For-Profit Colleges

Demand Value in Higher Education

Michael Dannenberg — Tue, 17 Nov 2009 16:00:00 -0500

[Editor's Note: A version of this post ran yesterday in the Albany Times Union]

The College Board reports tuition is up nine percent this year in inflation-adjusted terms, despite declining prices throughout the economy and stagnant median family income. Parents want to know why the sharp increase and why college costs so much in the first place.

The answer, in a word, is demand. Until we channel higher education demand in a more rational direction, tuition will continue to outpace inflation, grant aid, and family income.

Higher Ed Watch readers know that demand isn't the only factor driving tuition. College supply is relatively limited. Higher education is slow to embrace productivity gains seen elsewhere in the economy. Most important, states cut higher education funding to balance budgets, and colleges backfill those cuts by hiking tuition. Banks act as enablers, supplying big student loans to anyone willing to borrow.

But at its base, tuition rises because suppliers, including those who finance them, take advantage of high, under-informed, and often irrational consumer demand. As families shop colleges this fall, they would be well served to focus on value. The Department of Education can help by protecting consumers from the worst deals. We need a lemon law for colleges that cost too much and deliver too little.

Families are limited in their ability to assess the value of most colleges. Popular guides like US News & World Report rank only the top 10 percent of schools and focus on inputs like class size instead of outcomes like how much students learn. Families therefore rely on proxies, including the newness of non-academic facilities like residence halls and athletic fields, advertising, and price. It's the Neiman Marcus phenomenon. If it costs more, it must be better. Wrong.

It's not easy to compare colleges in terms of student learning because there isn't comparative testing at the post-secondary education level. But we can compare schools according to what consumers most want out of higher education: good jobs and financial security.

Congress recently required colleges to report average net price after financial aid. A private web site, www.payscale.com, lists average starting and mid-career salaries for graduates of more than 300 institutions of higher education. And the Education Department knows the percentage of students leaving each college who default on their student loans. With that information and more like it, Secretary Duncan can construct a "higher education p/e ratio," price of college to expected future earnings, for each school.

Consider SUNY Binghamton and Niagara University, for example, both in upstate New York. From a purely financial standpoint, Binghamton is a great deal. Its sticker price is approximately $17,000 a year, and graduates earn a median income of $52,000 within five years of separation, according to Payscale.com.

In contrast, Niagara's sticker price is $35,000 a year, and graduates earn a median starting income of less than $38,000 within five years of separation.

The lemons tend to be in the for-profit trade school sector. Not all trade schools are poor options, but we should make the really risky ones warn consumers in all marketing materials, just like politicians have to say they approve campaign commercials.

"Warning: One in three Acme College borrowers defaults on a student loan within three years of separation from Acme College. Acme graduates earn an average starting salary of $22,000 a year. Be careful before assuming substantial student loan debt to attend Acme College.''

True, higher education is about more than future income. Most music and art schools will have a worse higher education p/e ratio than science and engineering schools. That's fine. Students can and should still study music and art, and they should consider more than financial returns in choosing a college. But a well-publicized higher education p/e ratio will empower students who want to study music, art, or anything else to choose programs and institutions with a more informed eye.

Schools will want to be identified as good-value options and shudder at the prospect of being on a lemon list. To avoid it, they'll be less quick to raise tuition and more interested in making sure their students get good-paying jobs.

Until we nudge students toward good value options, tuition everywhere will march upward, unabated. We can slow that march though by helping families become better consumers in the higher education marketplace.

Michael Dannenberg, the founding Director of New America's Education Policy Program and Higher Ed Watch, is currently a Senior Fellow with the foundation.

Putting an End to the Subprime Student Loan Racket

Ed Policy — Thu, 29 Oct 2009 14:00:00 -0400

[Editor's Note: Yesterday we ran an excerpt from an article that Higher Ed Watch Editor Stephen Burd wrote for The Washington Monthly [cover pictured right] on the subprime student loan crisis at some of the nation's largest chains of for-profit colleges. Today, we're running a second excerpt that provides recommendations for putting an end to predatory lending at these institutions. To read the full article, click here.)

For a while it looked like the meltdown on Wall Street, and the ensuing credit crunch, would put an end to predatory lending at for-profit schools. In 2008 Sallie Mae quit offering subprime private loans to students at for-profit colleges because the astronomical default rates had helped throw its stock price into a nosedive. But the proprietary college industry has found a way around this roadblock, namely making private loans directly to students, much the way used-car lots loan money to buyers rather than going through a third party. For example, in a recent earnings call with investors and analysts, Corinthian said that it plans to dole out roughly $130 million in "institutional loans" this year, while Career Education and ITT Educational Services Inc., another for-profit chain, have reported that they expect to lend a combined total of $125 million.

