[Senate Hearing 112-786]
[From the U.S. Government Publishing Office]
S. Hrg. 112-786
DROWNING IN DEBT: FINANCIAL OUTCOMES OF STUDENTS
AT FOR-PROFIT COLLEGES
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HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
EXAMINING FINANCIAL OUTCOMES OF STUDENTS AT FOR-PROFIT COLLEGES
__________
JUNE 7, 2011
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
TOM HARKIN, Iowa, Chairman
BARBARA A. MIKULSKI, Maryland
JEFF BINGAMAN, New Mexico
PATTY MURRAY, Washington
BERNARD SANDERS (I), Vermont
ROBERT P. CASEY, JR., Pennsylvania
KAY R. HAGAN, North Carolina
JEFF MERKLEY, Oregon
AL FRANKEN, Minnesota
MICHAEL F. BENNET, Colorado
SHELDON WHITEHOUSE, Rhode Island
RICHARD BLUMENTHAL, Connecticut
MICHAEL B. ENZI, Wyoming
LAMAR ALEXANDER, Tennessee
RICHARD BURR, North Carolina
JOHNNY ISAKSON, Georgia
RAND PAUL, Kentucky
ORRIN G. HATCH, Utah
JOHN McCAIN, Arizona
PAT ROBERTS, Kansas
LISA MURKOWSKI, Alaska
MARK KIRK, Illinois
Pamela Smith, Staff Director
Lauren McFerran, Deputy Staff Director
Frank Macchiarola, Republican Staff Director and Chief Counsel
(ii)
C O N T E N T S
__________
STATEMENTS
TUESDAY, JUNE 7, 2011
Page
Committee Members
Harkin, Hon. Tom, Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Mikulski, Hon. Barbara A., a U.S. Senator from the State of
Maryland....................................................... 6
Blumenthal, Hon. Richard, a U.S. Senator from the State of
Connecticut.................................................... 45
Merkley, Hon. Jeff, a U.S. Senator from the State of Oregon...... 48
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 51
Hagan, Hon. Kay R., a U.S. Senator from the State of North
Carolina....................................................... 53
Witnesses--Panel I
Baum, Sandy, Independent Higher Education Analyst and Consultant,
Chicago, IL.................................................... 7
Prepared statement........................................... 9
Henderson, Wade, President and CEO, Leadership Conference on
Civil and Human Rights, Washington, DC......................... 16
Prepared statement........................................... 18
Schmitt, Eric, former student, Kaplan University, Hampton, IA.... 22
Prepared statement........................................... 25
Abernathy, Pauline, Vice President, The Institute for College
Access & Success, Philadelphia, PA............................. 27
Prepared statement........................................... 29
Witness--Panel II
Kanter, Hon. Martha, Under Secretary, U.S. Department of
Education, Washington, DC...................................... 65
Prepared statement........................................... 67
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
The Leadership Conference, Wade Henderson and Nancy Zirkin,
letter..................................................... 79
Williams & Connolly, LLP, Kevin T. Baine, letter............. 81
Eric Schmitt, letter......................................... 83
(iii)
DROWNING IN DEBT: FINANCIAL OUTCOMES OF STUDENTS AT FOR-PROFIT COLLEGES
----------
TUESDAY, JUNE 7, 2011
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:07 a.m. in
Room 430, Dirksen Office Building, Hon. Tom Harkin, chairman of
the committee, presiding.
Present: Senators Harkin, Mikulski, Hagan, Merkley,
Franken, Bennet, Whitehouse, and Blumenthal.
Opening Statement of Senator Harkin
The Chairman. The Health, Education, Labor, and Pensions
Committee will please come to order.
Four years ago America was caught off guard by the subprime
mortgage crisis. Fast talking sales people deceived consumers
into taking out loans that they knew would never be paid back
and financial speculators hid the risk and passed the debt off
to investors. What has become clear over the past year, through
this committee's investigation, is that there is a class of
subprime colleges within the for-profit sector that are doing
the exact same thing. Instead of packaging these loans into
securities and selling them to investors, this time they are
passing the debt off to American taxpayers in the form of
federally guaranteed student loans.
Both student debt and for-profit colleges have a place in
American higher education. I myself used a student loan to get
through school. Some for-profit colleges offer important
flexibility and an educational model that can work for students
who are seeking educational advancement while also balancing
jobs and family commitments. But there reaches a point where
the education provided does not match the cost of the debt. Let
me be clear, rising student loan debt is a problem for students
throughout higher education. This is an issue that has received
serious attention from this committee in recent years and will
continue to do so going forward.
So, why then is this hearing focused on for-profit colleges
and their loan debt? The answer is that for-profit colleges
have distinguished themselves by asking a higher percentage of
their students to borrow, more than any other sector of higher
education. Ninety-six percent of students at for-profit,
degree-granting colleges borrowed to pay for colleges, 96
percent, compared to 13 percent at community colleges, 48
percent at 4-year public and 57 percent at 4-year private
colleges.
How do so many students at for-profit colleges wind up with
debts they can't repay? First it starts with high tuition. I
will put the first chart up there, which you can see. For a 2-
year associate degree, this is for a 2-year associate business
degree, with an estimated annual earning power of around
$40,000 a year, at Corinthian's Everest College. Everest
charges over $46,000. ITT charges over $44,000. Westwood
College charges over $35,000. In each case a community college
nearby, offering a comparable program, costs between $6,000 and
$9,000 per year. So you can see the difference there from the
for-profits with the community college in the same associate
degree program.
Similarly, high tuition is found in the bachelor degree
program. That is for the associate degree programs. Now let's
look at the bachelor degree, 4-year programs. At ITT almost
$89,000. At Corinthian over $81,000. At Westwood over $70,000.
Meanwhile, a flagship public school, again in that State,
Colorado, Florida and Indiana, same programs, for $25,000 to
$40,000. Less than half as much.
In order to afford this high tuition, schools point their
students toward Federal loans. But many of these students are
having serious trouble repaying these loans. Look at chart
three. Close to one in four students at a for-profit school is
defaulting within 3 years and defaults by students at for-
profit schools account for 47 percent. If you see the pie chart
at the bottom, 47 percent of all student loan defaults. Keep in
mind, that the for-profit schools only have 10 percent of all
of the higher education students, yet they are accounting for
47 percent of the defaults. This next chart will show that. So
the share of enrollment, on the left, is about 10 percent of
the for-profit schools of all of the students in higher
education. But on the right bar graph the share of defaults is
about 50 percent, 47 percent to be exact.
One could ask how default rates could be this high. After
all, there is a law in place intended to penalize institutions
who students default in the 2 years after leaving school at
rates that consistently exceed 25 percent. So how does this
happen? The answer is that some for-profit schools have become
skilled at manipulating their default statistics. They have
either hired outside specialists or created its own units of,
``default management staff,'' who are paid to counsel students
into repayment options that ensure that students do not default
within the 2-year window when the government is watching.
This way schools are able to keep their default rates low
enough to avoid the Department of Education sanctions that
would limit their access to Federal financial aid. Later on,
after our witnesses testify, I have more charts and some
documents that I will introduce to the record that will show
how they do that. But managing the cohort default rates merely
delays default for some students and can result in a higher
debt when that default occurs.
If the cost of tuition is so high that it exceeds what a
student can borrow through the Federal Government, some schools
are equipped to offer their own loans. That is also happening
now and this is a chart that shows that. These are essentially
subprime loans carrying high interest rates and even higher
estimated levels of default.
Look, for example, at the top. The Federal Stafford Loan
Program, interest rate is 6.8 percent and I think the default,
if I can see it, is around 16 percent, if I am not mistaken. Go
on down the list. You will see Education Management
Corporation, their interest is 11.2 percent. Kaplan, 15, that
has been lowered, by the way, by Kaplan. Congratulations.
Career Education Corporation, 13. Corinthian, 18 percent. I
understand some of those, since we have come out with this,
have started to lower them.
But you can see the percentages that they are charging and
you can see the expected defaults. Fifty-five percent, 45
percent, 80 percent which the schools themselves estimate are
going to default, they estimate that that many will default and
yet they are making those loans. Which should raise a lot of
questions, if you are making those kinds of loans you expect
that big a default. We will get into that.
For example, in the next chart we took one school,
Corinthian. In 2009 and 2010 Corinthian Colleges lent $240
million to its students at an average interest rate of 13 to 15
percent with some students paying as much as 18 percent. For
comparison, the Federal Reserve calculated the average interest
rate on a credit card in 2009 at 13.4 percent. They would have
been better off just using their credit cards.
With their 14.8 percent average interest rate, Corinthian
sends a pretty clear signal about where their priorities are
when it comes to shareholders versus students. I suspect that
is why in 2010 as more and more attention was focused on this,
the company is lowering their average percent rate.
But I want to point out one other thing. That $240 million
that Corinthian loaned to its students at these high interest
rates, you might say, where did that money come from? Did it
come from Wall Street? Did it come from a bank? No, it came
from the taxpayers of this country. The taxpayers who gave
money to students to borrow. The students then turned the money
over to Corinthian. Corinthian has this big reserve. They
didn't pay anything for that money. Taxpayer money. What a
deal. Then they take that $240 million and they loan it out to
students at 13 to 15 percent.
Keep in mind, that is where the money came from. It didn't
come from some private investor. It came from the taxpayers of
this country. And yet they are making tremendous interest rates
by loaning it back out to students, even though they know that
a high percentage of those students are going to default.
But high interests rates only tell part of the story. In
their internal accounting companies estimate the percentage of
students who will default, as I have said, and in some cases
how much they expect to lose from these lending programs. The
internal documents that this committee has gotten over the last
year shows this. Corinthian estimates that 55 percent of its
students will default on their institutional loans. It is
seriously troubling that companies would find it acceptable to
make these loans with the knowledge that such a high percentage
of their students will be unable to repay them.
Think about it, if you were running a small community bank,
would you make loans to any entity that you knew 50 percent of
them would never pay it back? While the school knows these
loans are a terrible investment, the student has no idea they
are more likely to wind up with ruined credit than a college
degree and a good job. They don't know that these loans will
hang around their necks for the rest of their lives. They can't
discharge them in bankruptcy.
I have often said the difference between the subprime in
the mortgage industry and this is if you got a bad house, you
got a bad deal, you could walk away from it. You can't walk
away from these loans.
So behind each student loan default is a person who has an
unpayable debt hanging around his or her knee and too often
with no degree to show for it. Someone who may have to put off
or cancel plans to even continue their education, buy a home,
maybe even purchase health insurance or start a family. While
the Federal Government provides several flexible repayment
options, there is no way to walk away from your student loan,
like I said that you could with a mortgage.
Nor is it acceptable to simply blame these default rates on
the students and some of our documents show that internal
conversations among people at these colleges say, ``well it is
the student's fault.'' When a school enrolls a student, sets
their tuition, recommends that the students take out a loan,
the school is making a de facto investment recommendation to
that student. Because schools are so focused on their default
rates, they are in the best position to know whether the
student is likely to succeed academically, earn a degree that
will actually help them secure a good job and be able to repay
their loans. They are in the best position to know that.
