the majority.
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On September 24, 2010, the Department of Education announced that it is on schedule to implement new regulations on the for-profit education sector and 13 other proposals designed to protect students and taxpayers, but it will release final regulations in two phases.
The Department said that the final regulations to ensure program integrity to federal student aid programs are scheduled for publication by November 1, 2010, which will go into effect on July 1, 2011. These final regulations will address two sections of the gainful employment provisions:
Graduation and Placement Disclosures: As proposed, proprietary schools, postsecondary vocational schools, and institutions of higher education that have programs leading to gainful employment in a recognized occupation will have to disclose to their students for each program they offer the graduation and placement rates (placement rates must be disclosed by 2013). For each program, the institutions must report to the Department information on the students and their debt level on private education loans and institutional financing arrangements.
As proposed, institutions that wish to add additional programs for the Department’s approval must submit to the Department 5-year enrollment projections for the program(s), documentation from employers not affiliated with the institution that the program’s curriculum aligns with recognized occupations at those employers’ businesses and that there are projected job vacancies or expected demand for those occupations at those businesses.
The Department plans on releasing final regulations in early 2011 on the remaining portions of the gainful employment rules. The Department wants to take additional time to consider the comments and to host several meetings and public hearings in the coming weeks. Therefore, the final regulations related to program eligibility and loan repayment measures and debt to income measures will go into effect on July 1, 2012.
Secretary of Education Arne Duncan said: “Let me be clear: we’re moving forward on gainful employment regulations. While a majority of career schools play a vital role in training our workforce to be globally competitive, some bad actors are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use.”
July 1, 2012 was the proposed effective date for the transition year included in the July 26, 2010 Notice of Proposed Rulemaking for the gainful employment rules. So the Department’s delay is really more helpful to the Department because it will have more time to massage the rules. The delay means that career schools will have less time to get ready. Let us hope that the delay will prove productive and produce reasonable rules.
The Department of Education’s press release can be found on its website.
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Federal Student Aid (FSA) published its Strategic Plan for FY 2011-2015, and posted it online.
The Strategic Plan cites the rising costs of postsecondary education attendance, expected increases in enrollment, and President Obama’s goal for America to have the highest proportion of college graduates by 2020, as factors for FSA’s expanding role in supporting higher education. The plan includes five strategic goals:
- Provide superior service and information to students and borrowers;
- Work to ensure that all participants in the system of postsecondary education funding serve the interests of students, from policy to delivery;
- Develop efficient processes and effective capabilities that are among the best in the public and private sectors;
- Ensure program integrity and safeguard taxpayers’ interests; and
- Strengthen FSA performance culture and become one of the best workplaces in the federal government.
The Strategic Plan promises increased oversight of for-profit colleges and a greater focus on “the credit risks of the student loan portfolio.”
The Strategic Plan concludes by providing the performance goals FSA has established to measure success of their strategic goals. They include:
- Increasing the number of students applying for federal student aid and their satisfaction with FSA’s services;
- Reducing the percentage of students who drop out of postsecondary schools due to financial reasons; and
- Increasing customer satisfaction through the student aid lifecycle.
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On September 22, 2010, the House Armed Services Committee held a subcommittee hearing to examine the Department of Defense’s Oversight of For-Profit Colleges and Distance Education Programs. Subcommittee Chairman Vic Snyder (D-AR) stated that while non-profit institutions have a presence on military bases, about 70 percent of the $580 million in military tuition assistance goes to distance education programs, with 40 percent of that going to for-profit institutions. While Congressman Snyder praised the method of delivering education via distance education, he noted problems with for-profit programs, such as concerns about quality, cost, student employability, and the aggressive marketing tactics used. Congressman Snyder suggested that Congress consider revising the 90/10 rule so that federal funds from military assistance count towards the 90 percent instead of the 10 percent.
Representatives from the Marines, the Army, the Navy, and the Air Force who testified at the hearing described their reliance on accreditation. They noted that they do not discriminate among sectors of institutions as long as they are accredited.