These loans could prove to be even more toxic than the private ones offered by Sallie Mae. This is because some schools are packaging them as ordinary consumer credit, which has even fewer built-in safeguards than private student loans, especially when it comes to disclosure requirements. This makes it easier for schools to mislead borrowers about the terms of the debt they are taking on. In one class-action lawsuit filed earlier this year, former students of Colorado-based Westwood Colleges allege they were duped into borrowing institutional loans at a staggering 18 percent interest. According to the complaint, the college's corporate bosses advise their admissions officers to sign students up for these loans without revealing how costly they are going to be. Thus borrowers don't learn about the steep interest until after they leave school and receive their first loan bill. Worse, the lawsuit alleges that some students have been signed up for loans without their permission.

Jillian L. Estes, a Florida lawyer who represents the plaintiffs in the case, says she has been approached by two dozen former Westwood admissions representatives who admit that they deliberately avoided telling students about the terms of these loans. "They knew they'd never be able to enroll these students if they were up front with them," Estes explains. (In their written response to the lawsuit, Westwood College officials offered a "categorical rejection" of the allegations brought by Estes and her clients.)

Significantly, many proprietary schools are pushing institutional loans even when they know students won't be able to pay them off; Career Education and Corinthian Colleges only expect to recover roughly half of the money they distribute through their institutional lending programs, according to communications with shareholders. Why would they lend knowing they won't get the money back? Because any loss is more than offset by federal loans and financial aid dollars, which, despite the surge in private educational lending, still fund the bulk of tuition at proprietary schools. Say a student gets a $60,000 federal financial aid package and supplements it with a $20,000 institutional loan. The school comes out $40,000 ahead even if the borrower ultimately defaults. Plus, getting students in the door pumps up enrollment numbers, which makes for happy shareholders.

As the credit crunch eases, traditional lenders may well go back to making private loans to proprietary school students, especially given the changes afoot in the industry. President Obama aims to get rid of the program that allows lending companies to collect lucrative fees and interest for serving as the middleman on federal student loans and instead have the government offer the loans directly. Once forced out of the federal student loan program, traditional lenders will have a powerful incentive to seek profits by wading deeper into the private student loan market, and for-profit schools, with their exponential growth, could once again be an appealing target

The good news is that the Obama administration seems more inclined than its predecessor to stand up against the abuses of proprietary schools. In May, the Department of Education revealed that it was considering reversing changes the Bush administration made to weaken the law that prohibits colleges from compensating recruiters based on the number of students they enroll. It is also thinking about adding teeth to the rules requiring proprietary colleges to show that graduates are finding "gainful employment" in their field and cracking down on schools that willfully mislead prospective students. "Our overall goal at the Department of Education in post-secondary education is to make sure that students ... have the information they need to make good choices," Robert Shireman, the deputy undersecretary of education, told financial analysts and investors during a conference call earlier this year.

These proposals are a good start, but more steps will be needed. For starters, the Department of Education should publish the data that it already collects on the number of students at each school who default over the lifetime of their loans. At the moment, it only releases the number who default during the first two years after leaving college, which is of limited value, not only because this is such a short time span, but also because the rates can be easily manipulated by schools.

Just publishing lifetime default rates would give prospective students a clearer picture of the risks of enrolling in a particular school. But the impact would be far greater if Congress used this data, along with graduation rates, to weed out abusive institutions; ideally, any school that failed to meet a certain threshold should be kicked out of the federal financial aid programs.

At the same time, Congress should require companies that offer private student loans to give the same kinds of flexible repayment options and consumer protections as are available through the federal student loan program, including allowing borrowers to repay their loans as a percentage of their income. Lawmakers also need to revisit changes Congress made to the bankruptcy code in 2005, which make it exceedingly difficult for financially distressed borrowers, including those with private student loans, to discharge their debt in bankruptcy.

These changes would go a long way toward helping people like Martine Leveque escape their mountains of debt and ensuring that future students don't wind up in the same situation. It would also guarantee that taxpayers don't go on bankrolling giant companies that profit by exploiting those who are struggling to build better lives.

The Career College Association's Doublespeak

Stephen Burd — Thu, 15 Oct 2009 21:45:00 -0400

Testifying yesterday at a House of Representatives hearing on alleged admissions abuses at several for-profit colleges, Harris Miller, the president of the Career College Association (CCA), said that his organization doesn't have any tolerance for "schools that violate the rules and regulations" that govern the federal student aid programs.

"Let me say up front: there is no room for cheating in the process of higher education, whether by students, teachers, administrators, other school personnel, or outside testers and evaluators," Miller (pictured on the left) stated, adding "We share the government's interest in eliminating any form of fraud and abuse associated with the Title IV [student aid] program."

These are very good sentiments. But at Higher Ed Watch, we are unaware of any role CCA, the national lobbying group for proprietary colleges, has played in ferreting out fraud and abuse among its members.

Over the last decade, some of the largest publicly-traded for-profit higher education companies have come under scrutiny from federal and state regulators and have faced numerous lawsuits by former employees, shareholders, and students over allegations that they have engaged in misleading recruiting and admissions tactics to inflate their enrollment numbers.

But in the face of these accusations, CCA's leaders have typically either remained silent or rushed to defend the institutions, warning that any increased government oversight into the for-profit higher education sector would force their schools to abandon their mission of educating students from low-income families or otherwise underserved communities. (Miller continued those scare tactics yesterday when he warned that increased regulatory pressure on his schools was causing many of them to "cut way back" on enrolling "ability to benefit" students -- generally those without a high school diploma or GED. "Is that good from a societal point of view? I would argue as a citizen that it is not," he stated.)