For those who would say that holding schools accountable
for whether those students repay their loans will discourage
them from enrolling low-income and minority students. If they
say that, I have this in return to say. Access to debt is not
the same thing as access to the opportunity offered by a good
education. States have designed a national network of low cost,
open access community colleges to make sure that students who
have a low probability of graduating are able to try out higher
education with very little financial risk. Quite frankly, we
should be looking for ways to assist community colleges, to
assist them in their efforts, in their open access, to help
students who may have gone through high school not with A's and
B's but maybe C's or lower but who now want to renew
themselves, want to continue their education, want to better
themselves. We should be assisting them, not looking for ways
to enhance more profits for Wall Street investors.
That is not access. I think this is really the second
coming of the subprime crisis. At a time when we are focused on
Federal debt, how can we just maintain policies that foot the
bills for students to attend schools that have proven to be
such a bad investment?
In 2009 for-profit colleges received $18 billion in
guaranteed student loans. If trends continue we can expect
nearly half of those to default. This should not be acceptable
to those of us who are stewards of taxpayers' dollars. High
default rates mean ruined credit and garnishing wages for
students and more spending for taxpayers.
In closing I would just say the Department of Education has
taken a modest first step toward addressing this program with
the newly final gainful employment rule. I know that we had all
been looking forward to hearing from Secretary Duncan, but
unfortunately he is ill and he will not be able to join us. I
am sure he will recover soon.
We are pleased to have the Under Secretary for Education,
Martha Kanter, with us, on very short notice and appreciate her
deep expertise on higher education and access for low-income
and minority students.
This is the committee's fifth hearing on for-profit
education companies. The hearings have each helped to give us a
much more clear picture of how this industry operates, how it
serves students and taxpayers. I look forward to engaging with
parties on all sides as we move forward, using the information
gathered to date into new legislative protections, new
legislative protections for students and taxpayers.
I believe it is clear that more needs to be done to ensure
that taxpayer dollars are being used wisely, to ensure that
for-profit colleges are actually fulfilling their commitment to
provide a quality education that leads to better jobs and
economic advancement.
I would ask consent at this time to place in the record
documents that have been produced to the committee on the
subjects we are covering today.
Without objection. So ordered.
[The information referred to can be found at
www.harkin.senate.gov; click on: Issues & Agenda; then For-
Profit College Investigation; Hearings; hearing title; charts
and/or documents.]
The Chairman. Before we get started I would like to just
take a moment to introduce our witnesses here today.
On the first panel, from left to right, Dr. Sandy Baum who
is an independent higher education analyst/consultant,
professor emeritus of economics at Skidmore College. She is the
author of The College Board's Annual Trends in Student Aid and
Trends in College Pricing and is an expert on college
affordability and student debt. We appreciate your being here.
Next, we have Mr. Wade Henderson, President and CEO of the
Leadership Conference on Civil and Human Rights and the
Leadership Conference Education Fund. Mr. Henderson is a well-
respected leader in the civil rights committee, leads a
coalition of more than 200 national organizations to promote
and protect the civil and human rights of all persons in the
United States. We appreciate your being here, Mr. Henderson.
Next we have Mr. Eric Schmitt from Hampton, IA. Mr. Schmitt
holds a bachelor degree in paralegal studies from Kaplan
University in Cedar Falls, IA and will discuss the challenges
he has faced with the debt resulting from that degree. We
appreciate your being here.
Finally we have Pauline Abernathy from the Institute for
College Access and Success and the Project on Student Debt. In
her capacity as vice president she oversees national policy and
advocacy strategy for the Institute. This will be our first
panel.
The second panel, as I said, will be Under Secretary for
Education, Martha Kanter.
Senator Mikulski. Mr. Chairman, may I----
The Chairman. I would yield to Senator Mikulski.
Statement of Senator Mikulski
Senator Mikulski. Thank you, Mr. Chairman. If I could just
say a few words. I might have to leave before my opportunity to
raise questions, though I am going to hear all the witnesses.
I want to thank you for your aggressive leadership in
bringing this matter to our attention and it is an issue that
does demand it. I believe that higher education is a very
important right in our country. That if you want to work hard,
you should be able to learn so that you can get a degree or a
certificate that no one can ever take away from you. In our
country I believe in opportunity and choice, but I also believe
that we have to be stewards.
We understand that Federal grants and student loans have
made educational opportunity a reality for generations. The
financial risk is taken on by the student and by the taxpayer,
so we need to make sure that we have a set of rules for who we
help that doesn't add to student debt that is then crushing and
then doesn't add to the Federal Government debt--what we think
is creating opportunity is a hollow opportunity.
I do believe in choice because I am a product of a small
Catholic liberal arts school, I got my masters degree from a
great public land grant university, the University of Maryland.
I taught at a Jesuit College. I taught at a community college.
I taught day school. I taught night school. And my students
taught me a lot.
Therefore, when you look at just the array of where I had
the opportunity to teach, and where I had an opportunity to
learn shows quite a cornucopia of choice in our country, which
we would want to preserve.
I also don't believe in gouging and profiteering. This is
what I am concerned about, that while we are looking for choice
and opportunity, there is profiteering. I am deeply troubled by
what I see on these charts, particularly in the way that it
could affect poor and minority students and the way it could
affect our returning veterans who think that they have a GI
bill. I don't want that to turn into a hollow opportunity.
I look forward to working with you, because we do need
clear rules of the game. We do need reform. But I also think we
need to look at why do these students turn to these profit-
making colleges? They obviously fill a niche. They obviously
recruit students in a unique way. I think we need to look at
why do they go there for such an enormous amount of debt and
what niche do they fill and where are we in the community
college. I won't take this opportunity, because we do want to
go to the witnesses.
But, Mr. Chairman, when I go around and talk to my Maryland
constituents, I meet a lot of young people who took one course
or one semester at a college. They dropped out to either make
money or any number of reasons. By the time they lurch around
for what they think is one opportunity to one other, they do
not have an academic home, the only consistent thing is their
student debt.
Why aren't the community colleges filling more? Is it
capacity? Is it the way community colleges are organized? I am
a big fan of community colleges. I think we need to look at the
niche that they fill and examine what other institutions could
fill that niche.
I think there is a lot to learn and as always we learn from
the students who are the most affected. But I look forward to
working with you on a clear set of rules of the game, reform
and maintaining choice and opportunity but not profiteering and
gouging.
The Chairman. Senator Mikulski, thank you very much for
that very profound statement and I can assure we are going to
lean on your expertise and your background to help us as we
develop legislation, as you say, to make sure that we have
choice and open access. I look forward to discussing with you
the, perhaps an expanded role for community colleges in this
niche, which they haven't fulfilled and perhaps we need to look
at how we help them do that. I look forward to working with you
on that Senator Mikulski.
We welcome our panel. I have already introduced our
witnesses. We will start from left to right. All of your
statements will be made a part of the record, in their
entirety. I would ask you to sum it up in 5 to 7 minutes, the
key points, so that we can get into an exchange. I would
appreciate it.
Ms. Baum, we will start with you and please proceed.
STATEMENT OF SANDY BAUM, INDEPENDENT HIGHER EDUCATION ANALYST
AND CONSULTANT, CHICAGO, IL
Ms. Baum. OK. Thank you, Senator Harkin, members of the
committee. I appreciate having the opportunity to be here today
and talk with you about this very important issue of student
debt and for-profit colleges.
The Senators have made some very important points. I won't
repeat all of them, but I do think it is important to begin by
saying that I am a strong advocate of student loans. I think
borrowing is a very reasonable and appropriate way for students
to finance part of their postsecondary education. One of the
reasons that I am so concerned about what is being discussed
here today is because I think that the whole student loan
program is actually at risk and the opportunities generated for
students are at risk because of some of the abuses that are
occurring.
I also believe that the for-profit sector of postsecondary
education has an important role to play. It is not that it is
bad for there to be some sort of profit going on in education
and it is very clear that there are some things that some for-
profit institutions do that provide opportunities for students
that they are unable to find elsewhere.
That said, the combination of student debt and for-profit
institutions is just not working. It is causing severe problems
for students who are accumulating inordinate amounts of debt,
it is causing severe problems for taxpayers who can't afford to
be wasting money in the ways that many of these dollars are
being wasted, and it is not working for the institutions
themselves.
I would think that the for-profit institutions that are
doing well for their students would be in the front of the line
of people concerned about improved oversight of the industry so
that students will be directed into institutions that really
can serve them, instead of those that are exploiting them.
It is very important that we address this issue and address
it carefully. You have presented a lot of data, I know other
witnesses will present a lot of data and I have a lot of data
in my written testimony, so I won't focus on data. I would like
to point out a few numbers. It is very important to recognize
that almost all students in the for-profit sector borrow, that
is just not true in other sectors of higher education. So
virtually no one attending for-profit institutions is actually
paying with their own money. Virtually no one has parents who
are paying, because the people who attend for-profit
institutions, the vast majority are independent students whose
parents aren't in the picture. Most of them come from low-
income backgrounds, most of them just don't have much money of
their own.
Among bachelors degree recipients who received their
degrees in 2007-8, 60 percent of those from the for-profit
sector graduated with more than $30,000 of debt. Only 12
percent of those with degrees from the public sector had that
much debt. Two-thirds of those students who received associate
degrees in public colleges had no debt when they graduated,
only 2 percent of those in the for-profit sector had no debt.
Completion rates for bachelors degrees in the for-profit
sector are stunningly low. In less than 2-year programs and
certificates they do much better, and this may be one of the
important roles for for-profits in the future.
The default rates, as you have noted, are extremely high in
the for-profit sector. I think it is important to note that
when you look at the default rates on student loans for the
for-profit sector, that is approximately the percentage of
students who are defaulting. But when you look at default rates
for other sectors, particularly for community colleges, so few
students borrow that the default rate for students is much
lower than the default rate for borrowers.
The for-profit institutions frequently talk about the
demographics of their students and say the reason that our
students borrow so much and the reason that they default so
much is because of their demographics, they come from low-
income families. They do. But the fact is that if you control
for income, if you look at people within any race, ethnicity
group, in the for-profit sector students borrow much more money
and default with much more frequency than similar students in
other sectors.
For-profit institutions are different. If it weren't that
it is different to produce things in the for-profit sector, you
wouldn't have all the free-market advocates complaining about
the role of government. Of course it is different. It is the
fiduciary responsibility of the owners and of the managers of
for-profit publicly held enterprises to maximize profit for
their shareholders. It is not because they are bad people, that
is what they have to do. The interests of students can't be at
the forefront for them.
This is not a matter of government versus free market. This
is not a free market. This is government funding and it is a
market characterized by abysmally poor information. The growth
in the for-profit sector cannot be explained by consumers just
making a choice that maximizes their utility. Consumers just
don't have the information. The students choosing these
institutions don't have parents who went to college, they don't
have qualified high school counselors helping them to make
decisions. Someone has to help them with better information so
that they will make wiser decisions.
What we are doing--we have a complicated system of
financing higher education and we subsidize students in public
institutions, maybe not enough, but heavily. But the subsidies
we are giving in the for-profit sector are arbitrarily
distributed. You default on your student loan, you get a
subsidy. This is not the way the government should be
allocating its funds. We should do it consciously and
carefully.