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On September 22, 2010, the House Budget Committee held a hearing entitled “Budgeting for Education: The Role of Perkins Loans,” which discussed the role of the Perkins Loan program in providing access to students. A provision included in the Student Aid and Fiscal Responsibility bill that passed the House on September 17, 2009 would have restructured the Perkins loan Program from a $1 billion to a $6 billion unsubsidized loan program, but the provision was not included in the Health Care and Education Reconciliation Act of 2010. In May 2010, Congressman John Spratt (D-SC) introduced H.R. 5448, the Perkins Loan Extension Act of 2010, which extends the current October 1, 2012 end date for institutions to return the federal Perkins Loan funds they have received so that they can be recycled into new Perkins loans, by one year until October 1, 2013. [The original expiration date was established in the Higher Education Opportunity Act of 2008.]
Chairman of the House Budget Committee Spratt began the hearing by describing the important role of the program in helping needy students afford higher education. Congressman Spratt stated that Congress needs to keep the Perkins Loan program strong. Ranking Republican Paul Ryan (R-WI) agreed that Congress had to make a commitment to prepare the next generation for competing in the global economy; however, he asked the Committee to look at alternative means of funding financial aid programs. Congressman Tim Bishop (D-NY), a co-sponsor of the bill, said that the Perkins Loan program was a crucial component of increasing enrollment.
Bob Perrin, President of Williams & Fudge, Inc. and the Coalition of Higher Education Assistance Organizations (COHEO) said that Perkins Loans help fill the gap between Stafford loans and grants. Sarah Bauder, Assistant Vice President, Enrollment Services and Student Financial Aid at the University of Maryland, College Park, spoke to the unique opportunity that the program provides schools in giving them flexibility to provide additional aid to needy students. Perkins Loans are “David among the Goliaths of other aid.”
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On September 16, 2010, the Office of Inspector General (OIG) released a Final Management Report that assessed the status of Federal Student Aid’s (FSA) efforts to process 100 percent of the student loan volume under the Direct Loan program. The OIG found that “FSA took actions intended to ensure the effective processing of student loans as a result of the 100 percent transition to the Direct Loan Program.” However, the OIG stated that because FSA is completely reliant on the Common Origination and Disbursement (COD) system to originate loans, origination operations cannot be transferred elsewhere in the event of difficulties in processing increased loan volume. FSA agreed that they are completely reliant on the COD system to originate loans and that there could be a delay in origination processing if COD cannot handle increased loan volume.
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On October 7, 2010, the Government Accountability Office (GAO) released its report on incentive compensation, Stronger Oversight Needed to Enforce Ban on Incentive Payments to School Recruiters. (GAO-11-10). The GAO examined the Department of Education’s process in monitoring schools for possible violations of the ban on incentive compensation and the extent to which the Department has used its authority to enforce the incentive compensation rule.
The Higher Education Opportunity Act of 2008 mandated that GAO conduct a study on the Department’s oversight of the incentive compensation rule. On February 23, 2010, the GAO released a report, Information on Incentive Compensation Violations Substantiated by the U.S. Department of Education (GAO 10-370R), which provided information on incentive compensation violations substantiated by the Department from January 1998 through December 2009, the nature of the violations, and the names of the institutions involved.
The October 2010 report found that the Department primarily relies on annual independent audits to monitor schools’ compliance. However, the GAO stated that there are weaknesses in the audit process because independent auditors do not always document testing of a school’s compliance with the ban nor do they always follow-up on prior year audit findings to determine if past problems have been corrected or were still occurring. Independent auditors advised the GAO that they were not provided with specific instructions on how to test for incentive compensation compliance.
The report noted that between 1998 and 2009, the Department resolved most incentive compensation cases by requiring corrective actions or reaching settlement agreements, but did not limit, suspend, or terminate any school’s access to federal student aid. The Department changed its enforcement policy in 2002, which resulted in increased burden to the Department to prove a violation and lessened financial penalties. The study found that the Department’s determination of fines in response to violations has become subjective and inconsistent.