Don't get us wrong. We would be the first to congratulate CCA if it truly changed its stripes. But it's hard to take Miller at his word when he says that CCA "abhor[s] any practice that break [s] the rules or the law to admit unqualified students," considering that several members of his association's Board of Directors are leaders of large for-profit college chains that have been charged by federal or state authorities with carrying out these types of abuses and other deceptive practices.

For example, in April, the proprietary-school chain Alta Colleges agreed to pay the U.S. Department of Justice $7 million to settle allegations raised in a False Claims lawsuit that its Texas campuses had engaged in practices "designed to mislead prospective students and to misrepresent material facts to them." Among other things, the government found that the school recruiters had lied to prospective students about their job placement rates (saying that they were more than 90 percent when they were actually just over 50 percent) and about their ability to transfer credits to other schools (even though no other accredited colleges in Texas would take them.) Yet, Jamie Turner, Alta Colleges' vice chairman and co-founder, remains on the CCA board.

As they say, words are nice but actions are better.

Not an Isolated Case

Stephen Burd — Wed, 07 Oct 2009 13:00:00 -0400

The General Accounting Office (GAO) recently released a report revealing that some publicly traded for-profit colleges have been pumping up their enrollment numbers by deliberately admitting unqualified students.

Federal law requires that students who have neither a high-school diploma nor its equivalent must pass a government approved "ability to benefit" (ATB) test before becoming eligible to obtain federal financial aid to pay for college. But during an undercover investigation it conducted at a local branch campus of a large proprietary school chain, the GAO discovered that the school helped prospective students cheat on the ATB test. In addition, while conducting site visits at for-profit colleges around the country, the accountability identified incidents at "two separate publicly traded proprietary schools" in which recruiters "referred students to diploma mills for invalid high school diplomas in order to gain access to federal loans without having to take an ATB test."

Such abuses are serious, the GAO writes, because they can be very damaging to the students involved. "Unqualified students who receive federal financial aid for higher education programs are at a greater risk of dropping out of school, incurring substantial debt, and defaulting on federal student loans," the report states.

The accountability office goes out of its way, however, to emphasize that its findings "do not represent nor should they be interpreted as implying widespread problems at all proprietary schools." Proponents of the for-profit higher education industry have jumped on that statement to downplay the abuses and say that the incidents the GAO uncovered were isolated cases.

A typical response to the report came from financial analysts at Signal Hill, a Wall Street investment banking firm. "Whether the allegations raised in the GAO report will result in a public investigation of a company we cover, we cannot vouchsafe," the analysts wrote. "However, we do feel confident that whatever action was or was not taken was more likely the result of an individual's good intentions coupled with poor judgment rather than the result of some cynical systematic conspiracy."

At Higher Ed Watch, we don't know how widespread these improper practices are. But we have a feeling that they are a little more common than the good folks at Signal Hill would have us believe.

First of all, the GAO did not have to do too much digging to find these abuses. Instead, officials at the accountability office sent two analysts to pose as prospective students at a proprietary school chosen primarily because of its proximity to their Washington offices. Did the analysts just get lucky and find, on their first try, the one isolated case where a school was giving students the answers to the questions on the test ahead of time? That seems like a bit of a stretch to us.

Second, this is not the first time that such allegations have been made. As the report notes, both the Department of Education's Inspector General and the New York Department of Education have found similar problems in the past. In addition, such allegations have been raised in lawsuits against some of the largest publicly traded for-profit school chains, including a False Claims lawsuit recently filed by former top officials at a suburban Atlanta branch of Career Education Corporation's American Intercontinental University.

Third, as a senior writer at The Chronicle of Higher Education, I uncovered similar types of abuses at the Los Angeles branch of American Intercontinental University (which the company has since shut down). Here is an excerpt from an article I wrote about the school for The Chronicle in January 2006:

[Former] admissions officers said they would often instruct students without a diploma to go to one of several unaccredited high schools in the area where they could "purchase" a diploma for about $100 or $200.

One such school was Victory High School, whose website promises students the ability to get "an immediate high-school diploma." The school, which doesn't offer any classes but only testing, advertises its services to trade schools, vocational schools, and colleges, saying that the testing it provides gives them "more control" of their applicants and allows them to "qualify more applicants for funding."

The Los Angeles public school district doesn't recognize Victory High School. According to Stephanie Brady, a district spokeswoman, a credential offered by Victory "does not meet the standard of equivalency to a recognized high school diploma.

For those reasons, we do not believe that the abuses the GAO uncovered were an isolated case or the result of "an individual's good intentions." At the same time, we fully acknowledge that we don't know how widespread they are. But it seems to us that it is incumbent on the Education Department and Congress to find out.

[Update: The House Committee on Education and Labor has just announced that its higher education subcommittee is planning on holding a hearing on the GAO's findings next week.]