So, we need student loans. We need for-profit institutions
but for-profit institutions can do better. They won't do better
on their own, their goal is to maximize profits, it has to be.
We need to change the incentives facing these institutions. We
need to provide the consumers, the students, with much better
information about the prospects they face when they attend
these institutions.
We risk a very well conceived and effective program, the
student loan program, if we don't do better at monitoring how
students are using these loans and how institutions are
allocating these loans.
So, I welcome your questions after the other testimony.
Thank you.
[The prepared statement of Ms. Baum follows:]
Prepared Statement of Sandy Baum
summary
The problem of student debt among students at for-profit
postsecondary institutions is not a matter of free markets versus
government intervention. The market for higher education does and
should rely heavily on market forces. But it is not and never will be a
textbook example of competitive markets. The for-profit sector, which
has the potential to make important contributions to educational
opportunities in the United States, relies on the Federal Government
for most of its revenues. Virtually all students borrow heavily to
study in this sector. Almost half of the institutions in this sector
have official student loan default rates over 20 percent. Some
institutions in this sector successfully meet the needs of their
students but they are a dwindling portion of the sector. Unfortunately,
the rapid enrollment growth in this sector does not reflect informed
consumer response to a high quality product. With more transparency and
more consumer protection, the for-profit sector will be able to make
greater contributions to our educational system without damaging the
futures of so many vulnerable students.
There is overwhelming evidence that large numbers of students,
particularly students from low-income backgrounds, are suffering great
hardship as a result of the excessive borrowing required to finance
their enrollment in for-profit institutions. Institutions that leave
students worse off than they were when they arrived are the exception
in the public and private nonprofit sectors. Unfortunately, they appear
to be the norm in the for-profit sector.
The character of the for-profit sector has changed as it is
increasingly dominated by large, publicly held companies that are
compelled by shareholders to maximize profit. Where it exists, good
will and social consciousness on the part of the officers of these
companies can only go a limited distance in determining how the firms
operate.
Students who enroll in institutions or programs that graduate few
of their students or that succeed in placing only a small percentage in
remunerative positions in the fields for which they have been trained
are playing the lottery. Our political philosophies might lead us to
debate whether or not we should prevent them from playing this lottery.
But it is difficult to come up with sound principles of public policy
that would support our subsidizing them to play this lottery.
Few students pay with their own money to enroll in these
institutions. The independent students and dependent students from low-
income families who predominate at for-profit institutions are those
most likely to be making their educational choices without the advice
of college-educated parents or well-trained counselors. They deserve
added consumer protection, rather than maximum opportunity to make
decisions with a high probability of damaging their futures.
The existence of a robust Federal student loan program is a tribute
to our Nation's commitment to post-secondary educational opportunity.
Higher education is the best investment most young people can make. We
certainly don't want to discourage students who are not virtually
assured of success from taking the risk of enrolling. But that doesn't
mean we should encourage every student to pursue whatever educational
path might tempt them.
______
The title of this hearing suggests two major areas of concern. One
is the impact of education debt on students. The other is the role of
for-profit colleges in serving a growing portion of the postsecondary
population. Student loans are an important and justified component of
our higher education financing system. For-profit colleges provide a
valuable alternative for some students and some institutions in this
sector engage in some practices that public and private nonprofit
colleges would be wise to emulate. But there is overwhelming evidence
that large numbers of students, particularly students from low-income
backgrounds, are suffering great hardship as a result of the excessive
borrowing required to finance their enrollment in for-profit
institutions. It is easy to find individual success stories in this
sector, just as it is easy to find individual stories of over-borrowing
and failure in the nonprofit sectors. But these anecdotes can't change
the compelling story told by the data. Borrowing large sums of money to
enroll in the for-profit sector is a ticket to personal crisis for a
large proportion of students. Institutions that leave students worse
off than they were when they arrived are the exception in the public
and private nonprofit sectors. Unfortunately, they appear to be the
norm in the for-profit sector.
In this testimony, I will begin by summarizing some of the data on
student debt across postsecondary sectors and will then analyze why we
face this very serious problem and suggest constructive ways of
approaching it.
student borrowing patterns
Table 1.--Student Loan Debt of 2007-8 Degree and Certificate Recipients
----------------------------------------------------------------------------------------------------------------
Degree Degree Degree
recipients recipients recipients Average
Median with with Non- with any Average Non- Average
2007-8 loan debt Federal Federal education Federal Federal total
(2007-8) loans (In loans (In loan (In loan debt loan debt loan debt
percent) percent) percent)
----------------------------------------------------------------------------------------------------------------
Bachelor's degree............... $20,000 62 33 66 $17,800 $12,600 $23,100
Public 4-Year................. $17,700 58 28 62 $16,900 $9,800 $20,200
Private 4-Year................ $22,400 69 42 72 $18,700 $16,900 $27,600
Private For-Profit............ $32,700 94 64 96 $25,900 $11,500 $33,100
Associate's degree.............. $10,000 43 22 48 $11,100 $7,000 $13,300
Public 2-Year................. $7,100 33 15 38 $9,000 $5,700 $10,100
Private For-Profit............ $18,800 97 60 98 $14,700 $8,400 $19,700
Certificate..................... $9,000 58 34 63 $8,900 $5,900 $11,300
Public 2-Year................. $6,500 24 12 30 $8,900 $4,500 $8,800
Private For-Profit............ $9,700 85 51 90 $8,600 $5,900 $11,500
----------------------------------------------------------------------------------------------------------------
Source: National Postsecondary Student Aid Study 2008.
As Table 1 indicates, 62 percent of 2007-8 bachelor's degree
recipients graduated with student debt. The median debt among borrowers
was about $20,000. Among those who received their degrees from for-
profit institutions, 96 percent had debt and the median amount they
borrowed was $32,700. Most of these students took Federal loans, but
two-thirds of the 4-year college graduates from this sector also relied
on non-Federal loans, which carry higher interest rates and lack the
repayment protection provisions of Federal student loans.
Averages hide important differences among students. While the
typical college graduate has a manageable amount of student debt and a
credential that will pay off well in the labor market, there are too
many exceptions to this pattern. These exceptions are highly
concentrated in the for-profit sector.
Table 2.--Distribution of Total Undergraduate Debt by Sector and Type of Degree of Certificate, 2007-8
----------------------------------------------------------------------------------------------------------------
Less than $10,000 to $20,000 to $30,000 to
No debt $10,000 $19,999 $29,999 $39,999 $40,000 or
[In [In [In [In [In more [In
percent] percent] percent] percent] percent] percent]
----------------------------------------------------------------------------------------------------------------
Bachelor's Degree:
Public 4-Year......................... 38 16 19 14 6 6
Private Nonprofit 4-Year.............. 28 10 19 17 10 15
For-Profit............................ 4 4 12 23 33 24
Associate's Degree:
Public 2-Year......................... 62 23 9 3 1 1
For-Profit............................ 2 22 34 23 13 6
Certificate:
Public 2-Year......................... 70 21 7 1 1 0
For-Profit............................ 10 46 34 8 2 1
----------------------------------------------------------------------------------------------------------------
Note: Data include Federal loans, private loans, and loans from States and institutions. Parent PLUS Loans,
credit card debt, and loans from friends and family are not included. Percentages may not sum to 100 due to
rounding. Data include students who attended less than half-time (13 percent of students), and who do not
qualify for Stafford loans but do qualify for some non-Federal loans.
Source: NPSAS, 2008.
While many students in other sectors graduate without debt, this is
not the case in the for-profit sector. Moreover, as reported in Table
2, 57 percent of 2007-8 bachelor's degree recipients from this sector
graduated owing $30,000 or more. In contrast, 25 percent of those who
earned their degrees in the private nonprofit sector and 12 percent
from the public sector borrowed this much. Over 60 percent of the
students who earned associate degrees from public 2-year colleges
graduated debt-free. Only 2 percent of those earning associate degrees
and 10 percent of those earning certificates from for-profit
institutions were in this situation. While only 5 percent of public
sector AA degree recipients owed as much as $20,000, 42 percent of
those from the for-profit sector had this much debt.\1\
---------------------------------------------------------------------------
\1\ Sandy Baum and Patricia Steele, ``Who Borrows Most? '' The
College Board, 2010.
Table 3: Median Debt of 2007-8 Bachelor's Degree Recipients, by Dependency Status and Income
----------------------------------------------------------------------------------------------------------------
Dependent Student Family Income
-------------------------------------------------------------------
$30,000 $60,000 $90,000
Less than to to to $120,000 Independent
$30,000 $59,999 $89,999 $119,999 or higher students
----------------------------------------------------------------------------------------------------------------
Public 4-Year............................... $16,500 $17,400 $17,000 $16,300 $14,500 $20,000
Private Nonprofit 4-Year.................... $21,000 $23,100 $21,100 $22,000 $18,000 $24,600
For-Profit.................................. $30,500 $24,600 $34,600 $28,000 $34,300 $32,700
Percentage with Debt:
Public 4-Year............................. 68% 69% 61% 52% 40% 68%
Private Nonprofit 4-Year.................. 84% 83% 75% 68% 74% 74%
For-Profit................................ 99% 99% 99% 99%* 99%* 95%
----------------------------------------------------------------------------------------------------------------
Source: NPSAS 2008.
Students from affluent families are less dependent than others on
borrowing to finance their education. The same is true for independent
students. In 2007-8, 80 percent of the undergraduate students enrolled
in the for-profit sector were independent, relying only on their own
resources and financial aid, primarily from the Federal Government.
Fewer than 60 percent of public 2-year college students were in this
category. About half of the dependent students enrolled in for-profit
institutions came from families with incomes below $40,000. This
compared to 35 percent in 2-year public colleges and about 25 percent
in 4-year public institutions.\2\
---------------------------------------------------------------------------
\2\ Sandy Baum, Jennifer Ma, Kathleen Payea, Education Pays 2010,
The College Board.
---------------------------------------------------------------------------
However, as shown in Table 3, controlling for dependency status and
income leaves wide differences in the borrowing patterns across
sectors. Because very small numbers of dependent students from affluent
families enroll in for-profit institutions comparisons of low-income
students are more meaningful. The 68 percent of dependent students from
families with incomes below $30,000 who borrowed for the bachelor's
degrees they earned from public colleges in 2007-8 had median debt of
$16,500. The 99 percent of students from this income category who
borrowed for the bachelor's degrees they earned from for-profit
colleges had median debt of $30,500. Independent students graduated
with median debt of $20,000 from public colleges, $24,600 from private
nonprofit colleges and $32,700 from for-profit colleges.
Among low-income Hispanic students, 43 percent of 2007-8 for-profit
bachelor's degree recipients had debt exceeding $30,500. This was true
of 22 percent of those earning degrees in the private nonprofit sector
and only 1 percent of those who graduated from public colleges and
universities.\3\
---------------------------------------------------------------------------
\3\ Patricia Steele and Sandy Baum, ``Who Borrows Most? '' The
College Board, 2010.
