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The Senate Committee on Health, Education, Labor and Pensions had scheduled a hearing on for-profit colleges on February 17, 2011, but plans on rescheduling the hearing to accommodate the schedule of a key witness, according to a spokeswoman for the committee. The hearing will be held by the Chairman Tom Harkin (D-IA), but a topic has not been announced. Previous hearings looked at the for-profit sector’s use of federal funds, program quality and recruiting practices. Members of the for-profit college sector hope that it will be fair and balanced.
On February 1, 2011, Senator Dick Durbin (D-IL) addressed the conferees at the annual meeting of the National Association of Independent Colleges and Universities (“NAICU”) and warned public and nonprofit colleges about the risks to the Federal Pell Grant Program due to funding concerns. Senator Durbin asserted that “You cannot come to Congress to ask for more funding for Pell Grants while looking the other way as billions of dollars of our current investment are wasted.” He noted that he was not only pointing to low-performing for-profit colleges but to “public colleges and private nonprofit colleges that are also failing students.” Senator Durbin recommended that “[i]t is time for a serious conversation about the cost and quality of our higher education system.”
Senator Durbin stated that the rapid growth of the for-profit sector has fueled the Pell Grant program’s growth since for-profit colleges educate less than 10 percent of all college students but receive 25 percent of all Pell Grants. The cost of the Pell Grant program has also increased significantly because of the recession that has made more families eligible for need-based aid and has sent more unemployed workers back to school for retraining.
The Pell Grant program has always had support from both the Republicans and Democrats at both sides of the aisle. However, deficit concerns are raising questions about the program’s long term prospects.
On January 25, 2011, in his State of the Union address, President Obama underscored the need to bolster investments in innovation, education and infrastructure as three primary steps to remain competitive in the global economy and to rebuild America. President Obama addressed the need to provide higher education to all. He remarked that in order to remain competitive, higher education must be within the reach of every American and “[t]hat’s why we’ve ended the unwarranted taxpayer subsidies that went to banks, and used the savings to make college affordable to millions of students.” The President announced that he wanted to make permanent the higher education tuition tax credit that is worth $10,000 for four years of college. President Obama emphasized the important role of community colleges in job training. In concluding his remarks on education, President Obama said that if the investments are made in education, “America will once again have the highest proportion of college graduates in the world.”
On January 18, 2010, President Obama signed an executive order, which aims to “strike the right balance” between regulatory oversight and economic stimulation, that called for a government-wide review of current regulations in an effort to remove those that are outdated and stifle economic growth.
“This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive. It’s a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades.”
The order goes on to say that “we are seeking more affordable, less intrusive means to achieve the same ends-giving careful consideration to benefits and costs…It means using disclosure as a tool to inform consumers of their choices, rather than restricting those choices.” Further, “I am directing federal agencies to do more to account for—and reduce—the burdens regulations may place on small businesses.”
In a January 19, 2011 letter, Citizens for Responsibility and Ethics in Washington (“CREW”) requested that Secretary of Education Arne Duncan should examine the role hedge managers and outside interest groups have played in the Department’s formulation of regulations governing the for-profit education industry. CREW, a watchdog group, said that documents received from the Department in response to a Freedom of Information Act (“FOIA”) request and records made public as a result of a private Florida lawsuit reveal that hedge fund managers had “direct and sustained input into the regulatory process in furtherance of their own financial interests.”
The letter went on to say that it was more troubling to learn that Department officials knew of the “involvement and the financial motivations of the short sellers, yet continued to solicit and receive their input.” The CREW letter described the interaction between Steven Eisman, a portfolio manager of a hedge fund, FrontPoint Financial Services Fund, known to short-sell stocks in for-profit education companies, and then-Education Deputy Undersecretary Robert Shireman, Policy and Budget Development Staff Director David Bergeron, Dan Madzelan, then-Acting Assistant Secretary for the Office of Postsecondary Education, and numerous other Education Department officials.
The CREW letter concluded that the Department had employed a deeply flawed process to develop regulations, regardless of merit. CREW asked Secretary Duncan to restore the integrity to the Department’s rulemaking process.
On a similar note, an article in The Wall Street Journal of January 25, 2011, reported that “[w]hen the U.S. Education Department set out to craft rules that would affect for-profit education companies, it drew input from a wide range of people, from executives in the business to consultants and education activists. It also heard from a group less commonly involved in Washington lobbying, hedge funds.” The article discussed the proposed rule on gainful employment, which is likely to be published in final form in February and stated that the final rule has the potential to “crimp for-profit schools’ revenue by excluding some programs from federal aid.”