The Growing Student Debt Crisis at Career Colleges

Stephen Burd — Thu, 10 Sep 2009 20:15:00 -0400

Is there a looming student debt crisis at our nation's for-profit colleges and trade schools? The latest data from the U.S. Department of Education's National Center for Education Statistics (NCES) certainly seems to suggest so.

According to an analysis of this data by the College Board, 60 percent of bachelor's degree recipients at for-profit colleges graduate with $30,000 or more of student loan debt. That's one-and-a-half times more than graduates at higher-cost private colleges and three times more than those at public universities and state colleges. At the same time, one in five students who earn associate degrees at proprietary schools graduate with a debt load of at least $30,000. That's four times more than associate degree recipients at community colleges. [The average annual salary of associate degree recipients is around $38,000.]

The data in question comes from the 2007-08 edition of the National Postsecondary Student Aid Study (NPSAS), a nationwide survey of college students that the NCES conducts every four years. The study provides the most comprehensive data available on how students and their families pay for college.

But even this data doesn't provide a complete picture of the burdensome amount of debt proprietary college students are taking on -- as it does not include median debt levels for the millions of low-income and working-class students who drop out each year from for-profit colleges and trade schools buried in debt but without the training they need to find jobs that will help them repay their loans. Many of the largest publicly traded for-profit school chains have an extremely spotty record of graduating students.

Overall, according to the study, 92 percent of full-time students attending proprietary institutions took out loans in 2007-08 to finance their education. In comparison, two-thirds of students at private colleges, and a little more than half of those attending four-year public colleges, borrowed student loans that year. This is not entirely surprising as for-profit colleges tend to be expensive and serve the most financially needy students.

More disturbing is the extent to which proprietary school students are being asked to rely on high-cost private student loan debt to help cover their costs. In 2007-08, 43 percent of students at for-profit colleges borrowed private student loans, compared to 28 percent at private colleges, 15 percent at public four-year colleges, and 7 percent at community colleges. As we reported in April, the proportion of private loan borrowers at proprietary institutions has skyrocketed over the last five years. In 2003-04, about 15 percent of students at these schools took out private loans.

Meanwhile, the median debt load of bachelor's degree recipients at for-profit colleges in 2007-08 was $32,653. In comparison, the median debt load of students graduating from private colleges was $22,375, and from public colleges was $17,700. A quarter of these proprietary school students left with $40,000 or more in debt, compared to 22 percent at private colleges, and 10 percent at public universities

Nearly two-thirds of bachelor's degree recipients graduated from proprietary institutions that year with private loan debt, compared with 42 percent at private colleges and 28 percent at public colleges.

The news isn't much better for students who earn associate degrees at proprietary schools. Overall, nearly all associate degree recipients at for-profit colleges graduated with student loan debt in 2007-08, and 60 percent had private loans. The median debt load for these graduates was $18,783. In comparison, only 38 percent of associate degree recipients at community colleges graduated with debt, and only 15 percent had private loans. The median debt load for those students was $7,125.

In looking at this data, we think that it is critically important to understand the population of students that for-profit colleges and trade schools serve. According to the Career College Association, 43 percent of proprietary school students are members of minority groups and almost half are the first in their families to attend college. Of those who are of traditional college age, more than 50 percent come from families with an annual income of less than $40,000.

Research shows that each of these factors correlate with a student's likelihood of defaulting on their student loans. And in fact, the Department of Education estimates that about 40 percent of federal student loans going to for-profit students ultimately end up in default. That's compared to about 12 percent for college students overall. [Unfortunately, there is no comparable data available on private loans.]

For-profit college lobbyists and leaders like to talk about the role they play in helping low-income and working-class students achieve their dreams. But by loading up financially needy students with unmanageable levels of debt, including high-interest private loans, they are actually destroying the dreams of many of their students.

The time has come for policymakers to take notice -- before this looming crisis becomes full blown.

Guest Post: California Dreamin’ Becoming Proprietary Students’ Nightmare

Ed Policy — Thu, 13 Aug 2009 22:15:00 -0400

By Betsy Imholz

For the past three years, there has been absolutely no state oversight over the for-profit colleges and trade schools that operate in California -- leaving nearly half a million proprietary school students in the state without any protection against unscrupulous institutions. The lack of regulation is testament to the for-profit higher education industry's political ties in Sacramento and Washington, which it has used to eviscerate what was once the toughest proprietary school regulatory regime in the country.

Now, with a new Administration in Washington, and hundreds of millions of federal stimulus dollars for job training at stake, the proprietary sector appears to have had a change of heart and is championing a bill (AB 48) in the California Legislature that would re-instate regulation. But don't be fooled. As written, this legislation would do more harm than good, allowing financial aid dollars to flow to the schools without meaningful state oversight, while their students become ever-more burdened with student loan debt.

The history of for-profit higher education in California is replete with scandal -- so much so that the state, for years, was known as "the diploma mill capital of the nation." When the U.S. Senate Permanent Subcommittee on Investigations (aka the Nunn Committee, named after its chairman, Sen. Sam Nunn of Georgia) investigated abuses in federal student aid programs in the early 1990s, proprietary schools in California stood out as being among the most unscrupulous in the country. Many of these proprietary institutions were found to be feeding on federal financial aid by recruiting homeless people straight off soup kitchen lines and out of welfare offices and signing them up for federal grants and loans.

