June 30, 2010 marked the last day of the Federal Family Education Loan Program (FFELP). FFELP was created in 1965 as part of President Lyndon Johnson’s Great Society. For 45 years, the FFELP has helped tens of thousands of borrowers attend a postsecondary educational institution.
While the Department of Education repeatedly asserted that they were trying to eliminate a few “bad actors,” the debate grows louder in Congress. Hearings are being held, the Government Accountability Office (GAO) is asked to conduct a study, and recently a prominent Senator, who is not even on the education committee, voiced his concern.
On June 17, 2010, the House Education and Labor Committee, chaired by Congressman George Miller (D-CA), held a hearing with respect to how accrediting agencies evaluate institutional policies regarding the awarding of academic credit and evaluating program length. The hearing grew out of a recent report titled “The Higher Learning Commission of the North Central Association of Colleges and Schools’ Decision to Accredit American InterContinental University” (ED-OIG/L13J0006), from the Office of Inspector General that was critical of regional accrediting agencies for failing to provide sufficient guidance on the minimum requirements for assigning credit hours. The three people who testified were: Sylvia Manning, President, The Higher Learning Commission of the North Central Association; Michale S. McComis, Executive Director, Accrediting Commission of Career Schools and Colleges; and Kathleen Tighe, Inspector General with the Department of Education.
Ms. Tighe indicated that she strongly supported the development of consistent minimum requirements for determining credit hours as a safeguard for students and taxpayers. Ms. Manning’s comments were more mixed since she indicated that if regulations defining a credit hour were promulgated, the accrediting agencies could work with them, but she also stated that a federal definition would increase compliance costs for institutions. A definition of credit hour could also, according to Ms. Manning, limit innovative approaches to postsecondary education. Ms. Manning also asserted that “[a]nyone who has ever taught or taken a class knows that the concept of credit hours is mushy.” On the other hand, Mr. McComis argued that overly prescriptive federal requirements could stifle flexibility and possibly exacerbate the problems with transfer credit.
Mr. Miller conveyed his concerns about the expansion of federal financial aid spending in higher education particularly in the for-profit sector and asserted that it was unacceptable for institutions to inflate credit hours in order to profit off of student aid while taxpayers and students foot the bill. Mr. Miller expressed alarm in his opening statement that the IG found that some accrediting agencies do not have any established definitions of a credit hour. He stated that Congress needs to ensure that the accreditation process works to ensure that institutions of higher education provide high quality programs worthy of students’ and taxpayers’ investments.
Congressman Brett Guthrie (R-KY), Ranking Member of the Subcommittee on Higher Education, Lifelong Learning and Competitiveness, agreed that there was a need for transparency and accountability to ensure that institutions fulfill their mission. He did note that “[e]fforts to create a federal definition for a ‘credit hour’ or to establish strict federal parameters for program length have the potential to place us on a slippery slope…”
Congressman Timothy Bishop (D-NY) said that he found the New York State Department of Education’s strict limits on credit hours helpful when he was a provost of Long Island University’s Southampton College. He wondered what the harm was to have a minimum definition of credit hour.
Ms. Tighe testified that the explosion of on-line postsecondary education and accelerated programs has made the value of a credit hour increasingly important to ensure that students and taxpayers get the value of their investment.
While Mr. Miller began the hearing by saying higher education funding was not bound by sector, and he was not a foe of for-profit colleges, Mr. Miller later asked “What is the impact of an aggressive business plan on the needs of some for-profit institutions?” He went on to say that by awarding more credits than appropriate, American InterContinental University had effectively kept down instructional costs while ensuring that its students receive the maximum federal aid.
On June 24, 2010, Senator Tom Harkin (D-IA), Chairman of the Health, Education, Labor and Pensions (HELP) Committee, held the first in a series of hearings entitled, “Emerging Risk? An Overview of the Federal Investment in For-Profit Education,” to examine federal education spending at for-profit higher education institutions. In a written statement that preceded the hearing, Senator Harkin said: “While for-profit colleges have a responsibility to their shareholders, they also have a responsibility to provide educational value to their students, and an obligation to ensure that the federal dollars they receive are well spent.”
In his opening statement, Mr. Harkin said that “in the past two years we have made major new investments to expand federal financial aid. Pell Grants and student loans now provide more than $20 billion to for-profit higher education companies every year. We need to ensure for-profit colleges are working well to meet the needs of students and not just shareholders. We owe it to students and taxpayers to make sure these dollars are being well spent. Between 1998 and 2008 the for-profit sector has grown from 550,000 students to 1.8 million, a 225 percent increase. Students at for-profit institutions are borrowing more, and more frequently, than their peers at non-profit schools, and according to the Department of Education, one in five students who left a for-profit college in 2007 defaulted on their loan within three years.” Chairman Harkin released a report that touched on the growth of the for-profit sector and the portion of federal dollars it receives.
Of the five people who testified at the hearing, four were critics of the for-profit sector: Kathleen S. Tighe, the Department’s Inspector General, identified several areas of waste, fraud, and abuse in the proprietary sector; Steven Eisman, a Wall Street investor who is a “short seller” [A short-seller profits from a drop in the value of stocks], called for-profit loan debt the next subprime mortgage crisis; Yasmine Issa, a graduate of a for-profit institution, Sanford-Brown Institute, who graduated with $20,000 in debt, but cannot find a job; and Margaret Reiter, a former California deputy attorney general and consumer advocate who is against for-profit institutions.