On January 31, 2011, Congressmen John Kline, Chair of the Committee on Education and the Workforce, and Virginia Foxx, Chair of the Subcommittee on Higher Education, sent a letter to Secretary of Education Arne Duncan asking him whether the debt-to-income formula coupled with the repayment rate formula comply with the objectivity or integrity standards established under the Data Quality Act. The letter explained that the Data Quality Act was passed to ensure that the federal government utilizes reliable and accurate data as it develops guidelines and regulations. As a result of the Act, the Department of Education issued “Information Quality Guidelines,” a document that outlines the Department’s basic standard of data quality and process for reviewing the quality of information before it is publicly released. The letter asked for information by February 11, 2011 as to how the Department complied with the Act as it developed its regulations defining “gainful employment.”
On January 13, 2011, Norton/Norris, Inc., an advocacy group, conducted a review of the Government Accountability Office’s (“GAO”) undercover testing on for-profit colleges, a review commissioned by The Coalition for Educational Success. The Health, Education, Labor and Pensions Committee (“HELP”) used the report issued in August 2010 and testimony by the GAO to aggressively pursue the for-profit sector resulting in substantial damage to the reputations and revenue of the 15 schools investigated by the GAO. Chairman of the HELP Committee Tom Harkin (D-IA) stated that: “All 15 schools GAO investigated found instances of fraud, deceptive practices or misleading statements to prospective students.” On November 30, 2010, the GAO issued a revised report. According to a House Committee on Oversight & Government Reform Republicans press release, the revisions “included major changes to 16 of the 28 key investigative “scenarios” in the report. The factual changes to the report have raised new questions about conclusions reached by GAO regarding the recruiting practices of proprietary schools.”
While the GAO contended that “nothing changed with any of our findings,” the Norton/Norris review revealed that only 14 findings are supported by the GAO audio recordings out of 65 originally reported. The advocacy group’s report concluded that GAO’s conclusions were not valid. The report stated that even though the GAO revised its report, flagrant errors remain. The GAO was reported to respond by indicating that the consultants hired by the Coalition never contacted GAO for explanations and failed to take into account many factors, including the fact that not all of the information was based on the audio tapes.
On February 2, 2011, the Coalition for Education Success (“Coalition) filed a lawsuit against the Government Accountability Office (“GAO”), alleging “professional malpractice” for its investigation of the for-profit industry and subsequent report originally released in August 2010. In November 2010, the GAO issued a revised report and testimony to correct the findings for 13 of the 15 colleges that were investigated. The Coalition asserted that in order to combat the inaccuracies and conclusions of the GAO report, the institutions were forced to incur substantial expenses to “set the record straight.” The GAO report also caused “substantial financial injury” to the Coalition’s members.
On January 18, 2011, House Oversight Committee Chairman Darrell Issa (R-CA) started a Committee investigation of the Government Accountability Office’s (“GAO”) Forensic Audit and Special Investigations Unit after the GAO issued a revised report that outlined alleged fraudulent and deceptive recruiting violations at for-profit career colleges.
On January 17, 2011, after members of his staff met with GAO officials, Chairman Issa had sent a letter to GAO’s Chief Quality Office Timothy Bowling and General Counsel Lynn Gibson requesting documents and information about the proprietary schools’ GAO report. Having not received any response, on February 23, 2011, Chairman Issa sent a follow-up letter asking again for the materials previously requested as well as asking for additional documents that will assist in his Committee’s inquiry. Congressman Issa also requested that specific GAO personnel be made available for interviews in mid-February.
On February 1, 2011, a bipartisan letter was sent to Gene Dodaro, Comptroller General of the U.S. Government Accountability Office (“GAO”), asking him to bar the Director of the Forensic Audit and Special Investigations Unit (“FSI”) of the GAO and his Unit from any involvement with any additional investigations regarding the proprietary school sector. The letter from Congressmen John Kline (R-MN), Chair of the Committee on Education and the Workforce, Virginia Foxx (R-NC), Chair of the Subcommittee on Higher Education, Carolyn McCarthy (D-NY), Glenn Thompson (R-PA), and Alcee Hastings (D-FL) indicated that they understood that the GAO was conducting a second investigation involving the proprietary sector. The Congressmen said that they were pleased to hear that the original team from FSI who prepared the first GAO report on the proprietary sector was not involved in the second investigation, but the Director of FSI was overseeing it. In the letter, the Congressmen expressed their concern and asked that the Director be barred from any involvement with these additional investigations.