Outraged by these types of abuses, state legislators cracked down on these schools. In 1989, the California legislature unanimously approved a bill that contained bright lines for state approval, requiring career programs to graduate 60% of students enrolled and place 70% of the graduates in the jobs for which they trained. The legislation also allowed for a "private right of action" so students could sue to enforce the law; established a Student Tuition Recovery Fund (STRF) to compensate students if their schools went out of business unexpectedly; and lodged regulatory and enforcement responsibility in a new, independent "Council for Private Postsecondary and Vocational Education."

The Industry Fights Back

Unsurprisingly, California's proprietary schools were unhappy with the new regulatory scheme. As the political winds began to shift in the state, the schools found powerful allies in Sacramento to help them upend the reform structure.

In 1997, Gov. Pete Wilson convinced the state legislature to disband the independent council and transfer its oversight authority to a bureau in the Department of Consumer Affairs (DCA), which was under gubernatorial control. That was the end of meaningful enforcement in California. [Nearly a decade later, a state-appointed monitor examining the bureau's performance found that the DCA had failed to promulgate meaningful regulations to protect students' interests.]

When the law came up for renewal again in 2006, the legislature approved a bill that would have extended the law's "sunset" date for one year and established a working group of stakeholders to explore any changes that were needed. However, Gov. Arnold Schwarzenegger, under pressure from proprietary school lobbyists, vetoed the bill, promising that he would provide his own draft bill early in the next session. That did not happen.

In the vacuum that followed, the schools received crucial help from the Bush Administration's U.S. Department of Education. Under the federal Higher Education Act, colleges must be "legally authorized" by states in order to award federal financial aid. As a result, the closing of the bureau appeared to endanger the schools' access to the aid programs. However, the Education Department issued an opinion saying that the schools could continue to participate in the programs as long as they were accredited by agencies recognized by the Education Secretary. In other words, the schools were allowed to operate as usual, giving them little incentive to come back to the negotiating table.

Without any state oversight of these schools, the problems of misrepresentation and abusive recruiting practices have continued. In 2007, for example, the California Attorney General settled a deceptive practices case against Corinthian Colleges, a large national chain headquartered in California, requiring the company to pay a $6.5 million fine, and provide some restitution to students. The suit charged Corinthian with misleading prospective students about its schools' job placement rates and the starting salaries of their graduates, running 11 sub-standard programs, and falsifying records provided to the government. [As part of the settlement, Corinthian did not have to admit to any wrongdoing.]

Creating the Illusion of Oversight

Now, with a new Administration in Washington, $488 million in federal stimulus dollars in the wings for job training in California, and financial analysts expressing concern about whether the Education Department's new leadership will continue to support the agency's controversial opinion, proprietary schools have a strong incentive to address the regulatory void in California. They have championed AB 48 by Assemblymembers Anthony Portantino and Roger Niello, with support of the Schwarzenegger Administration. It's pallid by comparison to the 1989 reform Act, and far from what's needed.

AB 48's flaws fall into 5 categories. First, the bill would create a framework that provides no state review in determining eligibility for state approval. The bill would exempt all regionally accredited schools, including University of Phoenix, which paid a $9.8 million fine to the U.S. Dept. of Education in 2004 after the agency found that it had engaged in deceptive recruiting practices. [The University never admitted to any wrongdoing.] All other schools would also be automatically approved, as long as they were accredited by an Education-Department-approved agency.

At first glance, this may sound reasonable. But accreditation is a self-regulatory process with schools funding review by their peers. Accreditation has been shown over and over again to be wholly inadequate as an indicator of minimal quality in the proprietary sector. Also, accredited institutions are those that receive federal financial aid, i.e. those are the schools with the most revenue and the largest number of students. Thus, when they mislead students or engage in other deceptive practices, the impact in dollars and consumers affected is huge. And once state approval is granted it is very difficult to revoke.

Second, the bill would delegate authority to the DCA, an agency that has proven itself incapable of carrying out its duties. Besides California, no other state, to my knowledge, lodges regulation of trade schools and vocational programs in a consumer/business agency rather than an education one. Placing it in DCA was a trade-off made ten years that has proven, as multiple reports and audits have shown, to be a serious error.

Third, the bill would provide inadequate resources to carry out effective oversight. AB 48 would eliminate fees for the large swathe of exempted schools, caps annual fees at low levels for schools requiring approval, and prohibits the bureau from raising needed fees without additional legislation. A cynic might say that bureau is being set up to fail.

Fourth, the school disclosures the bill would require are inadequate to protect students. It is all too common for proprietary schools to engage in high pressure sales tactics --including misrepresenting their success in graduating students and placing them into jobs. To prevent these types of deceptions, schools need to be required to disclose clearly understandable, uniformly defined, and accurate graduation, job placement and exam pass rates, and credit transfer information that would allow students to make apples-to-apples comparisons before investing tens of thousands of dollars to enroll at these institutions.