---------------------------------------------------------------------------
The large numbers of students who enroll in postsecondary
institutions but never earn a degree or certificate are not included in
these data on the debt levels of graduates. Bachelor's degree
completion rates are much lower in the for-profit sector than in other
sectors. Of first-time full-time students who began studying for a
bachelor's degree at a 4-year institution in 2002, 57 percent earned a
B.A. at the institution at which they began within 6 years. Completion
rates averaged 65 percent at private nonprofit, 55 percent at public 4-
year, and 22 percent at private for-profit institutions.
Among students at for-profit 4-year institutions, 16 percent of
blacks and 28 percent of Hispanics who enrolled in 2002 had earned a
bachelor's degree 6 years later. Among those who enrolled at public 4-
year colleges and universities, 39 percent of blacks and 46 percent of
Hispanics had earned degrees. The gaps between completion rates for
black first-time full-time students and those for white and Asian
students are larger in the for-profit sector than in the public and
private nonprofit sectors.\4\
---------------------------------------------------------------------------
\4\ NCES, Beginning Postsecondary Students 2009, http://
nces.ed.gov/datalab/index.aspx.
---------------------------------------------------------------------------
The story for shorter-term institutions, which enroll just over
one-third of students in the for-profit sector, is much more
encouraging for that sector. Reported completion rates for 2-year
institutions include both 2-year degrees and certificates earned over
shorter periods of time. These completion rates for students who began
their studies in 2004 were highest in the for-profit sector, where 60
percent of full-time students completed their credentials within 3
years, compared to 50 percent of those in private nonprofit and 22
percent of those attending public 2-year colleges.
Table 4.--Percentage Borrowing and Average Amounts Borrowed Among All Students and Among Full-Time Students by
Dependency and Sector, 2007-8.
----------------------------------------------------------------------------------------------------------------
Average Average Private
Percent Percent Average Federal Percent Average private loans as a
with with Federal loan with private loan percentage
any Federal loan per per private loan per per of total
loan loans borrower student loans borrower student borrowed
----------------------------------------------------------------------------------------------------------------
Full-Time Students:
All Students.................... 54 50 $5,400 $2,700 19 $7,800 $1,500 36
Dependency:
Dependent..................... 50 46 $4,800 $2,200 18 $8,400 $1,500 41
Independent................... 65 62 $7,000 $4,300 23 $6,300 $1,500 25
Sector:
Public 4-Year................. 54 50 $5,200 $2,600 15 $7,000 $1,100 29
Private Nonprofit 4-Year...... 66 62 $5,600 $3,500 28 $10,200 $2,900 45
Public 2-Year................. 23 20 $4,100 $800 7 $4,400 $300 26
For-Profit.................... 92 88 $6,400 $5,700 43 $7,100 $3,100 35
----------------------------------------------------------------------------------------------------------------
Source: Patricia Steele and Sandy Baum, ``How Much are College Students Borrowing,'' The College Board, 2009;
NPSAS, 2008.
The annual borrowing data reported in Table 4 include both those
students who will go on to earn degrees and those who will not. In
2007-8, when 54 percent of all full-time students relied on loans to
finance their studies and 19 percent borrowed from private sources, 92
percent of those enrolled in for-profit institutions borrowed and 43
percent took private loans. Full-time for-profit students borrowed an
average of $5,700 in Federal loans and $3,100 in private loans per
student. Those enrolled in private nonprofit colleges and universities
borrowed an average of $3,500 in Federal loans and $2,900 in private
loans per student. The parallel figures for public 4-year colleges were
$2,600 and $1,100 and public 2-year college students borrowed only an
average of $800 in Federal loans and $300 in private loans.
default rates
In fiscal year 2009, the official default rate for for-profit 4-
year institutions was 16 percent. For 4-year colleges in the public and
private nonprofit sectors it was 5 percent. The default rate for for-
profit 2-year schools was 15 percent. For public 2-year colleges it was
12 percent.\5\ But as noted above, a relatively small percentage of
students in this sector rely on student loans. While the default rate
for for-profit institutions is a close approximation of the percentage
of students from that sector who have defaulted on loans, the default
rate for community colleges has to be divided by 3 or 4 to arrive at an
estimate of the percentage of students from that sector who default.
---------------------------------------------------------------------------
\5\ http://www.ifap.ed.gov/eannouncements/attachments/
052011AttachFY2009FY2009_Draft
NationalCDRWith Prior2yrscomparison.pdf.
---------------------------------------------------------------------------
Students at some private nonprofit colleges accumulate high debt
levels because of high sticker prices and inadequate institutional aid.
However, these schools are few and far between. Out of 1,635 private
nonprofit schools, 30 have a default rate over 30 percent. Students
enrolled in these 30 schools constitute 1.1 percent of all private
nonprofit enrollment and account for 0.8 percent of all private
nonprofit students in repayment and 4.3 percent of all private
nonprofit defaults. Ninety-three colleges in this sector--6 percent of
the total--have a default rate over 20 percent. Students enrolled in
these 93 schools constitute 8.6 percent of all private nonprofit
enrollment, and account for 5.2 percent of all private nonprofit
students in repayment and 20.2 percent of all private nonprofit
defaults.
In contrast, out of 1,806 for-profit schools, 273 have a default
rate over 30 percent. Students enrolled in these schools constitute
13.8 percent of all for-profit enrollment and account for 15.1 percent
of all for-profit students in repayment and 24.6 percent of all for-
profit defaults. A startling 792 for-profit schools--44 percent of the
total--have a default rate over 20 percent. Students enrolled in these
schools constitute 68.6 percent of all for-profit school's enrollment
and account for 66.8 percent of all for-profit students in repayment
and 79.2 percent of all for-profit defaults.\6\
---------------------------------------------------------------------------
\6\ Data provided by staff of the U.S. Senate Committee on Health,
Education, Labor, and Pensions in May 2011.
---------------------------------------------------------------------------
Student loan default is a very real problem for the Federal
Government. The problem is not just loss in taxpayer dollars. Our
education financing system is far from perfect, but we have made
choices about relying on general subsidies from State and local
governments to public institutions and on targeted Federal subsidies to
individual students, combining loans with grants. Loans that are not
repaid end up as subsidies to students allocated partially on the basis
of financial difficulty, but also on the basis of some combination of
failure to succeed in the educational system and failure to manage
responsibilities. But student loan default is an even bigger problem
for individuals. A student who ends up not benefiting from his
education who either did not borrow or borrowed a small amount has lost
time, a financial investment, and an opportunity. But a similar student
who ends up defaulting on her loans will be plagued by much larger
financial problems for years to come.
how is the for-profit sector different from other postsecondary
sectors?
The prevalence of high debt levels and high default rates in the
for-profit sector justifies a focus on this sector. Individual
institutions and categories of students in other sectors who are in
similar circumstances also merit particular attention. But it is worth
thinking analytically about why so many problems are concentrated in
for-profit institutions. Too much of the debate on this issue is tinged
with ideology. Are critics of the sector opposed to market forces or to
the idea of profits? Are owners, managers and supporters of the sector
evil people who cannot see beyond their own pocketbooks?
The reality is that the fundamental purpose and structure of for-
profit entities differs from that of public and nonprofit entities. If
the outcomes of these structures could not be differentiated,
proponents of the free market would not be such strong opponents of a
larger role for government in the production of goods and services. The
market works very well for our economy and our society in many cases.
But it is not difficult to see that all market outcomes are not
optimal. We have seen all too well in recent years the dangers of
inadequate consumer protection, inadequate information, and inadequate
regulation of financial markets. By definition, for-profit enterprises
are run with the goal of maximizing profits. Managers have a fiduciary
responsibility to make the interests of owners their primary focus.
When the for-profit sector was smaller, it consisted largely of
small privately owned institutions. Some owners of for-profit colleges
founded their institutions to provide specific opportunities to
specific types of students and are deeply committed to the well-being
of their students. But the sector is increasingly dominated by large,
publicly held companies. Where it exists, good will and social
consciousness on the part of the officers of these companies can only
go a limited distance in determining how the firms operate. Comparison
of compensation levels in the three major sectors of postsecondary
education is instructive. Average compensation for the five highest-
paid public university chief executives in 2009-10 was $860,000. The
five highest-paid Ivy League presidents received an average of $1.3
million in 2008-9. The top five leaders of publicly traded for-profit
postsecondary institutions received an average of $10.5 million in
2009.\7\
---------------------------------------------------------------------------
\7\ http://chronicle.com/premium/stats/990/private/
private.php?year=2009&Order=pay; http:
//chronicle.com/article/Sortable-Table-Compensation/126965/; http://
chronicle.com/article/Graphic-CEO-Compensation-at/66017/.
---------------------------------------------------------------------------
In our market economy, firms have to continue to grow in order to
be appealing to investors. Between fall 2000 and fall 2009, full-time
enrollment in degree-granting institutions in the for-profit sector
increased from 366,000 to 1.5 million. In just 9 years, the sector went
from enrolling 4 percent of full-time students (and 3 percent of all
students) to enrolling 11 percent of full-time students (and 9 percent
of all students). Among students in this sector, 61 percent are
enrolled in institutions that offer 4-year degrees, 24 percent are in
2-year institutions, and 15 percent attend less-than-2-year
institutions.\8\
---------------------------------------------------------------------------
\8\ Sandy Baum, Kathleen Little and Kathleen Payea, ``Trends in
For-Profit Postsecondary Education'', The College Board, forthcoming.
---------------------------------------------------------------------------
Among students who earned bachelor's degrees, 76,000 (5 percent of
the total) came from the for-profit sector in 2007-8. The for-profit
sector awarded 127,000 associate degrees--17 percent of the total. In
2008-9, students in the for-profit sector received 25 percent of all
subsidized and 28 percent of all unsubsidized Stafford Loans.\9\
---------------------------------------------------------------------------
\9\ The College Board, Trends in Student Aid 2010.
---------------------------------------------------------------------------
Economic theory suggests that market forces lead to efficient
outcomes if certain stringent conditions are met. These conditions
include the absence of significant externalities--the costs and
benefits of the product or activity must accrue to the direct
participants without significant impact on others--and notably, perfect
information. Consumers must have the information necessary to make
sound judgments about which products and services will meet their
demand. They must understand the characteristics of what they buy, how
the products and services produced by different firms compare, and the
prices they will pay. The rapid growth in enrollments in the for-profit
sector is not just a reflection of increased demand. It's not that so
many students are suddenly making informed decisions about the best way
to realize their educational dreams. A combination of aggressive
recruiting and the growing funding and space constraints in the public
sector have changed the way students perceive their options.
The market for higher education meets few of the requirements for
perfect competition. Students can't buy one, try it, and buy a
different brand next time if they are unhappy with the outcome. There
is little market incentive for producers to provide thorough and
accurate information because they do not rely on repeat customers and
once students make a choice, it is likely to take them a long time--and
a lot of payments--before they learn the true properties of what they
have purchased.
Well-designed consumer protection makes market forces work more
effectively. It doesn't make sense to have students give up large
amounts of time, energy, and money to test for themselves whether
institutions offer reasonable education and training. Postsecondary
education is an investment that typically provides a high rate of
return to both the students who participate and to society as a whole.