On January 21, 2011, the Association of Private Sector Colleges and Universities (“APSCU”) filed a lawsuit in federal District Court in Washington, D.C. seeking to block portions of the Department’s October 29, 2010 final regulations on program integrity. APSCU has more than 1,500 member institutions. The lawsuit argues that three of the regulations included in the final regulations go far beyond lawful regulatory efforts:
- The State Authorization regulations force states to adopt particular regulatory regimes rather than adopt their own oversight structures;
- The Incentive Compensation regulations contradict the will of Congress. The new regulations prohibit the payment of merit-based salaries and eliminate almost 20 years of interpretative guidance that was clarified in the 12 clarifying regulations in place since 2002; and
- The Misrepresentation regulations permit the Department to impose severe penalties on schools for inadvertent, insignificant, or innocent statements, including those made by third-party advertising and marketing partners.
APSCU has stated that it filed the lawsuit to protect the millions of students investing their futures by enrolling in for-profit colleges and universities. Harris Miller, President and CEO of APSCU, said that the lawsuit was filed “only after careful consideration and only after our good faith efforts to work with the Department of Education to craft clear, workable rules” failed.
On January 3, 2011, the Department of Education’s Office of Inspector General issued a Final Inspection Report, titled the “Review of the Department of Education’s Outreach Activities Related to the Student Aid and Fiscal Responsibility Act of 2009 (“SAFRA”) for Compliance with Restrictions on Use of Appropriated Funds for Lobbying,” which concluded that the Department officials did not violate prohibitions in the use of appropriated funds for lobbying activities in connection with congressional consideration of the SAFRA (a predecessor to the SAFRA Act that was included in the health reform legislation that passed in 2010).
The investigation was conducted in response to requests made in November 2009 from then-House and Labor Ranking Member John Kline (R-MN) to determine if the Department improperly used appropriated funds for lobbying activities related to pending amendments to the Higher Education Act of 1965 (“HEA”). The Department’s annual appropriations act has historically contained a restriction on the use of appropriation funds for publicity or propaganda designed to support or defeat legislation pending before Congress, and the restriction was found in the Departments of Labor, Health and Human Services, and Education, and Appropriations Act, 2009 (P.L. 111-8). The report reviews previous Department of Justice and Government Accountability Office (“GAO”) guidance concerning the restriction.
The report reviewed certain communications from Department of Education officials, including communications between the then-Deputy Under Secretary Robert Shireman and Terry Hartle, Senior Vice President for Government and Public Affairs. The report concluded that these communications did not contain explicit appeals to contact Congress and that the interaction was of a limited nature that did not involve a substantial expenditure of appropriated funds for a large scale publicity campaign or explicit appeals to contact members of Congress in support of or opposition to pending legislation, which would be prohibited.
Congresswoman Virginia Foxx was appointed to serve as the Chair of the House Subcommittee on Higher Education. Congresswoman Foxx previously served on the Education and Workforce Committee from 2006-2008. Prior to being elected to Congress in 2004, Congresswoman Foxx taught and served as an administrator at several North Carolina higher education institutions. Congresswoman Foxx issued the following statement:
“Education is the cornerstone of a prosperous and secure society and if the United States is to remain competitive in the global marketplace quality higher education will be one of the keys to maintaining our edge. So I’m very honored to chair the subcommittee on higher education and am excited to roll up my sleeves and work towards making our higher education system even better while carefully stewarding taxpayer dollars.”
At the 2011 annual conference of the Council for Higher Education Accreditation (CHEA), Congresswoman Virginia Foxx (R-NC), the Chair of the House Education and Labor’s Subcommittee on Higher Education, discussed the need for smaller government and said that she plans to hold hearings during which experts can offer advice on how government regulations on higher education can be streamlined. Congresswoman Foxx said that she plans to explore whether state and local governments are better able to handle oversight of higher education. With regard to the gainful employment rules, Congresswoman Foxx said that she was not sure that the rules made sense, but suggested that they might make more sense if they applied to both nonprofit and for-profit institutions.
Dr. Eduardo Ochoa, Assistant Secretary for Postsecondary Education, also addressed the CHEA conference attendees and said that the Department will release final regulations on gainful employment early this year. Dr. Ochoa stated that the regulations have been revised to allay some of the fears expressed by members of the higher education community in comments made to the notice of proposed rulemaking. Dr. Ochoa also discussed the different missions and culture that for-profits and nonprofit institutions have.
A week after the CHEA meeting, Dr. Ochoa spoke at the annual meeting of the Association of American Colleges and Universities (“AACU”) and was reported in the January 31, 2011 Inside Higher Education, to have said that educational quality in liberal arts programs “cannot be reduced solely to the ability to get a first job after graduation.” But he asserted that “for career-related programs, definitions of quality must include employability” and “[t]hat’s what gainful employment is all about.”