When it comes to consumer disclosures, the devil is in the details. The job placement definition in the bill, for example, would allow schools to count "graduates employed in the field" rather than requiring them to count only those "employed in the job trained for," as was the case under prior law. Real life examples abound of schools playing fast and loose with such definitions -- for example, counting students sweeping floors at a fast food restaurant as a "culinary program job placement." Also, the bill would allow schools to count as a job placement a graduate who stays on a job for just an hour.

Finally, the legislation would provide the bureau with weak enforcement authority. The sanctions in the bill -- notices to comply" and "citations"-- will not discourage unscrupulous school operators from violating the law.

Real Consumer Protections Needed

The unprecedented economic crisis facing California means more laid off workers desperate for re-training are likely to be susceptible to high-pressure sales pitches that prey on their hopes and dreams. The stakes for consumers are high, with short-term programs running in the tens of thousands of dollars. Sadly, as a result of this crisis, the state has had to cut $680 million out of the budgets of community colleges, while billions of dollars continue to flow to proprietary schools that are operating without any oversight.

After years of neglect, California needs a system that will again ensure fundamental consumer protections for California's half-million proprietary school students; safeguard the public dollars invested in these schools; and secure the integrity of California degrees, diplomas and certificates in the job market. Unfortunately, AB 48 will create only the illusion of oversight, leaving students as vulnerable to fraud and abuse as they were two decades ago.

Betsy Imholz is Special Projects Director for Consumers Union, nonprofit publisher of Consumer Reports. She is located in CU's San Francisco office, and has worked in the California Legislature on consumer protection for proprietary school regulation since 1997. Prior to her work at Consumers Union, Ms. Imholz was the Consumer Law Coordinator for Legal Services of New York City where she worked extensively in Albany, NY and Washington DC on proprietary school and financial aid issues on behalf of low-income students. Her views are her own and do not necessarily reflect those of the New America Foundation.

A Leap Forward

Stephen Burd — Wed, 22 Jul 2009 16:30:00 -0400

The U.S. House of Representatives Committee on Education and Labor took a huge step forward today by approving, on a mostly party line vote, landmark legislation that would eliminate the Federal Family Education Loan Program (FFELP) and use a large share of the savings to significantly increase spending on Pell Grants. The bill would require that as of July 1, 2010, all federal loans be made by the federal government through the Direct Loan program.

We can not overstate the significance of the committee leaders' accomplishment. Despite fierce opposition from the student loan industry and their allies in the financial aid world, the committee passed a bill that would eliminate all of the unnecessary middlemen from the process of originating and guaranteeing federal student loans. This change would substantially simplify the federal student loan program and redirect federal funds out of the pockets of lenders and into the hands of the students who need the help the most.

The measure is far from perfect. We have already stated our dissatisfaction with a provision in the bill that would provide a set-aside for all existing non-profit student loan agencies to service the loans of up to 100,000 borrowers in their home states. Non-profit lenders that wish to continue to service loans in the future should have to compete for a contract from the U.S. Department of Education, like all other student loan providers.

As we said yesterday, if the Democratic Congressional leaders are intent on keeping the proposal in the measure, they should at least bar lenders that have been found to have deliberately overcharged the government or acted against the best interests of students from participation.

We were also disheartened that the committee overwhelmingly approved an amendment to the bill that would further weaken the "90-10 rule," a key consumer protection provision. The rule requires for-profit colleges and trade schools to receive at least 10 percent of their revenue from sources other than federal student aid in order to participate in the government's financial aid programs.

The amendment, which was sponsored by Rep. Rob Andrews (D-NJ), would extend by an extra year (from two to three) the amount of time that schools can be out of compliance with the law before being penalized. It also would temporarily exempt from the 90-10 calculations any new money that the colleges receive from the legislation's expansion of the Perkins Loan program, as well as extending an existing exemption for federal student loan limit increases that were approved as part of the Ensuring Continued Access to Loans Act last year.

At a time when the Obama administration is looking to rewrite federal student aid rules to improve the integrity of the programs, it doesn't make any sense for Democratic Congressional leaders to try and gut the few consumer protection provisions left that are aimed at protecting students from unscrupulous schools.

But those concerns should not overshadow the significance of yesterday's action. As we said earlier, the House education committee took a major step forward in ending FFEL. Hopefully, the Senate Committee on Health, Education, Labor and Pensions will soon follow suit.

Trade School Lobbyists' New Cause?

Stephen Burd — Wed, 24 Jun 2009 18:15:00 -0400

For-profit college lobbyists have suddenly become concerned about overborrowing by their institutions' students.

On Monday, a procession of career college lobbyists urged the U.S. Department of Education officials to give their schools more discretion to limit the amount of federal loans students can take out to cover their living expenses. The industry representatives made their remarks at a public hearing the Education Department held at the Community College of Philadelphia to gather ideas for strengthening federal student aid rules to improve the integrity of the programs.

