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On July 30, 2010, the New America Foundation convened a panel to discuss “Reining in For-Profit Higher Education: A Conversation with Administration Official James Kvaal.” Stephen Burd, the Editor of Higher Education Watch, a public policy blog published by the New America Foundation, moderated a panel consisting of James Kvaal, senior advisor in the Office of the Under Secretary at the U.S. Department of Education; Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions (AACRAO); and Katherine Mangu-Ward, senior editor of Reason magazine and Reason.com, formerly a reporter for the Weekly Standard.
Mr. Burd described the current environment where "business is booming” for for-profit schools and indicated that, while many members of the higher education community are not opposed to for-profit education, there is concern that for-profit institutions are not serving the students they enroll and are putting their students in harm’s way. He contended that many students leave the school loaded down with unmanageable debt and insufficient training to make them competitive in the current job market. Mr. Burd said that on July 23, 2010 (published in the Federal Register on July 26, 2010), the Obama Administration proposed tough regulations that would cut off federal financial aid to for-profit institutions’ programs whose students take on the highest amounts of debt and have the worst record of loan repayment and restrict enrollment at hundreds of other institutions.
After introducing the panel, Mr. Kvaal stated the Department was in a unique stage of rulemaking and there were strict rules about what he could say. He said he could not discuss anything beyond the content of the proposed rules. Mr. Kvaal began by noting that there are many for-profit institutions that are thriving, which is a good thing since many for-profit institutions have pioneered methods to address student needs. He pointed out Secretary of Education Arne Duncan had indicated that for-profit institutions are helping to meet President Obama’s goal of increasing college graduation by 2020. However, he noted that the Department needs to ensure that students are being trained and that taxpayers are not losing money. He noted that for-profit colleges have a legal incentive to maximize profits, a theme that appears in many of the current articles about the for-profit sector.
Mr. Kvaal said that since the negotiated rulemaking session, the Department has worked with many of the stakeholders and has taken their feedback into account in drafting the proposed rules. He asserted that currently there are no standards for determining whether a program prepares students for “gainful employment,” and these proposed rules give for-profit colleges a method to demonstrate that they are preparing students for gainful employment. The rules, according to Mr. Kvaal, provide multiple measures that will be able to distinguish good programs, not so good programs, and those programs that are not worthwhile.
Mr. Kvaal then provided an overview of the proposed regulations and described the two components: the loan repayment rate and the debt-to-earnings ratio. Mr. Kvaal said the proposed rules attempt to provide some flexibility to schools and offer a transition year for 2012-2013, where 5% of all programs subject to the rule will become ineligible. The Department based its estimates on data from one state (Missouri) that had earnings data, and based on the data, estimated 8% of all programs will be restricted programs. The remainder of the programs will be eligible programs, although many will have to provide debt warnings to their students. Only fully eligible programs that have at least 45% of their former students paying down the principal on their federal loans and graduates with a debt-to-earnings ratio of 20% or less of discretionary income or 8% or less of average annual earnings will not have to provide a debt warning.
Mr. Nassirian began by indicating he was not bound by any requirements for “decorum.” (Mr. Nassirian is noted for his provocative sound bites—and no one was disappointed.) He asserted that, contrary to the statements made by the advocates of for-profit institutions, the vast majority of participants engaged in “counterfeiting degrees and consumer fraud.” Mr. Nassirian agreed that there are some for-profit institutions that do a good job and are honorable, but he pointed out that there is no proper regulatory framework to control for-profit institutions that are delivering a worthless product and whose main activity is advertising. He stated no one but the Department was willing to spend money to obtain an education from these schools.
Mr. Nassirian pointed out the proposed regulations did not go far enough and asked how a 45% repayment rate makes a school golden, and how that was a measure of success. He said the measure was inadequate and no other industry would see it as a success. Mr. Nassirian asserted that if a school fails under these rules, how do the students’ failures get addressed? He recommended the Department put more emphasis on gatekeeping controls that could be used upfront. While the proposed rules may help future students, the rules do nothing for prior students. Mr. Nassirian suggested these former students be eligible for a loan discharge.
Ms. Mangu-Ward applauded the Department for the well-written NPRM. Her suggestion was that the rules should apply to all institutions, and she gave herself as an example of someone who received federal financial aid to be a philosophy major where she took a course titled “Arts, Love and Reality” on the Department’s dime. Ms. Mangu-Ward also pointed out that everyone, including her alma mater, Yale University, markets their education product.