But it can be a risky investment. If we subsidized only students who
have a very high probability of succeeding and seeing their investment
pay off handsomely, we would fail to provide opportunities to many
individuals who cannot afford them on their own. We know some students
will fail, either because they aren't up to the task or because
circumstances interfere with their success.
But we shouldn't subsidize students to play the lottery. Students
who enroll in institutions or programs that graduate fewer than 20
percent (or 15 percent or 30 percent) of their students or that succeed
in placing only a small percentage of their students in remunerative
positions in the fields for which they have been trained are playing
the lottery. They are making a significant investment in an undertaking
that has a stunningly low probability of success. Our political
philosophies might lead us to debate whether or not we should prevent
them from playing this lottery. But it is difficult to come up with
sound principles of public policy that would support our subsidizing
them to play this lottery. Unfortunately, even the best available
information is unlikely to discourage the most vulnerable students from
playing the lottery with a combination of taxpayer funds and funds they
will only have to pay off in a vague and distant future.
public subsidies
There is nothing inherently wrong with people making profits from
providing education. And no doubt there are some efficiencies in the
for-profit sector that could, if applied in other sectors, both improve
the learning experiences of students and reduce the cost of providing
those experiences. But holding up this sector as an example of market
forces at work is simply inaccurate. Many institutions in this sector
receive close to 90 percent of their revenues from Federal student aid.
That number is actually higher if the Federal funds that are excluded
under the 90/10 regulations are considered. Very few students are
actually paying with their own money to enroll in these institutions.
Why is it that only independent students and dependent students from
low-income families choose the for-profit sector? Don't these
particularly vulnerable students, who are most likely to be making
their educational choices without the advice of college-educated
parents or well-trained counselors deserve added consumer protection,
rather than maximum opportunity to make decisions with a high
probability of damaging their futures?
Surely there should be better regulation of an industry that is so
heavily financed by taxpayers and that has such a dramatic influence on
the lives of so many Americans--particularly vulnerable Americans.
Advocates of the sector frequently contend that restrictions on their
institutions will deprive low-income students of educational
opportunities. But if these opportunities lead to heavy debt burdens
and questionable credentials, they are not opportunities in any
meaningful sense of the word. Is it wrong to regulate payday lenders
because it might deprive vulnerable individuals of the right to borrow
money at extraordinary interest rates and generate debts they will
never be able to repay? Is it wrong to regulate car dealers because we
might deprive consumers of purchasing cars that have every likelihood
of self-destructing on the road? Institutions in the for-profit sector
that are serving their students well should be first in line arguing
for protection against their colleagues whose drive for profits is
exploiting students and undermining our ability to use market forces to
the fullest to further our educational goals.
conclusion
Encouraging students to pursue postsecondary education is vital to
the future of our Nation and to the futures of individual students,
particularly those who come from environments where they have limited
resources and limited educational experiences. The only way we can
succeed in providing the educational opportunities our diverse
population requires is to assure the health and stability of a variety
of postsecondary institutions serving a variety of needs.
Many people concerned with improving educational opportunities
speak of student debt as though it were a blight on the higher
education landscape and a clear sign of the moral weakness of our
society. In fact, the existence of a robust Federal student loan
program is a tribute to our Nation's commitment to post-secondary
educational opportunity. Higher education is the best investment most
young people can make. No one would suggest that people refrain from
starting well-conceived and well-researched small businesses if they
don't have the cash up-front. The idea is that the investment will pay
off over time--enough to repay the necessary loans and then some.
Comparisons of the success rate for investments in college and
investments in small businesses overwhelmingly favor college.
But college does not turn out to be a good investment for everyone
who tries it. We certainly don't want to discourage students who are
not virtually assured of success from taking the risk of enrolling. But
that doesn't mean we should encourage every student to pursue whatever
educational path might tempt them. We should certainly think carefully
about the incentives we provide students and about the extent to which
we protect them against risk.
For-profit institutions are capable of improving student outcomes.
In fact, in anticipation of greater government regulations, some
institutions have taken steps to restrict the enrollment of students
with little chance of succeeding, to counsel students more effectively
about borrowing, and to find other ways of reducing their attrition and
default rates. But they won't take these steps on their own. The
students who unwittingly become the victims of the drive for profits
cannot wait for solutions far in the future.
Debating how best to resolve the problem of student debt among
students who enroll in for-profit postsecondary institutions should not
be a debate about free markets versus government intervention. The
market for higher education does and should rely heavily on market
forces. But it is not and never will be a textbook example of
competitive markets. The for-profit sector, which has the potential to
make important contributions to educational opportunity in the United
States, relies on the Federal Government for most of its revenues.
Virtually all students borrow--and borrow heavily--to study in this
sector. Almost half of the institutions in this sector have official
student loan default rates over 20 percent. Some institutions in this
sector successfully meet the needs of their students but they are a
dwindling portion of the sector. Unfortunately, the rapid enrollment
growth in this sector does not reflect informed consumer response to a
high quality product. With more transparency and more consumer
protection, the for-profit sector will be able to make greater
contributions to our educational system without damaging the futures of
so many vulnerable students.
The Chairman. Thank you very much, Dr. Baum. I guarantee
you we will have a number of questions to followup on your
statement. Thank you very much.
Mr. Henderson, welcome, please proceed.
STATEMENT OF WADE HENDERSON, PRESIDENT AND CEO, LEADERSHIP
CONFERENCE ON CIVIL AND HUMAN RIGHTS, WASHINGTON, DC
Mr. Henderson. Thank you, Chairman Harkin and good morning
both to you and to members of the committee.
As you have already noted, I am Wade Henderson, president
of the Leadership Conference on Civil and Human Rights, a
national coalition of over 200 organizations working to build
an America that is as good as its ideals. I am also proud to
appear before you today as the Joseph L. Rauh, Jr., Professor
of Public Interest Law at the David A. Clarke School of Law,
University of the District of Columbia.
I want to thank you again for inviting me here today to
testify on why the civil rights community strongly supports the
efforts of this committee and those of the Obama administration
to expand access to postsecondary education.
Before I address the substance of today's hearing, Mr.
Chairman, I do want to thank you personally, for your efforts
in the current appropriations process to protect education
funding, especially funding for Pell Grants which are a vital
lifeline for low-income and working families seeking to send
their children to college. The Leadership Conference believes
that access to education is a fundamental civil and human
right, in fact access to high quality education is among the
most pressing civil and human rights issues of this century.
This principle is especially important at a time when
educational attainment and access to employment are more
closely intertwined than ever and a greater investment in the
lives and hopes of our Nation's young people is of paramount
importance.
To be perfectly blunt, if we don't educate every child,
every young adult, every working American who seeks to change
careers and to educate them well, our future as a nation is in
serious jeopardy.
The Leadership Conference recognizes the vital role that
postsecondary education of all types, including in for-profit
settings, can play in educating and preparing young people for
the jobs and careers of today and tomorrow.
The for-profit sector's enrollment has more than tripled
over the last decade and now comprises 11 percent of the
Nation's full-time undergraduate enrollment. It enrolls
disproportionate numbers of women, racial minorities, low-
income students, veterans and older Americans, including many
working people seeking to further their careers through online
course work. However, we are alarmed by the mounting evidence
that the for-profit sector is engaging in what I would call
predatory lending practices, overcharging for their product,
failing to deliver on programs leading to gainful employment,
leaving large numbers of students saddled with enormous debt
and leaving taxpayers holding the bag. I should note, this is
debt that is not dischargeable in bankruptcy, it will dog the
future financial success of these individuals for much of their
remaining lives.
As civil rights advocates, this is all too familiar. This
is the very same thing that we saw with the rampant predatory
lending that occurred during the housing boom, in which some
actors in an industry that services low-income and minority
people decided to take advantage of these individuals simply
because they believed they could. Government cannot sit by, as
it did during the housing boom, and allow the worst actors to
exploit those that they serve while claiming that because they
provide a valuable service that these communities desperately
need, they should be exempt from scrutiny.
Indeed, the reverse is true. It is imperative that we guard
against powerful institutions taking advantage of and
exploiting the least among us. That is why the Leadership
Conference believes that the Department of Education's gainful
employment rule is a long overdue and important step in
protecting students and taxpayers from unscrupulous career
education programs.
While the rule does not include many of the important
protections urged by civil rights, students, women's, labor and
consumer organizations, it does send a strong message to many
for-profit programs to start putting students first. We
recognize that they have a fiduciary responsibility to their
shareholders, but they also have a responsibility to the
national interest on which they rely in getting the funding
that supports the institutions they serve.
For-profit colleges can be a viable option for many
students who may not have many other options. But that doesn't
give these businesses the right to exploit those they serve.
Access to college and career education isn't just about
enrollment, it isn't just about being able to say that you are
giving racial minorities and women and low-income people an
opportunity to reach their dreams, you have to actually provide
the necessary skills and training that you propose to deliver.
The degrees and certification that for-profit students obtain
must be worth more than the paper that they are printed on,
otherwise what is the point?
Our Nation's future depends, to a large degree, on how well
we educate the next generation. We will succeed only if we
allow students a fair opportunity to obtain the skills and
knowledge they need to fully participate in our economy and our
society. The new gainful employment rule, adequate funding for
both ESEA and student financial aid programs and continued
efforts by both the Department of Education and this committee,
will help ensure that they get the chance.
Our investment in our children, our young people, our older
working adults must be as great as our dreams for our future,
nothing less will do.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Henderson follows:]
Prepared Statement of Wade Henderson
Good morning, Chairman Harkin, Senator Enzi, and members of the
committee. I am Wade Henderson, president and CEO of The Leadership
Conference on Civil and Human Rights, the Nation's premier civil and
human rights coalition, representing more than 200 national
organizations working to build an America that's as good as its ideals.
I am also proud to serve as the Joseph L. Rauh, Jr., Professor of
Public Interest Law at the David A. Clarke School of Law, University of
the District of Columbia.
Thank you for inviting me here today to testify on why the civil
rights community strongly supports the efforts of this committee and
those of the Obama administration to expand access to postsecondary
education. Mr. Chairman, before I get into the substance of today's
hearing, I want to particularly commend your efforts in the recent and
ongoing appropriations process to protect education funding, and
especially Pell grants, which are a lifeline for low-income and working
families seeking to send their children to college.
The Leadership Conference believes that access to education is a
fundamental civil and human right. This principle is especially
important at a time when educational attainment and access to
employment are more closely intertwined than ever before. We live in
the age of the global economy where quality K-12 public education and
postsecondary opportunities are necessities and job-related skills are
in increasingly high demand.
We know that if we don't educate all children--and educate them
well--our future as a nation is in serious jeopardy.
Today, Mr. Chairman, we also know that postsecondary education is
as important to a person's ability to raise a family and achieve the
American dream as a high school diploma was when you and I were growing
up. For example, the most recent report on The Condition of Education
2011 by the Institute for Education Sciences' National Center for
Education Statistics (hereinafter ``NCES Report'') reported that in
2009 ``young adults with a bachelor's degree earned more than twice as
much as those without a high school diploma or its equivalent, 50
percent more than high school completers, and 25 percent more than
those with an associate's degree.'' \1\ The NCES data also underscore
the importance of higher education to women and their families. For
example, while earnings of male high school dropouts ($23,000) are
close to the Federal poverty level, female high school dropouts earn
far less ($19,000).\2\ And women who obtain associates degrees
($31,000) still do not earn what men with high school diplomas earn
($32,900).