The GAO recommended that the Secretary of Education coordinate with the Office of Inspector General (OIG) in specifying the required procedures to the third-party auditors as well as tracking the total number of school program reviews it conducts, specifically looking at incentive compensation issues. In addition, the GAO recommended that the guidance used to set fines and settlement payments to establish appropriate financial penalties be updated and that the Department consistently apply the guidance when determining fines and settlement payments.
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On October 4, 2010, the Government Accountability Office (GAO) released a study, For-Profit Schools: Large Schools and Schools that Specialize in Healthcare are More Likely to Rely Heavily on Federal Student Aid (GAO-11-4), which found that large for-profit institutions or those institutions that specialize in healthcare are more likely to come close to violating 90/10 because they rely heavily on federal student aid. The study was required by the Higher Education Opportunity Act of 2008 to determine for-profit institutions’ compliance with the 90/10 rule.
The study reported that between 2003 and 2008, almost 100 percent of for-profit institutions reported complying with the 90/10 rule. During this period, the average percent of revenue received from federal student aid for all for-profit institutions increased slightly from 62 to 66 percent. In 2008, schools with the following characteristics had significantly higher average 90/10:
- High proportions of low-income students;
- Granted degrees no higher than associate’s degrees;
- Specialized in healthcare;
- Offered distance education;
- Large (with 2,000 students or more);
- Publicly traded parent company; and
- Part of a corporate chain.
The report concluded that, in 2008, schools that (1) were large (with 2,000 students or more), (2) specialized in healthcare, or (3) did not grant academic degrees higher than associate’s degrees were more likely than others to have very high 90/10 rates. Health-care-focused for-profit schools on average received 75 percent of their revenue from federal loans and grants. These schools make up nearly one-third of all for-profit institutions. Schools that focused on other specialties have an average of 63 percent.
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As reported in U.S. News & World Report on October 1, 2010, Robert Shapiro, former Clinton Administration economist, and Nam Pham produced a report that demonstrates that for-profit schools end up costing taxpayers far less than public institutions. The report was commissioned by some of the largest for-profit institutions. The report from Sonecon, a Washington consulting firm, found that when all state and federal money to colleges is considered, taxpayers spend about 6.5 percent more to educate a student at a public four-year institution than at a four-year for-profit institution. The Sonecon report concluded: “There is a false perception that for-profit institutions cost American taxpayers significantly more money to educate students than their non-for-profit counterparts. The data showed that the opposite is true.”
According to the report, for-profit institutions and their students receive less than 30 percent of the support per student from all levels of government provided to public institutions and their students, and less than 48 percent of the support per student received by private not-for-profit institutions and their students. Considering all sources of support (direct grant, appropriations and contracts, grants, interest subsidies and defaults for students, and offsetting tax payments), four-year private for-profit institutions receive an average of $2,394 per student in direct and indirect federal, state, and local government support, compared to $7,065 per student at four-year private not-for-profit institutions and $15,540 per student at four-year public institutions.
This dependence by private-for-profit institutions on tuition revenue, and the lower average incomes of the households or families of the students who attend them, causes those students to rely more heavily on government grants and loans. Nevertheless, the data show that the average student recipient of government assistance at four-year private for-profit institutions receives less in total grants from all levels of government than the average recipient at public or private not-for-profit institutions. This disparity largely reflects very low levels of state and local government support for students at private for-profit institutions:
- Recipients of government grants at four-year private for-profit institutions receive an average of $5,952, compared to $6,638 per-recipient at public institutions and $7,351 per-recipient at private not-for-profit institutions.
Because of lower family incomes and the very low levels of state and local government support, students at four-year private for-profit institutions rely more on federal loans:
- Across four-year institutions, student borrowers at private for-profit institutions receive an average of $7,529 in federal loans, compared to $4,130 per-student borrower at public institutions and $4,567 per-student borrower at private not-for-profit institutions.
The report concluded that to meet President Obama’s goal of once again having the highest proportion of college graduates in the world by 2020, the report estimates that relying on private for-profit and private not-for-profit institutions, as well as public institutions, would cost the government $33 billion less than would relying entirely on public institutions.
An executive summary of the report, The Public Costs of Higher Education: A Comparison of Public, Private Not-for-Profit, and Private For-Profit Institutions, is available online.
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