Ms. Mangu-Ward quoted Terry Hartle, from the American Council on Education, who said that these are the most complicated rules ED has ever produced. She noted these rules could be gamed, and then there could be additional rules. She suggested the Department look at the banking industry, because it has ways to determine who will pay back loans. She then returned to her theme, which was that ED should not be singling out for-profit institutions, but Mr. Nassirian responded that Congress has limited which programs should be preparing students for gainful employment and liberal arts programs are exempt.
Mr. Kvaal stated the Department wants institutions wanting to begin new programs to demonstrate there is a need to prepare students for specific occupations, and to project enrollment in the program. When asked if there would be a penalty for not meeting enrollment projections, Mr. Kvaal said it was an interesting question, which should be submitted as a comment. Someone asked Mr. Kvaal whether distance education programs had to obtain input from “local employers,” and he again responded that the question should be submitted as a comment to the Department.
When asked how the metrics were derived, Mr. Kvaal responded that one state had earnings data, and the loan-repayment information was derived from NSLDS.
Mr. Nassarian said he hoped these rules would encourage schools to do more teaching and less advertising. He also said the student loan crisis was similar to the mortgage crisis. Ms. Mangu-Ward responded that while many were not able to pay on their mortgages, many people worked hard to pay their mortgages. Mr. Kvaal stated the Department was attempting to regulate loans by examining programs and ED was not interested in having students lose access.
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The Government Accountability Office (“GAO”) released the results of a recent three-month undercover investigation of the admissions practices at 15 for-profit institutions. The GAO reported that undercover investigators posing as students found that four colleges had encouraged fraudulent practices and that all 15 institutions had made deceptive or otherwise questionable statements to the GAO’s investigators who posed as applicants. The colleges were selected based on several factors, which may have included a high 90/10 percentage. The colleges included some that were publicly traded and some that were privately owned. The investigation covered institutions in six states and Washington, DC.
The GAO reported that the following statements had been made to the investigators: exaggerated potential salary claims after graduation; failure to provide clear information regarding the college’s program duration and graduation information; pressuring applicants to sign the enrollment agreement without seeking guidance from the financial aid office about programs costs and financing options; and repeated phone calls based on website inquiries. Video of undercover footage accompanied the report. However, the GAO did note that in some instances, undercover applicants were provided accurate and helpful information by college personnel, such as not to borrow more money than necessary.
Concerning program costs at for-profit institutions, GAO found programs at those schools cost substantially more for associate’s degrees and certificates than the comparable degrees and certificates at public and private nonprofit colleges nearby.
In addition to the on-site visits, investigators filled out online forms expressing interest in for-profit programs. Almost immediately, the fictitious applicants began receiving calls from recruiters. One fictitious student received 180 calls in one month.
The GAO was asked to conduct this undercover testing to determine whether for-profit institutions’ representatives engaged in fraudulent, deceptive, or otherwise questionable marketing practices, and to compare the tuitions of the for-profit colleges tested with those of other colleges in the geographic region. The findings are part of testimony that was given by Gregory Kutz, the GAO’s Managing Director with the Office of Forensic Audits and Special Investigations, at the Senate Health, Education, Labor and Pensions hearing held on August 4, 2010. (See next section.)
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On August 4, 2010, the Senate Health, Education, Labor and Pensions (“HELP”) Committee held a hearing titled, “For-Profit Schools, The Student Recruitment Experience,” which included witnesses who discussed practices reviewed during an investigation conducted by the Government Accountability Office (“GAO”). (See previous section.)
Chairman Tom Harkin (D-IA) opened the hearing by expressing concern over the “explosive growth” among for-profit institutions and the sector’s aggressive marketing practices and high drop-out rates and student loan default rates when compared with other colleges. He said these practices were “disturbing” and indicated he planned to issue an information and document request to 30 for-profit school groups to obtain a clearer picture of graduation rates, placement rates, and student debt burdens. Senator Harkin also wondered if there were sufficient safeguards in place to prevent fraud and abuse.