---------------------------------------------------------------------------
\1\ http://nces.ed.gov/programs/coe/figures/figure-er2-2.asp.
\2\ The 2011 Federal poverty guideline for a family of four is
$22,350. http://aspe.hhs.gov/poverty/11fedreg.shtml.
---------------------------------------------------------------------------
The Leadership Conference recognizes the vital role that
postsecondary education of all types, including in for-profit settings,
can play in educating and preparing young people for the jobs and
careers of today and tomorrow. The sector's enrollment has more than
tripled over the last decade and now comprises 11 percent of the
Nation's full-time undergraduate enrollment. It enrolls
disproportionate numbers of women, minorities, low-income students,
veterans, and older Americans, including many working people seeking to
further their careers through online coursework.
We are alarmed, however, about mounting evidence that the for-
profit sector is engaging in predatory lending practices, overcharging
for their product, failing to deliver on programs leading to ``gainful
employment,'' leaving large numbers of students saddled with enormous
debt, and leaving taxpayers holding the bag. For-profit colleges are a
viable option for many students who may not have very many other
options, but that doesn't give these businesses the right to exploit
those they serve.
According to the NCES Report, the General Accounting Office, and
this committee's own investigation:
For-profit colleges charge students more, while
shortchanging their education. For example, 4-year undergraduate for-
profit colleges charge an average net price of $30,900 per full-time
school year, much higher than both public ($15,600) and private not-
for-profit ($26,600) schools.\3\ At 2-year institutions, the net price
at for-profit schools ($24,700) is more than twice that at public
schools ($10,300).\4\
---------------------------------------------------------------------------
\3\ NCES Report, Indicator 47-2, ``Average total price, grants, and
net price for full-time, dependent undergraduates at 4-year
institutions, by institution control: Academic year 2007-08.''
\4\ NCES Report, Indicator 47-1, http://nces.ed.gov/programs/coe/
figures/figure-cst-1.asp.
---------------------------------------------------------------------------
Yet NCES found that private for-profit colleges spend an
average of only $3,069 per student on academic instruction, whereas
public institutions spend an average of $7,534 per student and private
not-for-profit schools spend an average of $15,215 per student on
instruction. As a consequence of their high price tags and low
investment in student learning, for-profits can channel a substantial
portion of their income to marketing and profits.
At Bridgepoint Education, Inc., for example,
marketing accounted for 29.7 percent of spending in 2010 and
profit 30.3 percent. The remainder 40 percent covered
instruction, student services and faculty salaries, along with
lobbying, administration, and executive compensation.\5\ The
company reported compensating their CEO more than $20 million
in 2009.
---------------------------------------------------------------------------
\5\ Bridgepoint Education, Inc. SEC Statements, provided to Senate
HELP Committee.
For-profit career programs' recruiting practices often
target low-income and minority students, women, veterans, and older
students seeking to obtain marketable skills in this difficult economy.
While seeking to exploit prospective students' vulnerabilities, these
programs fail to provide sufficient or accurate consumer information on
the impact of high student loan debt (which is not dischargeable in
bankruptcy) and on the quality and track record of their programs. For
example, in documents obtained by this committee, one company's
training manual identified the following ``student profiles'' for
recruitment:\6\
---------------------------------------------------------------------------
\6\ Vatterott Training Manual for Recruiting Staff.
Welfare Mom w/Kids
Pregnant Ladies
Recent Divorce
Low Self-Esteem
Vocational Rehabilitation
Experienced a Recent Death
Physically/Mentally Abused
Drug Rehabilitation
Fired/ Lay Off
Yet many of these programs fail to deliver on their
promises to educate students for ``gainful employment,'' as required
under the Higher Education Act and recently promulgated regulations
from the Department of Education. Instead, their record is one of high
withdrawal and staggeringly high debt. For example, the companies
posting the highest withdrawal rates for associate degree students at
their schools (ranging from 58 percent to 84 percent in 2009) enroll
more than 1 million students, and nearly half of all for-profit
students.
The for-profit sector is leaving students with a mountain
of student-loan debt. According to the NCES Report, 10.9 percent of
students who attended 4-year for-profit institutions default on their
loans within 2 years of starting repayment, which is more than twice
the percentage at public and private not-for-profit schools.
According to Campus Progress, 11 percent of all of higher
education students in the country attend for-profit schools, yet they
account for 26 percent of Federal student loans and 44 percent of
student loan defaults.\7\
---------------------------------------------------------------------------
\7\ http://thinkprogress.org/education/2011/02/04/177517/for-
profit-data/.
Mr. Chairman, I recently had the privilege of co-authoring an op-ed
with the distinguished Congressman from San Jose, CA, Representative
Michael Honda, D-CA, which I have appended to this testimony. In it, we
sought to remind readers of the parallels between the victimization of
students by the for-profit sector and the disastrous mortgage
foreclosure crisis The Leadership Conference has been fighting for
---------------------------------------------------------------------------
years. We wrote:
``The subprime mortgage disaster caused the greatest loss of
wealth from communities of color in modern American history.
When banks misled African-American, Asian-American and Latino
borrowers into taking on crushing home mortgage debt they could
never hope to pay back, we called it what it was--predatory
lending.
Today, many for-profit colleges have picked up where the
subprime lenders left off. They are using the same promise of
the American dream as bait to trap vulnerable students--the
vast majority of whom are women and minorities--into
underperforming schools and saddling them with a lifetime of
debt.
As this industry's profits have soared, so have student loan
default rates. Students enrolled in for-profit schools
represent just 10 percent of all undergraduate students, but
account for 44 percent of all student loan defaults.
The industry says that these schools offer opportunities to
low-income students that they couldn't get elsewhere. But the
debt being piled on students has devastating consequences,
rendering them unable to receive credit to rent an apartment,
buy a car or home, or receive future education loans. When
these programs fail to deliver on their promises, students
suffer for the rest of their adult lives and taxpayers are left
on the hook.
The industry is targeting and taking advantage of women,
minority and low-income students. Approximately one out of
every four African-American, Asian-American, Latino and low-
income students start their postsecondary education at a for-
profit institution. But their graduate rates are far below the
rates for such students at public and nonprofit colleges. Just
like the subprime mortgage lenders, this industry is profiting
off the misery of our country's most vulnerable communities.
Once the industry had gotten its cut from the government's
financial aid program, it left its students without an adequate
education, without a job, and with an insurmountable debt load.
. . . This industry has destroyed people's futures, cost our
government billions of dollars, and gotten rich by selling
false hopes to those who most need a quality education. It's
time for common sense reforms, which will hold the industry
accountable to these students and to taxpayers.''
Before I close, I would like to say a word about the final
``gainful employment'' rule that was released last week by Secretary
Duncan.
The Leadership Conference believes this rule is a long-overdue and
important step in protecting students and taxpayers from unscrupulous
career education programs.
While the rule does not include many important protections urged by
civil rights, student, women's, labor and consumer organizations, it
sends a strong message to many for-profit programs to start putting
students first. Regulation is urgently needed to hold these
institutions accountable, given the rising tide of debt and default
rates faced by students enrolled in for-profit programs--the vast
majority of whom are represented by our coalition's member
organizations. Its focus has been narrowed to those programs that,
after 4 years, still fall far short on delivering a quality education.
Those programs that serve their students well, however, will easily
pass muster under the rule.
But just as Wall Street has fought the Consumer Financial
Protection Bureau and other financial reforms, the for-profit higher
education industry is fiercely resisting reasonable and modest
oversight. It spent more than $4 million on hired lobbyists in the
first quarter of 2011 alone.
The Leadership Conference has commended members of Congress--
including substantial majorities of the Congressional Black Caucus, the
Congressional Hispanic Caucus and CAPAC--who opposed efforts to tie the
Secretary's hands by prohibiting issuance or enforcement of this rule.
We will continue to urge all members of both the Senate and the House
to stand behind the President and allow the Secretary to begin
enforcing it.
Our Nation's future depends to a large degree on how well we
educate the next generation. We will succeed only if we allow students
a fair opportunity to obtain the skills and knowledge they need to
fully participate in our economy and our society. The new ``gainful
employment'' rule, adequate funding for both ESEA and student financial
aid programs, and continued efforts of both the Department and this
committee, will help ensure they get that chance.
Thank you.
______
[ContraCosta Times]
Stop Predatory Lending By For-Profit Colleges
(By Rep. Michael Honda and Wade Henderson)\1\
THE SUBPRIME mortgage disaster caused the greatest loss of wealth
from communities of color in modern American history. When banks misled
African-American, Asian-American and Latino borrowers into taking on
crushing home mortgage debt they could never hope to pay back, we
called it what it was--predatory lending.
---------------------------------------------------------------------------
\1\ Michael Honda, D-San Jose, is a member of House Budget and
Appropriations Committees and chair emeritus of the Congressional Asian
Pacific American Caucus. Wade Henderson is the president and CEO of The
Leadership Conference on Civil and Human Rights and The Leadership
Conference Education Fund.
---------------------------------------------------------------------------
Today, many for-profit colleges have picked up where the subprime
lenders left off. They are using the same promise of the American dream
as bait to trap vulnerable students--the vast majority of whom are
women and minorities--into underperforming schools and saddling them
with a lifetime of debt.
The costs to these students and taxpayers are tremendous. In the
2008-9 school year, the Federal Government invested more than $4
billion in grant aid to for-profit institutions, quadruple its
investment just a decade earlier.
Despite this increased Federal assistance, tuition at for-profit
institutions continues to far outpace other schools, costing more than
five times as much as community colleges. These for-profit schools are
gaming the system--undermining the value of these Pell grants and
forcing students to take out more loans, not less.
As this industry's profits have soared, so have student loan
default rates. Students enrolled in for-profit schools represent just
10 percent of all undergraduate students, but account for 44 percent of
all student loan defaults.
The industry says that these schools offer opportunities to low-
income students that they couldn't get elsewhere. But the debt being
piled on students has devastating consequences, rendering them unable
to receive credit to rent an apartment, buy a car or home, or receive
future education loans. When these programs fail to deliver on their
promises, students suffer for the rest of their adult lives and
taxpayers are left on the hook.
The industry is targeting and taking advantage of women, minority
and low-income students. Approximately one out of every four African-
American, Asian-American, Latino and low-income students start their
postsecondary education at a for-profit institution. But their graduate
rates are far below the rates for such students at public and nonprofit
colleges. Just like the subprime mortgage lenders, this industry is
profiting off the misery of our country's most vulnerable communities.
We strongly believe that the Department of Education has taken the
right step in proposing a common-sense rule that would hold these
schools accountable for delivering on their education and career
promises.
Under the rules, colleges that fail to demonstrate that their
programs are preparing students for ``gainful employment'' would risk
losing their eligibility to participate in Federal education grant and
loan programs.
