Washington
In a continuing effort to crack down on unscrupulous colleges that collect federal student-aid dollars but provide little useful education in return, the U.S. Department of Education plans to develop a program to assess whether institutions are complying with existing laws and regulations.
The department announced the program in a letter it sent on Friday to Sen. Tom Harkin, the Iowa Democrat who is chairman of the Senate education committee. Department officials also thanked Senator Harkin for holding hearings on accountability and oversight for for-profit colleges, which educate a growing share of students and are highly dependent on federal student aid.
News of the program came on the same day the department released data showing the effects that its proposed "gainful employment" rule would have on institutions of higher education. The department used the data to develop a model for estimating the effects of the rule on different sectors of higher education.
The proposed rule would cut off federal aid to programs whose students have the highest debt burdens and lowest loan-repayment rates, and could limit enrollment growth at hundreds of other programs.
The department did not offer any analysis or comparison of repayment rates by sector when it released its data on Friday. However, the Institute for College Access and Success did analyze the data and found that 54 percent of borrowers who attended public colleges and 56 percent who attended private nonprofit institutions were paying down the principal on their loans, compared with only 36 percent of those who attended for-profit colleges.
That means that at for-profit colleges, nearly two-thirds of borrowers couldn't pay back their student loans, said Deborah Frankle Cochrane, the institute's program director.
At the University of Phoenix alone, that amounts to $2.8-billion in federal student loan debt that isn't being paid down, she said.
Following Up on GAO Findings
The department's announcement of a new enforcement plan comes after a recent U.S. Government Accountability Office investigation found apparently fraudulent or deceptive recruiting and marketing practices at several for-profit colleges.
Videotapes from the GAO inquiry, in which investigators posed as potential students, were shown at a Senate hearing this month, the second of two held by Senator Harkin's committee.
The GAO found false or misleading statements about accreditation, the requirements for repaying student loans, graduation rates, job placement, and students' likely earnings. In four cases, college officials encouraged the "students" to submit apparently fraudulent financial information in order to qualify for federal student aid, the department's letter to Senator Harkin said.
The Education Department plans to follow up on the GAO's findings and "take appropriate action, including referring for criminal prosecution all individuals who are determined to have been involved in fraudulent or criminal activities," Arne Duncan, the secretary of education, said in the letter.
The department also plans to review the undercover methods used by the GAO and other federal agencies and will consider using them in its own enforcement program, the letter says. The department is especially concerned about the accuracy and appropriateness of information institutions provide to prospective students through recruiters and financial-aid advisers.
"Given the important and growing role that for-profit colleges play in delivering higher-education programs, it is essential that we do all we can to identify and eliminate exploitive practices when they occur," Secretary Duncan wrote.
In its letter, the department also laid out several other initiatives to strengthen the federal government's oversight of its student-aid programs such as hiring more than 60 additional staff members to conduct 50 percent more program reviews of postsecondary institutions each year.
'Gainful Employment' Data
For determining whether institutions that receive federal student aid are meeting the requirement that they prepare students for "gainful employment in a recognized occupation," the department has proposed a two-part test that would take into account the share of borrowers repaying their federal student loans and the relationship between total student-loan debt and average earnings.
On Friday, the department released a description of the model it used to estimate the effects of the gainful-employment rule on various programs. The model is based on a data set of 4,962 institutions that includes repayment rates and financial, enrollment, and institutional characteristics.
Of those institutions, 1,729 were for-profit colleges, 1,635 were nonprofit private colleges, and 1,598 were public colleges.
The proposed gainful-employment rule, released last month, is one of 14 proposed regulatory changes that the department and college stakeholders negotiated this year. The other proposals, which include one that would tighten a ban on incentive compensation for college recruiters, were published in mid-June.
After a period allowed for public comment, the final rules will be issued in November and take effect in July 2011.
Comments
1. bdr8y - August 16, 2010 at 07:30 am
Should the gainful employment rule be applied broadly, I fear that institutions who enroll larger shares of low-SES students will be dispropotionately effected. I understand that the law is designed to protect students from the predatory practices of the for-profit sector, but based on MB Walpole's research we know that upon postsec. graduation low-SES students do not procure employment that pays as well as their high-SES peers, whilst they borrow roughly the same amounts. Such a rule, at least on its face, appears to hold more dire consequences for those institutions who attempt to provide low-SES students an opportunity. I will do more digging into the numbers to see if this might be true, but I thought it was worth airing.