Ms. Tighe said in her remarks that federal student aid programs have long been the focus of OIG audits and reviews as they are more susceptible to fraud and abuse and that 21 of the 37 OIG reports concerning postsecondary institutions have been related to proprietary schools. She touched on the “tremendous growth” in the sector and identified the following items of concern: falsifying student identity for the benefit of the school; refund violations that include failing to repay refunds; problems with distance education requirements; and manipulation of default rates in an effort to keep them low. Ms. Tighe asserted that the proposed regulations would address and correct some of the violations. Senator Lamar Alexander (R-TN) asked about the Department’s ability to monitor the integrity of direct loans now that the Department will become the 6th largest bank with about $100 billion in student loan disbursements a year. Ms. Tighe responded that her office will be doing audit work related to the mechanics of the transition and one big concern of the OIG was the Department’s oversight over the four new service contractors.
The second panel included the remaining four who were invited to testify. Former student Yasmine Issa detailed her experience in graduating from a program that was not accredited, and because she could not obtain a job, she could not pay back her loan. Ms. Reiter discussed some of her cases and stated that her office used secret shoppers to uncover abuses at for-profit institutions. Mr. Eisman said that a core problem with the for-profit college industry was the “incentivizing” that he claims occurs through schools and teachers being paid based on the number of students they enroll and, if nothing is done, the nation will be on the cusp of “a new financial disaster.”
Only Sharon Thomas-Parrott, Senior Vice President of Government and Regulatory Affairs and Chief Compliance Officer of DeVry, Inc., was given the task of defending for-profit institutions. She stated that for-profit institutions grow for a reason, which is to meet unmet need, especially among nontraditional students. Ms. Thomas-Parrott received some support when Ranking Member Mike Enzi (R-WY) said that in excising bad actors from for-profit education, Congress and the Administration should “use a scalpel rather than a machete.” But when Ms. Thomas-Parrott offered to share data on DeVry’s graduation and placement rate, Senator Harkin questioned the data that would be provided by “entities that are getting the taxpayer dollars.”
More Senate hearings are promised by Senator Harkin with the next one being scheduled for July.
On June 21, 2010, a group of House and Senate Democrats issued a letter to the Government Accountability Office (GAO) that requested a review of the for-profit sector and its share of revenue derived from federal student aid funding. The request came from Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor and Pensions Committee, Senator Richard Durbin (D-IL), Majority Whip, Congressman George Miller (D-CA), Chairman of the House Committee on Education and Labor, Congressman Ruben Hinojosa (D-TX), Chairman of the House Subcommittee on Higher Education, Lifelong Learning and Competitiveness, and Congressman Timothy Bishop (D-NY), Member of House Education Committee. The congressional request comes right before the Senate Health, Education, Labor and Pensions Committee held its hearing on issues related to the growing role of the for-profit sector.
The letter stated that “[r]ecent press reports have raised questions about the quality of proprietary institutions. These questions stem from the rapid growth of this industry over the last few years, reported aggressive recruitment of students by such institutions, increased variety in the delivery methods used to provide education to students, and the value of the education provided by such institutions.” They also pointed to the significant federal investment in the for-profit education sector as it accounts for roughly 25 percent of all federal student aid disbursed while accounting for 10 percent of student enrollment.
The Congressmen asked that the following items be addressed in the GAO review:
The growth and change in the postsecondary education sector over the last several years;
What is known about the quality of educational programs offered by proprietary institutions;
Whether existing program integrity safeguards are sufficient to protect against waste, fraud, and abuse in the federal student aid programs; and
The extent to which proprietary institutions’ revenue is comprised of federal student aid offered under Title IV of the Higher Education Act as well as any other federal funding.
The lawmakers are asking the GAO for its recommendations.
On June 30, 2010, Senator Richard Durbin (D-IL) spoke on the topic: “For-Profit Colleges and Federal Student Aid: Preventing Financial Abuses” at The National Press Club. He stated that for-profit colleges are the fastest-growing sector in higher education and in his state, enrollment at for-profit colleges has more than doubled in the last decade and nationally with enrollments increasing from 673,000 in 2000 to 2.6 million students this year. He also noted that a large number of the students are women, many of whom are single parents, and minorities. Senator Durban expressed concern over the amount of debt that these students faced.
The Senator said that the enrollment at for-profit colleges was growing because of the recession, people’s need for jobs, and the failure of public colleges to meet demand. He stated that for-profit colleges have met the demand and also are convenient, offering convenient scheduling, online courses, and faster completion than traditional colleges. But he noted that easy access to loans and “slick marketing and hard sells” produced the large increase in enrollment.
Senator Durban called for tightening up the “90/10 rule.” Second, the Senator stated that Congress should look at whether federal financial aid dollars should be used on advertising and marketing. Third, the Senator called for a ban on companies that acquire accreditation through the purchase of nonprofit colleges. Finally, Senator Durban suggested greater scrutiny of private loans that for-profit colleges make to their students.
The Federal Trade Commission (FTC) announced at the end of May 2010 that it would delay the enforcement of the Red Flags Rule through December 31, 2010. As a result, the Department of Education sent an electronic announcement on June 14, 2010, informing institutions of the delay as it pertains to Federal Perkins Loans and advising institutions that the delay may apply to other loans administered by the institution.
The Red Flags Rule is the result of the Fair and Accurate Credit Transactions Act, in which Congress directed the FTC and other agencies to develop regulations requiring creditors and financial institutions to address the risk of identity theft. The original mandatory rule was November 1, 2008; however, the FTC has extended the enforcement date several times.
James Kvaal has become the Department of Education’s Deputy Under Secretary of Education, replacing Robert M. Shireman, who left in mid-June. For 15 years, Mr. Kvaal has worked on higher education policy in Congress, for the Center for American Progress, and most recently serving as President Obama’s special assistant on the White House National Economic Council. Since he and Mr. Shireman have been working together on the education issues, it is not likely that the course will change under Mr. Kvaal.
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