While Senator Mike Enzi (R-WY) did not defend unethical admissions practices and urged continued scrutiny of student recruitment practices at for-profit schools, he said “bad actors should not be used to characterize the entire for-profit sector.” Senator Enzi stated that “in focusing only on for-profits, we are not being objective, and we are ignoring the bigger picture of what is happening across all of higher education.” He concluded his opening statement by saying “We should be scrutinizing all sectors of higher education and asking the same questions the Committee is now only asking of for-profit institutions.” Senator Enzi emphasized even Secretary of Education Arne Duncan has said “for-profit institutions play a vital role in training young people and adults for jobs.”
Gregory Kutz, Managing Director, Office of Forensic Audits and Special Investigations with the GAO, provided his view of admissions and marketing practices at for-profit colleges based on the GAO undercover investigation conducted at 15 select for-profit institutions. His testimony included video clips that in certain instances showed admissions officers encouraging the falsification of the FAFSA, providing inaccurate potential earnings information, and not permitting consultation with financial aid officers before signing an enrollment agreement. Mr. Kutz indicated the for-profit institutions investigated have been referred to law enforcement for further investigation or to the Department of Education for oversight. Mr. Kutz did note there was evidence of good practices at three of the institutions where prospective students were encouraged to borrow less than the annual maximum.
David Hawkins, Director of Public Policy and Research for National Association of College Admission Counseling (“NACAC”), addressed the incentive compensation practices at for-profit institutions and expressed his view, that these practices were harmful to students. Mr. Hawkins contended the 12 safe harbors included in the 2002 final regulations failed to provide additional clarity and failed to satisfy statutory intent of preventing the use of incentive compensation for admissions and financial aid staff. He supported the Department’s proposal to eliminate the 12 safe harbors.
Michale McComis, Executive Director of the Accrediting Commission of Career Schools and Colleges (“ACCSC”), described the ACCSC accreditation process, which includes on-site reviews and student evaluations. While he acknowledged more vigilance was necessary among accrediting agencies, Dr. McComis believed abuses in the sector were not as prevalent as found in the GAO’s investigation. While Dr. McComis testified that “ACCSC has established rigorous standards in the areas of recruiting, advertising, and admissions, intended to ensure that institutions recruit and admit only those students who are accurately and fully informed about the institution’s program,” Senators Harkin and Franken asked how such egregious practices could be occurring if there were such rigorous standards. Senator Harkin said it appeared the accrediting agencies were not protecting students and taxpayers by enforcing their standards, and the Committee needed to investigate the accreditation process more thoroughly. The investigation would also include a review of the fee structure of accrediting agencies as a potential conflict of interest.
Joshua Pruyn, a former Admissions Representative at Westwood College (a branch of Alta College, Inc.,) described his experience as an admissions counselor, which he called a “sales job.” He discussed the marketing, “boiler room” environment at Westwood College that referred to prospective students as “leads” and enrolled students as “starts.” He also stated there was an emphasis on numbers in the admissions office, and falsifying program costs.
A number of the Senators, such as Barbara Mikulski (D-MD), Al Franken (D-MN), Robert Casey (D-PA), and Michael Bennet (D-CO), expressed the same concerns as those of Senator Harkin and asserted there was a need to focus on for-profit institutions because of the high default rates of students who attended for-profit institutions, and the increasing amount of federal funds going to these institutions. Other Senators, such as Senator Enzi, Lamar Alexander (R-TN), and Richard Burr (R-NC), suggested there was a need to look at graduation rates across all sectors and prospective students needed to have choice in pursuing a postsecondary education. Senator Harkin concluded the hearing with the promise of more hearings in the future.
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Following the concerns expressed during the Senate Health, Education, Labor and Pensions hearing on for-profit colleges and their rapid enrollment growth, Senators Dick Durbin (D-IL) and Jim Webb (D-VA) sent a letter to the Secretaries of the Departments of Veterans Affairs and Defense requesting detailed information on education benefits programs funding for each of the last ten years. The Senators asked for information on for-profit colleges that have received tuition assistance, and information regarding the standards, aside from accreditation standards, used to establish eligibility of for-profit colleges. Information is also being sought on the quality of education programs, including costs of attendance, graduation rates, drop-out rates, default rates, and transfer credit accepted by other institutions of higher education, at for-profit colleges. Finally, the Senators are seeking information on “any program changes the Departments are considering to help ensure the highest academic quality for programs using tuition assistance.”