All schools should be held accountable for the educations that they
provide, including for-profits that have flown under the radar of
regulation for far too long. These rules respond to the Department of
Education's recent investigation finding that some in the industry were
promising students job placement upon completion of their programs and
failing to deliver on their promises.
Once the industry had gotten its cut from the government's
financial aid program, it left its students without an adequate
education, without a job, and with an insurmountable debt load.
Just as Wall Street is fighting to undermine the Consumer Financial
Protection Bureau and other financial reforms, the for-profit college
industry is fiercely resisting this reasonable oversight.
It spent more than $4 million on lobbyists in the first quarter of
2011 alone and has engaged in a documented campaign of staging false
support in the very minority communities it is victimizing.
Nothing should stand in the way of real gainful employment rules.
This industry has destroyed people's futures, cost our government
billions of dollars, and gotten rich by selling false hopes to those
who most need a quality education. It's time for common sense reforms
which will hold the industry accountable to these students and to
taxpayers.
The Chairman. Thank you, Mr. Henderson.
Now we will turn to Mr. Schmitt. Welcome, and again you
have 7 minutes. Please proceed, Mr. Schmitt.
STATEMENT OF ERIC SCHMITT, FORMER STUDENT, KAPLAN UNIVERSITY,
HAMPTON, IA
Mr. Schmitt. Thank you, Chairman Harkin and thank you
members of the Senate HELP Committee for hearing me today.
I am coming to you as a former student of the for-profit
sector, but I would like to say I represent a great many
students who are not here telling their story.
I am an alumnus of Kaplan University. Around the time this
committee and the Department of Education began looking at the
excesses of the for-profit education sector I received an email
from my alma mater asking me to get involved by telling the
U.S. Education Department and Congress why the gainful
employment regulation is unfair and needs to be stopped. This
got me interested in what was happening in Washington and I
knew that I needed to make my voice heard. Since I am sure my
alma mater wouldn't find what I had to say very useful to their
cause, I decided to make my voice heard in another forum. After
taking on $45,000 in student loans and spending years job
hunting without success, I feel it is important to tell my
story.
In 2002 I was working at an inbound customer service firm
and felt I needed a change for the better. I didn't think a
traditional college would work for me, being at the time, a 27-
year-old father of two. I met with an admissions counselor who
told me all about the campus, the college offered day and night
classes for nontraditional students like me. I chose the
paralegal path because after a stint on jury duty I discovered
an intuitive understanding in the public policy and the issues
that shaped the law. The admissions representative assured me
this was a good choice, saying Student Services had a hundred
percent placement out of that program.
I was excited by a school administrators presentation
showing that paralegals in my zip code would make between
$30,000 and $36,000 a year, according to salary.com. I knew
that I would take out loans to pay for my education, but since
the school advertised their career-focused programs that gave
you the skills you needed to work in the field, I figured it
would be worth it.
My experience in class at Kaplan was relatively smooth,
with the exception of the difficulty I had finding the classes
I needed to graduate. The same introductory classes were always
being offered, but upper level classes, required for my degree
were being pushed off. The school told me and other students we
could do a self study to get those credits. I explained to the
dean that I wanted to learn in the classroom environment
because I wanted these skills, not just a letter grade. The
dean explained they needed to keep the introductory classes on
the schedule to handle the influx of new enrollees, so there
was not always resources to handle the upper level classes.
Since my protest had no affect on the schedule, I adapted and
took the class through an independent study.
In 2004 I graduated with an associates degree in paralegal
studies. I had a 3.76 GPA. I was the president of the law club
and had the recommendation of most of my instructors. I hoped
that since I now had my associates of applied science degree my
job search would be more productive. This did not turn out to
be the case.
I wanted to get a jump on finding a job so a few months
into my second year I began applying to every posting related
to my field I saw in both the public sector and the private
sector. I also contacted other employers even if they did not
advertise open jobs, including law offices, banks, credit
unions, even bail bond offices. After applying to a position or
business, I would contact them once or twice a week until the
position had been filled or that I was notified that there was
no open positions. I never received a call back for an
interview.
The school's Career Services didn't seem prepared or able
to help me. I stopped in the office on campus a few times but
always seemed to get contradictory or confusing resume tips
from them. Career Services would frequently send out emails
notifying graduates of jobs being offered that I had seen on
Iowa Workforce Development or in the Waterloo Courier. These
were job postings that I could apply to on my own, instead of
driving to the school.
In early June 2005, with my unemployment running out, I
finally settled for a job doing inbound customer service. This
was the very field where I went to get an education in order to
escape.
I blamed myself for the failure to find satisfying work and
thought that returning to school to get a bachelors degree
would allow me to secure a good job or get me a step closer to
law school. I found out that Kaplan began offering a bachelors
degree in paralegal studies that involved part online and part
on campus learning. I suspected that I would have trouble
transferring any credits from my associates degree to another
school, so despite my reservations and the expense, I began
taking classes toward my bachelors degree, in early 2006.
I continued on and graduated in 2008 with a 3.16 GPA. Since
getting my bachelor degree I have had one temporary job using
it, which lasted 2 weeks. I have hunted for any sort of work to
get my foot in the door in the legal field. I have applied for
any posted position I saw as well as sending a cover letter and
resume to any business that might give me the foothold I need,
courthouses, county treasurer's offices, county recorder's
offices, abstract firms, law offices, claims adjustors, banks,
credit unions and bail bondsmen.
I took on temporary work with the 2010 Decennial Census,
which was rewarding, but it didn't have much to do with my
field of study. Since then, my choices for work have been an
assembly line laborer in a pesticide plant, a flagger on road
construction for the season or other temporary work.
I cannot say that even once my degree has opened any doors
of employment for me. I slowly learned what most employers
really thought of the Kaplan degrees and graduates. I had heard
all through my education that the school really didn't care
what kind of job you found. There were stories of graduates who
never found work or even if you tried to transfer that most of
the other colleges would refuse to accept the credit hours.
I have since learned that the school counts me as
successfully placed for the statistics they advertise to
potential new students.
Obtaining a degree is viewed by most as a financial plus.
The judge who reviewed my child support said that despite
having recently lost my $10.50 an hour janitorial job, I would
be able to get a job making as much or more with my education.
But now I owe $45,000 in student loans without a permanent job
to pay those bills, only very rarely in the past 7 years since
completing my associates, have I been able to make any payments
at all and the debt continues to pile up. The loans from my
associates degree went in default late last year. The loans
from my bachelors degree are in deferment, but I have no idea
how I will manage after my deferment time runs out.
Because of the deferment and forbearances the interest has
added more than 10 percent on top of my original balance and
this battle it seems is as if even time is against me.
I feel that returning to school to get my degree has put me
further away from my goals than before I started my education.
I realize it is probably too late for me.
I am sure there are other parents out there looking to make
a better life for their families, but the crushing debt and
lack of opportunity of this mistake has cost me more than any
amount of money. I had to sell my house after the divorce,
because I couldn't pay for it. I had to give up opportunities
to visit with my children. The financial hardship strains the
most important relationships in my life. I refused, for years,
to marry my current wife, Mira, for fear of dragging her down
into this crushing burden. The lifetime promise of a college
degree has become a lifetime burden that I only can hope I bear
alone.
The debt and the magnitude of my mistake is with me like a
constant weight. I lay awake at night dreading what I might
have to do to save my family from this burden, to even once
have considered cutting ties with everyone you love and who
loves you to save them from a mistake is a horrible burden to
bear.
I hope that this committee and the Department of Education
can make sure that those families like mine have a real chance
at building their future with a real education. Thank you.
[The prepared statement of Mr. Schmitt follows:]
Prepared Statement of Eric Schmitt
My name is Eric Schmitt. I am an alumnus of Kaplan University.
Around the time this committee and the Department of Education began
looking at the excesses of the for-profit education sector, I received
an email from my alma mater asking me to ``Get Involved by Telling the
U.S. Education Department and Congress Why the ``Gainful Employment''
Regulation is Unfair and Needs to Be Stopped.'' This got me interested
in what was happening in Washington and I knew I should make my voice
heard. Since I am sure my alma mater wouldn't find what I have to say
useful to their cause, I decided to make my voice heard in another
forum. After taking on $45,000 in student loans and spending years job-
hunting without success, I feel it is important to tell my story.
I graduated with an Associate degree and Bachelor's of Science in
Paralegal Studies with an emphasis in Personal Injury. In the course of
pursuing my degrees, I have been an on-campus student as well as part
of a new generation of students, the distance learners attending
online.
My involvement with a for-profit college began in 2002; I was
working at an inbound customer service firm and felt I needed a change
for the better. I didn't think a traditional college would work for me,
being, at the time, a 27-year-old father of two. I met with an
admissions counselor who told me all about the campus. It had day and
night classes for non-traditional students like me. I took their
entrance exam (which seemed very simplistic, but who was I to judge?),
and I chose a major. My suggested choices were between paralegal and
accounting. I chose the paralegal path because, after a stint on jury
duty, I discovered an intuitive understanding of the intricacy of the
legal process and a fascination with the interpretation of fact and
statute. The admissions representative assured me this was a good
choice, saying student services placed 100 percent of students out of
that program.
In the orientation after I enrolled, all prospective students were
asked their intended major. An administrator would pull up a slide on a
power point presentation, which would show us our average salary for
that profession in our zip code, according to salary.com. I remember
the paralegal average being $30,000 to $36,000 a year. As part of the
presentation, one of the school administrators asked for a volunteer to
come forward. I was the volunteer. He gave me $10. The moral of this
tale was that for taking a risk, you would be rewarded. He says we all
took the initiative when we enrolled at Kaplan. The reward, he said,
was that since the school had such a great reputation with local
businesses, that finding work in our fields would be easier. Kaplan had
this great education by focusing their programs on marketable skills
rather than on general education requirements. I knew that I would take
out loans to pay for my education, but since the school advertised
their career-
focused programs that gave you the skills you needed to work in the
field I figured it would be worth it.
I worked overnights and went to school in the evening. My
experience in class at Kaplan was relatively smooth with the exception
of the difficulty I had finding the classes I needed to graduate. The
same introductory classes were always being offered, but upper level
classes required for my degree were pushed off. After putting up a
petition to appeal to the administration to offer the advanced classes,
such as law office management, in a classroom format, as opposed to
self-study, I spoke to the Dean about this issue. I was chided for the
tone of my petition. I explained to him that I wanted to learn in a
classroom environment because I wanted these skills, not just a letter
grade. The Dean responded that they needed to keep these introductory
classes on the schedule to handle the influx of new enrollees. I
pointed out that some of us needed this class and other advanced
classes in order to graduate. Since my protests had no effect on the
schedule, I adapted and took the class through an independent study,
meeting once a week with an instructor for an hour.
During this conversation, the Dean learned of my interest in law
school. He told me that I could get my law degree online with an
affiliated school, Concord University. It seemed, with a few hiccups,
that Kaplan could provide everything I needed to fulfill my dream of
practicing law. I was sure with my grades and references that I would
have no difficulties finding a job after graduation.