"Schools are trying to limit borrowing," said Richard Dumaresq of the Pennsylvania Association of Private School Administrators, which advocates for proprietary institutions in the state. "But it's not enough to stem the tide of overborrowing, especially in a down economy." His comments were echoed by Harris Miller, the president of the Career College Association, and lobbyists for some of the largest publically traded chains of for-profit colleges, such as ITT Educational Services Inc.

At Higher Ed Watch, we would obviously be happy if students didn't have to take on such a heavy load of debt to attend for profit colleges and trade schools, many of which have had trouble graduating students. But it is hard to take the lobbyists' concerns too seriously, considering the recent conduct of many of these institutions.

As we have previously reported, some of the largest chains of for profit schools have, over the last decade, aggressively steered financially needy students to take out high-cost private loans from lenders like Sallie Mae, with annual interest rates as high as 20 percent. According to company disclosures last year, private loans made up 30 percent of the total revenue at ITT, 18 percent at Career Education Corporation, and 13 percent at Corinthian Colleges. Corinthian also revealed that 75 percent of its private loans were going to high-risk, subprime borrowers.

Overall, the percentage of students at proprietary institutions taking out private loans has skyrocketed over the past several years, from 13 percent in 2003-04 to 42 percent in 2007-08, according to recently released data by the Education Department's National Center for Education Statistics (NCES). In other words, more than 4 in 10 students took out these expensive loans last year to attend schools that have a spotty record of retaining students. In addition, the NCES data reveals that for-profit college students are borrowing private loans at rates that are extremely disproportionate to their numbers. While only 9 percent of all of this country's undergraduates attend these institutions, these students represent 27 percent of all private loan borrowers.

So why this sudden concern by the lobbyists?

Does it have to do with the fact that schools have to increasingly rely on the federal student loan programs because lenders are no longer willing to enter into sweetheart deals to provide subprime private loans to their students? And, as a result, are these schools in danger of violating a federal law requiring them to receive at least 10 percent of their revenue from sources other than federal student aid in order to continue to participate in the government's financial aid programs?

Now don't get us wrong. We're sure that many for-profit college officials are genuinely concerned about their students' debt load. But given the conduct of some of the largest chains of proprietary schools in the recent past, we'd urge the Education Department to not take the lobbyists' pleas at face value.

What do you think? Please send us your thoughts.

Rewriting the Rules on Trade Schools to Better Safeguard Students

Stephen Burd — Thu, 28 May 2009 21:45:00 -0400

The U.S. Department of Education's announcement this week that it plans to rewrite its federal student aid rules to improve the integrity of these programs is certainly welcome news. We are particularly pleased that the agency is considering strengthening a regulation that aims to prevent unscrupulous for-profit colleges and trade schools from taking advantage of financially needy students.

As we have reported previously, Congress in 1992 added a provision to the Higher Education Act prohibiting colleges from giving "any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments" to admissions officers. The ban on incentive compensation for college recruiters was included as part of a broader effort by lawmakers to crack down on fly-by night trade schools that had been set up to reap profits from the Title IV federal student aid programs. With reports rampant that trade schools were enrolling unqualified low-income individuals simply to get access to Title IV funds, policymakers believed it was important to bar postsecondary-education institutions from paying recruiters on the basis of how many students they enrolled.

A decade later, top Education Department officials with ties to the for-profit sector decided to weaken this prohibition. In November 2002, the Department issued new regulations that created 12 "safe harbors" for colleges that wished to provide incentive payments to their admissions employees. The agency took this action over the objections of a negotiated rulemaking panel made up of college officials, advocates for students, and consumer groups that had been assembled to consider the rule changes and of the two main national organizations representing college admissions officers.

Among other things, the revised rules allowed colleges to adjust the annual or hourly wages of recruiters up to twice a year, as long as the adjustment "is not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid" [emphasis added]; and to provide commission-based recruiting for non-Title IV programs at institutions participating in the federal student aid programs. The net effect of adding all of these safe harbors was to make the ban much more complicated to enforce.

At the same time, the then-Deputy Education Secretary sent a memo to the head of the Federal Student Aid office announcing that the agency would treat violations of the incentive compensation ban less seriously than it had before. In the memo, the Deputy Secretary said that in most cases "the appropriate sanction" should "be the imposition of a fine," rather than the limitation, suspension, or termination of Title IV student aid eligibility. "The direction provided by this memorandum should result in the imposition of appropriately measured sanctions for improper incentive payments by institutions [emphasis added]," he wrote.

In the years since the Education Department took these actions, some of the largest publicly-traded for-profit higher education companies have come under scrutiny from federal and state regulators and have faced numerous lawsuits by former employees, shareholders, and students over allegations that they have engaged in misleading recruiting and admissions tactics to inflate their enrollment numbers. In 2004, for example, Education Department program reviewers found that the University of Phoenix had knowingly violated the incentive compensation ban by compensating recruiters solely on their success in enrolling students. Education Department officials ultimately reached a $9.8-million settlement with the Apollo Group, the university's parent company, to resolve issues that were raised in the review. The report's findings are at the center of a separate False Claims Act lawsuit that has been brought against the university by two former admissions officers and is set to go to trial next spring.