2. betterschools - August 16, 2010 at 12:35 pm
Interested parties may want to look at IHE's coverage of this. It goes beyond reporting what the Department said.
http://www.insidehighered.com/news/2010/08/16/eddata
Among other things, it appears that the Department's algorithm is counting the loans that were wrapped up into a consolidation loan (one of the Department's products) were counted as defaults.
The numbers are still uninspiring, even after one eliminates the many likely errors. The numbers for the publics are astoundingly high considering that their taxpayer subsidies result in lower tuition and theoretically require smaller loans.
What we are seeing is not the result of for-profit enterprises gone wild. The non-profit debt is 600-700% higher than that of the for-profits.
We are seeing the yet another result of the feds growing inability to manage their initiatives to the intended goal. This issue does not rise to the magnitude of the housing or financial industries, or even oil exploration, but it arises from the same generalized inabilities. Watch the Department closely, as I have, you will see error after error compounding and compounding again, covered up by transparent attempts to shift blame on the for-profits with the lie that they are costing the taxpayer more money.
3. betterschools - August 16, 2010 at 06:42 pm
@bdr8y,
This issue, supported by solid empirical data, has been raised repeatedly with the Department of Education and elsewhere. They are not interested because it fails to support their a priori agenda to slow down the for-profits. As you note, when you control for SES (broadly defined to include such metrics ad college generational depth, etc.) you get more-or-less the same default rates irrespective of institutional type. To acknowledge this, of course, would suggest that the problems lay elsewhere than the for-profits. (They have problems as do all types; I'm focusing on the larger issues here.)
The feds analytic brush as far too broad. Some for-profits are doctoral only, some graduate only, many of the largest enroll most students in bachelors' and higher programs. In most of these cases, students are rational consumers who will tell you that they chose the institution for a variety of convenience, access, and time-to-degree considerations. (We do this research and I possess several million individual records.) The target of most of the ire that the feds have whipped up amounts to a handful of the 900 or so nationally accredited for-profit schools for which the highest degree is an associate of science. A few of these schools deserve the scrutiny they are receiving; most have only the typical problems and do not deserve what is happening to them. Most of the for-profit schools are small and tied to their local markets and community.
Here is an additional problem that builds upon your concern.
INPUT CATEGORIES FOR ASSOCIATE DEGREES IN CAREER DISCIPLINES
1. A very small number of these students qualify for admission to a state or private university in addition to the community or career college of their choice.
2. The majority of these students do not qualify for admission to a state or private university. They only qualify for admission to a community college or a for-profit career school.
3. A small number of these students do not even qualify for admission to a community college. They will be admitted only by the for-profits.
Category 3 defaults at the highest rate, followed by Category 2. Additionally, they tend to enroll in programs that have the lowest starting salaries even though their first job will be socially transformative for them, something else the feds fail to appreciate. For example, Category 3 students may be drawn to the shorter and relatively less demanding Surgical Technician program (starting salary $22,000) rather than the AS Physical Therapist Assistant program (starting salary ($36,000). It matters not because State and private universities do not want and will not even speak to these students. Community colleges admit most of them in principle but a small proportion in fact. The typical allied health program at a community college has a multi-year waiting list.
As appears to be their intent, the feds have created a perfect Catch-22 for the for-profits, the only schools that can and will admit these low SES students into a program that delivers a 2-year degree, 18 month certificate, etc. While students get to determine how much they borrow with guidance from the school prohibited, that same school will be cut off by the feds if these same students exceed default rates or fail gainful employment ratios. Most rational analyses (all that I know of) find that unmanaged excessive borrowing is at the root of the loan default and therefore most of the gainful employment issue. Low SES students need to borrow the most money and therefore those who will owe the most have the greatest chance of failing the GE ratios. Guess who is responsible for managing borrowing levels?
One possible scenario goes to your fear, bdr8y. The career schools and even the community colleges will begin assessing the debt load of prospective students and will not admit or will limit or defer admission in cases where they cannot project a feasible financial payback scenario. Who could blame them?
Who loses the most here? The underclass! The feds did exactly the same thing in the 1980's when they shut down virtually every one of the inner city career schools because of their higher than average default rates. The publics did nothing to step in to fill the gap. They were to busy finding ways to limit admissions in service of an illogical notion of academic quality.
The feds message . . . then and now: The underclass? Let them eat cake.
4. cragie - August 17, 2010 at 07:42 am
Existing laws and regulations have generally not been enforced for 15 years, in an effort to "help the small business community." They are on the books, and generally only for for-profit schools, due to some extremely bad things that happened in the late 1980s. Thus it cannot be argued that there is an effort to "punish" the for-profits. It, however, may be an effort to avoid the hypocrisy of complaining about 2010 problem without first seeing if the 1990 solutions on the books will actually work. Whether the issue is drugs, immigration, firearms, or student aid, it is always good to prove you can "enforce the laws already on the books" before asking for new laws. Anyone who wants to "apply the same measures" to nonprofit and state schools would have to go through a long process of changing the law and then going through the rulemaking process, which is a tedious one.