The Senators are concerned some for-profit colleges may be aggressively targeting service members and veterans, “signing them up for educational programs that may bring little benefit to future employment opportunities, and low graduation rates.” They also expressed concern about excessive tuition being charged at some for-profit institutions. The Senators did acknowledge some for-profit colleges serve VA beneficiaries well by offering flexible course schedules, distance learning, and course credit for military training.
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On August 4, 2010, the Senate Veterans’ Affairs Committee approved a major expansion of the Post-9/11 GI Bill, a law that provided new benefits beyond the Montgomery GI Bill for housing and textbooks. S. 3447, sponsored by Senator Daniel K. Akaka (D-HI) would expand the number of people who would be eligible for benefits and would expand the type of programs that would be eligible.
The major modification would be how the tuition benefits are calculated at private colleges. The bill would base the amount veterans could be eligible for on a national average, instead of giving veterans up to the full amount of tuition and fees at the most expensive public college in their state. This change would help streamline the way the Department of Veterans Affairs processes benefits.
The bill would expand benefits to all members of the National Guard and Active Guard Reserve, who are now ineligible. Vocational and on-the-job training would also become permissible programs. Distance education students would be eligible for housing benefits based on the number of credit hours.
While many advocates believe that S. 3447 will make it through the full Senate, there is no cost analysis yet. Without the cost analysis, expanding the Post-9/11 GI Bill benefits would be difficult. Similar legislation was proposed in the House. H.R. 5933 was sponsored by Congressman Walt C. Minnick (D-ID) and is expected to be subject to a hearing on September 16, 2010.
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On July 29, 2010, the full Senate Appropriations Committee approved by a vote of 18-14, along party lines a $169.6 billion bill that would provide FY 2011 funding for the Departments of Labor, Health and Human Services (HHS) and Education—including federal student aid programs. The annual spending bill for FY 2011 includes the following:
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$19.5 billion for student financial assistance, maintaining the maximum discretionary Pell Grant program award level at $4,860 for a total of roughly $17.6 billion for Pell Grant funding. Combined with mandatory funding provided in the Health Care and Education Reconciliation Act of 2010, the maximum award would be maintained at $5,550 for the 2011-2012 award year. The Senate bill does not include additional funds to close the Pell Grant shortfall. The House Appropriations Subcommittee on Labor, HHS, and Education included the $5.7 billion needed to pay the Pell Grant shortfall.
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The LEAP program would remain funded at the FY 2010 level as would the GEAR UP, Supplemental Educational Opportunity Grant (SEOG) and Federal Work Study programs.
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No funding is provided for the Perkins Loan program.
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The bill would eliminate 23 programs totaling more than $371 million.
During the mark-up, Senator Tom Harkin (D-IA) indicated the bill is unlikely to see floor time in the full Senate until after the November elections. From there, the bill would need to be reconciled through the conference process with the House-version. If the House and Senate are unable to pass FY 2011 appropriations bills, Continuing Resolutions will need to be passed to continue funding for federal programs beyond October 1, 2010.
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On July 26, 2010, The Institute for College Access & Success(TICAS) issued its report examining the complicated process after students submit their FAFSA and how it can prevent students from obtaining grants for which they otherwise would qualify. The report concluded that on average, at a group of 13 California community colleges, about a third of the applicants for financial aid who appeared eligible for Pell Grants did not receive them.
The report also noted the Department of Education’s pending regulations, which are intended to streamline verification, could actually increase paperwork burdens on some of the neediest students and the colleges that serve them. “The proposed rules would drag more low-income students into the verification process and keep some of them from receiving the grants they’re eligible for, while putting more pressure on the cash-strapped community colleges that serve them," according to Debbie Cochrane, Author of the report. Ms. Cochrane recommended in the Institute’s press releases that the Department retain the cap, and “colleges could use more guidance from the Department of Education to minimize unnecessary hurdles for students and also contain their own workloads."
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Comments on the Department of Education’s program integrity regulations were due by August 2, 2010. The Department received almost 1,800 comments, ranging in length from one or two sentences to 100 pages. The due date for the gainful employment proposed regulations is September 9, 2010. Final regulations must be published by November 1, 2010 for an effective date of July 1, 2011. The Department officials have about three months to review the comments and consider whether to modify the proposed regulations
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