In agreeing to the settlement, the Apollo Group did not admit to any wrongdoing. University officials have continued to dispute the program reviewers' findings to this day. In fact, as we reported in February, the institution appears to have continued to defy the incentive compensation ban even after the settlement agreement was reached.

To be fair, though, the for-profit giant does seem to be trying to clean up its act. The university's new leadership has put a high priority on increasing student retention. With that goal in mind, the company's management has been reining in their recruiters and become more discerning in deciding who to enroll. At Higher Ed Watch, we are encouraged by these moves -- though we will have to wait and see whether they are long-term changes or just temporary ones while the company is in a legal battle and coming under increased scrutiny from the federal government.

Nevertheless, concerns about recruiting abuses throughout the for-profit higher education sector continue. Last month, the trade school chain Alta Colleges agreed to pay the U.S. Department of Justice $7 million to settle allegations raised in a False Claims lawsuit that its Texas campuses had engaged in practices "designed to mislead prospective students and to misrepresent material facts to them." Among other things, the government found that the school recruiters had lied to prospective students about their job placement rates (saying that they were more than 90 percent when they were actually just over 50 percent) and about their ability to transfer credits to other schools (even though no other accredited colleges in Texas would take them.)

At Higher Ed Watch, our primary concern is that students aren't being misled into taking on huge amounts of debt to enroll in schools of dubious value. The incentive compensation ban was put in place to try to prevent such abuses from occurring. We're happy to see that the new leadership at the Department of Education shares our concern and is interested in putting teeth back into its regulations.

In the Dark on Student Loan Borrowing

Stephen Burd — Thu, 23 Apr 2009 17:15:00 -0400

As we wrote yesterday, newly released data by the U.S. Department of Education's National Center for Education Statistics provides disturbing news about the growth of private student loan borrowing, particularly at the nation's for-profit colleges and trade schools.

But the data's release also brings to light a more basic problem: the government's inability to collect and disseminate accurate and timely information about student debt. This is a major failing, as it leaves public officials without the vital information they need to make sound student aid policy.

As it stands now, the most comprehensive information available comes from the National Postsecondary Student Aid Study (NPSAS), a nationally representative survey that aims to determine how students and their families pay for college. Unfortunately, NCES conducts this survey only every four years. As a result, the information it provides becomes dated quickly.

Up until the release of the latest edition of the NPSAS survey last week, student aid analysts and policymakers have had to rely on five year old data to try to understand student loan trends, even though there has been an explosion in private loan borrowing during that period of time. By relying on the old data, public officials have been able, at least to some extent, to downplay concerns about the hazardous amount of high-risk debt many financially needy students have been taking on. [As we have just learned from an analysis of the data from our friends at the Project on Student Debt, the percentage of undergraduates taking out private loans jumped considerably during this time period, from 5 percent in 2003-04 to 14 percent in 2007-08.]

Nowhere is this deficiency more glaring than in the government's tracking of private loan borrowing at for-profit colleges and trade schools. The latest study shows that the percentage of students at proprietary schools taking out private loans has skyrocketed in recent years, from 13 percent in 2003-04 to 42 percent in 2007-08. Wouldn't that information have been helpful for lawmakers to know last year when they were reauthorizing the Higher Education Act?

The information NPSAS provides also has other limitations. While the data set is helpful in identifying broad trends, it does not include a large enough sample to provide reliable statistics on private loan borrowing at individual colleges. As a result, it's difficult to identify schools that may be pushing students to borrow private loans without first exhausting their cheaper and safer federal student loan options.

Clearly a better source of data is needed to provide more useful and up-to-date information on students' borrowing trends.

Luckily, there is a relatively simple solution, as Matthew Reed of the Institute for College Access and Success (TICAS) wrote in a guest post for us last year. Congress should require lenders to report all the private loans they make to the National Student Loan Data System (NSLDS), the database that the Education Department currently uses to track federal student loans. In addition, the Department should be required to issue annual reports generated from this system to provide up-to-date information on student loan borrowing trends.

As Matthew pointed out, the Higher Education Act directs the Department to use the database in part for research and policy analysis regarding student debt levels -- including analyzing factors such as family income and the type of institution attended. But the Department has made very little use of this authority as of yet, besides publishing aggregate federal loan volume numbers and calculating cohort default rates.

Ideally, we believe the Department should be required to publish the following:

Loan volume by loan program and loan type for each institution (unsubsidized/subsidized Stafford loans, PLUS loans, private loans, etc.)
Average cumulative debt levels for students graduating from college each year at the state, national, and institutional levels.
Average cumulative debt levels for students leaving college without completing a degree or certificate program.
Data on borrowing patterns by income level and demonstrated financial need.
Data on borrowing patterns by students who receive Pell Grants.

Armed with this information, policymakers would no longer have to wait years to get a very limited view of what's really happening on college campuses.

[Disclosure: Higher Ed Watch is supported in part by the Institute for College Access and Success, which runs the Project on Student Debt.]

Image used under a Creative Commons license from flickr user LensENVY