There is no reason for SES to be an issue. In almost all cases, the student can find the same program at a community college rather than a for-profit school and would incur hardly any debt to receive that education at the community college (and where default rates are much lower). The fact that, due to temporary economic circumstances, it may be more competitive to find slots in community college programs than usual should not be the determinant factor -- or, like others have recommended, invest the funds in expanding capacity, which is not much larger than 30 years ago, at the community colleges, rather than using the laissez faire "voucher" approach. If the community colleges don't have the funds to market as much as the proprietary schools, make them cut their administrative layers and become more effective at marketing. Throwing the community colleges under the bus seems to be an extreme step rather than fixing a large groups of institutions in which the states invested so much effort during the 1950s, 60s and 70s.
If you think community colleges are shifting too much towards high-SES students, then this can be fixed. Similarly, if you think for-profits have too much wiggle room under the squishy "cost of attendence" formula to leave students with huge debts, then shift to a fixed-price coa formula based on average living standards and tuitions, forcing the for-profits to become more efficient and pass fewer costs onto students in the form of student loan debt.
5. betterschools - August 17, 2010 at 11:09 am
@cragie,
The texture you provide with respect to existing laws is important and parallels what we have already seen in the oil drilling, housing, and financial industry issues. I agree and have said in other contexts that the hoopla with respect to new regulations is a typical fed distraction so that we won't notice that, as usual, they haven't been doing their job.
However, a few of your beliefs with respect to SES and community colleges need amending as follows:
(a) Whatever the reason, SES accounts for far more variance in default than any other variable, 65% or more of the total variance. Total debt and debt to income ratios (or similar derivations) account for the second most variance. This leaves very little for the variance you describe, institutional type.
(b) It is simply not true that the program offerings are identical or even nearly so at community colleges and career colleges. There is considerable overlap (e.g., nursing and some of the allied health programs) but each tends to offer some unique programming. Since we work daily with both types I can tell you that the unique programming is by design. Community colleges ask us to find a needed program that none of the career colleges are offering and vice versa. This is how the markets work today.
(c) It is not always easy or even possible to be admitted into the popular career programs at community colleges. They have long waiting lists that can span years. In such cases, they generally try to shunt applicants into other programs.
(d) In cases where the community colleges have waiting lists, they tend to become more selective in applying admissions criteria. In doing so, they end up excluding applicants, not definitively but in practice, by continuously admitting the most qualified.
(e) Community colleges take a long time to deliver degrees, especially to working adults. Unless they can show up to class at all times of the early mornings, days and evenings, it is common for community college calendars to require that students hand around for four years or more to secure an associate's degree. The career schools deliver the same courses and the same degree in 18-26 months.
(f) Your analysis overlooks the enormous contribution of opportunity costs associated to delays in time-to-degree. Such costs can easily exceed the total cost of the career degree and not everyone can afford these delays, even if the tuition is substantially less. Do the math on a mid-level allied health profession (Respiratory Therapist or Physical Therapy Assistant). If the community college takes even three years to deliver the degree at a cost of $7,500 (very fast for them) and the career college delivers it in two years at a cost of $28,000 (I am using national averages), the career college student has already earned $35,000 (again, industry averages) by the time the community college student graduates. In addition to the arithmetic advantage, many students simply need to get going sooner.
(g) How would you propose to "fix" the SES and degree creep that have been going on for some time in community colleges? I agree that it would be a good fix but no one has been able to do it. As I write this, at least half of the community colleges have plans in place to become four-year institutions or back into the process by expanding their bridge programs. Increasingly, they are joining the state universities in their disinterest in helping the underclass join the middle class. If you have a realistic solution, one that would work in these sluggish bureaucracies, I'm all for it.
(h) While you offered it as a conditional, it is not true that community colleges have fewer funds for marketing and sales. They have more and spend more. When we think of career schools (more than 900 of them), we need to think about small institutions tied to their communities. That is what most of them are. These schools do not have outsize marketing budgets and they work hard to keep their businesses alive. In my residential market, the community colleges run expensive television and radio time all day, in the evening, and into the early morning. The most prominent career school in this market probably spends 70% as much. When people choose the career college, it is for good reasons. Students are not the idiots that the Department of Education and Senator Harkin would have us believe.
Robert W Tucker