DETC Executive Director Michael P. Lambert served on a panel at the CHEA Annual Conference on the topic of the accreditation of for profit institutions.
View a copy of the presentation.
The Higher Education Opportunity Act, enacted August 14, 2008, made a number of changes to the student aid programs, including changes to the calculation of an institution’s cohort default rate. An institution’s cohort default rate, under new rules published on October 28, 2009, will be calculated using an additional year to count as a defaulter in the calculation of the institution’s cohort default rate. For instance, for the FY 2009 cohort (borrowers who enter repayment between October 1, 2008 and September 30, 2009), the percentage of defaulters will include those who default between October 1, 2008 and September 30, 2011.) Beginning in 2014, only three-year rates will be published since at that time three sets of three-year rates will have been calculated (FY 2009 published in 2012, FY 2010 published in 2013, and FY 2011 published in 2014).
To assist institutions in understanding the impact of the new three-year cohort default rate calculations, the Department has calculated and is making available unofficial trial three-year cohort default rates. Last year, ED published the trial three-year cohort default rates for the FY 2005-2007 cohorts. On February 4, 2011, the Department released the trial three-year cohort default rates for the FY 2008 cohorts. Institutions may access their trial rates by using NSLDS. The procedure is included in the Department’s electronic announcement of February 4, 2011 from William J. Taggart, COO, FSA.
The trial three-year cohort default rate for FY 2008 was 18.8 percent as compared to the two-year rate of 6.7 percent. As expected, the three-year cohort default rates are higher than the official two-year cohort default rates. The trial cohort default rates are:
- Public 10.8 percent (Two-Year: 6.0 percent)
- Private Non-Profit 7.6 percent (Two-Year: 4.0 percent)
- Proprietary 25.0 percent (Two-Year: 11.6 percent)
On January 31, 2011, the National Consumer Law Center (“NCLC”) released a report titled, “Piling it On, The Growth of Proprietary School Loans and the Consequences for Students,” which suggests that many for-profit schools have begun making costly private student loans, knowing in many cases that more than half of the loans will never be repaid. The report stated that many for-profit schools started institutional loan programs when third-party private school lenders began terminating their partnerships with them following the credit crash. The press release stated that for-profit schools “view these institutional loans as “loss leaders to keep the federal dollars flowing. Among other reasons, proprietary schools must show that at least 10% of revenues come from sources other than Department of Education federal student assistance. Schools make unaffordable loans as a way of filling up the 10% category with vapor revenues derived from loans that will never be repaid.”
The report concluded that there is an urgent need to regulate lending by for-profit schools and provide relief for vulnerable borrowers.
View the NCLC's report.
The Department of Education issued a Dear Colleague letter (GEN-11-01) providing guidance regarding comprehensive transition and postsecondary (“CTP”) programs for students with intellectual deficiencies. The purpose of the Dear Colleague letter was to make accrediting agencies aware of new provisions with the enactment of the Higher Education Opportunity Act (“HEA”) that enable eligible students with intellectual disabilities to receive Federal Pell Grants, Supplemental Educational Opportunity Grants, and Work-Study funds if they are enrolled in an approved program. These programs, which can be degree, certificate, non-degree, or non-certificate programs, are referred to as comprehensive transition and postsecondary (“CTP”) programs for students with intellectual disabilities.
Under the regulations, institutions must apply to the Department to have its CTP program. The institution must also notify its accrediting agency of its CTP program. Accrediting agencies are not required to take any immediate action in response to the institution’s notice. However, ED stated that the CTP program should be included in the self-study an institution prepares for its next comprehensive review and considered by the accrediting agency in that comprehensive review for renewal of the institution’s accreditation. The Department’s guidance lists the required elements for a CTP program. Further information is available by contacting Kay Gilcher via e-mail.
On January 19, 2011, at a briefing on Capitol Hill, the College Board released a study entitled “Cracking the Student Aid Code,” that provides insights on student and parent assessments of the federal student aid system. The findings show that almost 80 percent of students and parents believe college is out of reach financially for most families despite federal efforts to simplify and streamline the FAFSA and reduce college costs.
Based on a survey of 1,000 parents and 1,250 students of low- and moderate-income backgrounds, the College Board made the following recommendations:
- Simplify the federal student aid process to allow for the use of tax information from the Internal Revenue Service to help determine financial aid eligibility;
- Increase federal borrowing limits to defray increasing tuition costs and prevent dependence on private education loans and credit cards;
- Improve and expand the Income-Based Repayment (“IBR”) program (which has been achieved according to the College Board);
- Create a federal government savings account; and
- Allow for all households who file taxes to receive information on whether they are eligible for Pell Grants in order to promote early awareness.
View the College Board's report.
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