My associate degree track required an externship. Ideally I wanted
to get a paying job that would satisfy the externship and began
applying to local businesses early in my second year. I used job
specific and non-targeted resumes to apply to every law office in the
Waterloo and Cedar Falls area. I only had one response when a law
office staff secretary who was leaving her job recognized me from
Kaplan, forwarded my resume to her boss as a possible replacement. I
was not hired. I finally went to my Program Chair who did help me find
an attorney I could take my externship through, although it was unpaid.
My externship was a less than rewarding experience. I quickly learned
that my supervising attorney was gaining a reputation as an unreliable
and unethical member of the bar and I felt it necessary to distance
myself from him.
In 2004 I graduated with an associate degree in paralegal studies.
I had a 3.76 GPA, I was president of the Law Club and had the
recommendation of most of my instructors. Upon graduating, I continued
my job search. I hoped that since I now had my Associate of Applied
Science degree, my job search would be more productive.
This did not turn out to be the case. I wanted to get a jump on
finding a job so a few months before graduation I began applying to
every posting related to my field I saw, in both the public sector and
the private sector. I also contacted other employers even if they did
not advertise open jobs including law offices, banks, credit unions,
and even bail bond offices. After applying to a position or a business,
I would contact them once or twice a week until the position had been
filled or that I was notified there were no open positions. I never
received a call back for an interview.
The school's Career Services didn't seem prepared or able to help
me. I stopped into the office on campus a few times, but always seemed
to get contradictory or confusing resume tips from them. Career
Services would frequently send out emails notifying graduates of jobs
being offered that I had seen on Iowa Workforce Development or in the
Waterloo Courier. These were job postings I could apply to on my own
instead of driving to the school.
I struggled to find any work with my degree so I took a 4-month
unpaid internship. I knew there was no chance of being hired, but I
wanted to improve my likelihood of being picked up elsewhere. I hoped a
credible reference would help. In early June 2005 with my unemployment
running out I finally settled for a job doing inbound customer service.
This was the very field I went to get an education in order to escape.
In late 2005 I received a letter from Kaplan that they were now
offering their Bachelor of Science in the Paralegal Studies program on
campus via the ``School within a School'' program. School within a
School meant that the online class format was still used, but there was
a seminar for 1 hour per week on campus or via conference call. In
early 2006 I enrolled, eager to continue my education since I assumed
it had to have been my fault that I never received an interview. I also
wanted desperately to leave the customer service industry and I thought
that a 4-year degree would better help me do that. The School within a
School program, I don't believe, even lasted a full year into my
Bachelor's program. The campus seminars were abruptly ended without
explanation or acknowledgment. I continued at Kaplan in a fully online
education environment. I could have tried to transfer, but I had heard
from many sources that Kaplan credits rarely transferred. The most
important bit of knowledge I gained during this time was from a one-
term adjunct instructor, who, when I told her of my plan to continue my
education through Concord Law School, informed me that the school was
not recognized in Iowa for taking the BAR exam. That information was
eye opening. The Dean apparently didn't know or forgot to mention this
little problem with Concord.
I continued on and graduated in 2008 with a 3.16 GPA. Since getting
my Baccalaureate degree, I have had one temporary job using it, which
lasted 2 weeks. I have applied to every opening I have found through my
continued ongoing search. I have sent my resume far and wide. I
volunteered and I took on another internship to make more connections
and build references. I took on temporary work with the 2010 Decennial
Census, which was rewarding but didn't have much to do with my field of
study. Since then my choices for work have been an assembly line
laborer in a pesticide plant, a flagger on road construction for the
season, or other temporary work.
So what is the end of my Kaplan ``success story?'' I cannot say
that even once my degree has opened any doors of employment for me. I
slowly learned what most employers really thought of Kaplan degrees and
graduates. I had heard rumors and horror stories all through my
education that once Kaplan was done with you they really didn't care
what kind of job you found. There were stories of graduates who never
found work, and that if you tried to transfer that most other colleges
refused to accept the credit hours. The judge who reviewed my child
support said that despite having recently lost my $10.50 an hour
janitorial job I ``would be able to get a job making as much or more
with (my) education.'' But now I owe $45,000 in student loans without a
permanent job to pay those bills. Only very rarely in the past 7 years
since completing my Associate degree have I been able to make any
payments at all and the debt continues to pile up. The loans from my
Associate Degree went into default late last year. The loans from my
Bachelor's Degree are in deferment but I have no idea how I will manage
after my deferment allotment runs out. Because of the deferment and
forbearances, the interest has added thousands of dollars on top of my
original balance. In this battle it seems as if even time is against
me.
I realize it is probably too late for me, but I am sure there are
other parents out there looking to make a better life for their
families. The crushing debt and lack of opportunity of this mistake has
cost me more than any amount of money. I had to sell my house after my
divorce because I couldn't pay for it. I have had to give up
opportunities to visit with my children since I could not afford to
travel to see them. The financial hardship strains the most important
relationships in my life. I refused for years to marry my current wife
Mira for fear of dragging her down into this crushing burden. The
lifetime promise of a college degree has become a lifetime burden that
I only can hope I bear alone. The debt and the magnitude of my mistake
is with me like a constant weight. I have lied awake at night dreading
what I might have to do to save my family from this burden. To even
once have to consider cutting ties with everyone you love and who loves
you to save them from a mistake is a horrible burden to bear. I hope
that this committee and the Department of Education can make sure those
families like mine have a real chance at building their future with a
real education.
The Chairman. Mr. Schmitt, thank you very much for putting
a human face on this. And for the record, I just want to say
that we contacted Mr. Schmitt as a result of a letter that you
wrote to me about this very subject and so I appreciate your
being here and telling your personal story.
I know it doesn't relieve the weight any, but there are
thousands, hundreds of thousands who share your same situation
around the United States and that is why we are looking into
this as we are.
Pauline Abernathy, welcome to the committee and your
statement will be made a part of the record in its entirety.
Please proceed.
STATEMENT OF PAULINE ABERNATHY, VICE PRESIDENT, THE INSTITUTE
FOR COLLEGE ACCESS & SUCCESS, PHILADELPHIA, PA
Ms. Abernathy. Chairman Harkin and members of the
committee, thank you for the opportunity to testify today. The
Institute for College Access & Success is a nonprofit research
and policy organization that works to improve college
opportunity and outcomes for all Americans so more Americans
can have completely meaningful credentials without burdensome
debt.
As you noted, student debt is increasingly common in all
sectors of higher education, but compared to other types of
colleges, debt at for-profit colleges is off the charts. This
sector has the highest share of students with debt, the highest
debt loads for degrees and the highest student loan default
rates. Combine these facts with aggressive recruiting, loan
completion rates, heavy reliance on Federal funds and
increasing investigations of widespread fraud, and you have a
truly toxic mix.
As others have noted, for-profit career colleges are not
inherently problematic, indeed they have the potential to spur
needed technological innovation. What matters to students and
taxpayers is whether a school provides quality career education
and training at a reasonable cost, not its structure or
ownership, but current laws and regulations have created
incentives for career colleges, many owned by large, publicly
traded corporations, to reap hefty profits at great expense to
taxpayers and students.
As Chairman Harkin stated, virtually all students attending
career colleges borrow--at both 2-year and 4-year career
colleges--at least 95 percent of students take out loans. By
contrast, less than half of students at public colleges borrow
and only 13 percent of community college students borrow.
Moreover, a majority of career college graduates graduate with
both Federal and private student loans and private loans are
one of the riskiest ways to pay for college. Like Federal
loans, they are not dischargeable in bankruptcy, but unlike
Federal loans, they typically have variable interest rates with
no cap and they lack the affordable repayment options and
consumer protections that can help Federal student loan
borrowers stay out of default.
Low-income, African-American and Hispanic undergraduates at
career colleges are about three times more likely to borrow
Federal student loans than their counterparts at other colleges
and four times more likely to take out private loans. Adults
who attend career colleges while working full-time are almost
five times more likely to take out Federal loans and over six
times more likely to borrow private loans.
Students at career colleges are not only more likely to
borrow, they also borrow more, much more. High borrowing rates
combined with large debt loads significantly increase the risk
of going to college and there is clear evidence that student
debt loads at many for-profit schools are unmanageable.
As the chairman said, career college students account for
nearly half of all Federal student loan defaults, even though
the sector enrolls only about 10 percent of all college
students. More than one in five borrowers who attended a career
college defaults within 3 years, which is more than double the
rate at public colleges and more than triple the rate at
nonprofit colleges. The impact of these defaults, as Mr.
Schmitt just testified, is severe and long-lasting, both for
the borrowers and for our economy.
Student demographics alone do not explain these default
rates. The Career College Association's own study concludes
that even after accounting for differences in demographics and
completion rates, students at for-profit colleges are at least
twice as likely to default as students at other types of
schools.
Indeed, some career colleges do much better than others at
educating similar students. For instance, there are two
colleges, for-profit colleges in San Bernardino, CA that are 1
mile apart from each other. They offer similar programs, charge
similar amounts and enroll similar shares of low-income
students. Yet one has a default rate more than twice the other,
and the one with the lower default rate enrolls a higher share
of low-income students. Our analysis of Federal data reveals
that even students who complete an associates degree or
certificate at a career college are at much greater risk, four
times greater, than students who graduate from other types of
schools. In fact, career college graduates are much more likely
to default than public and nonprofit college dropouts and they
are almost twice as likely to experience unemployment as
graduates of other types of schools.
In sum, these data suggest that Eric Schmitt's experience
is not uncommon with tens of thousands of students taking on
huge debt for degrees that have little, if any value in the job
market. This has grave consequences for individuals and their
families, for our energy and for taxpayers who are subsidizing
for-profit colleges to the tune of more than $32 billion last
year alone.
The 14 student financial aid regulations that were recently
finalized by The Department of Education are a step in the
right direction, but they will not solve all the serious
problems that these hearings have uncovered.
For instance, they won't stop Federal funding for
worthless, unaccredited programs like the one Yasmine Issa
testified about last year, and they won't provide relief to the
students and taxpayers that have been victimized by such
programs. They don't address the problem of schools that have
literally purchased their regional accreditation. They don't
put a stop to the subprime loans that some career colleges are
making to their own students. And they don't prevent for-profit
corporations from being funded entirely by taxpayer dollars.
Thank you for the opportunity to testify today.
[The prepared statement of Ms. Abernathy follows:]
Prepared Statement of Pauline Abernathy
summary
Pauline Abernathy is vice president of The Institute for College
Access & Success (TICAS), an independent, nonpartisan, nonprofit
research and policy organization and home to the national Project on
Student Debt. TICAS works to improve both educational opportunity and
outcomes so that more under-represented students complete meaningful
post-secondary credentials and do so without burdensome debt.
Our ongoing analyses of student debt trends at the national, State
and college levels led us to look more closely at what is happening to
students in the growing career college sector, also known as the
proprietary or for-profit sector. Compared to other types of colleges,
career colleges have the largest share of students with debt, the
highest student debt levels for degree completers, and the worst
Federal student loan default rates.
Low-income and minority undergraduates at career colleges are about
three times more likely to borrow Federal student loans as their
counterparts at public or nonprofit colleges. Students who attend
career colleges are also the most likely to take out risky private
student loans, which are more like credit cards than financial aid and
lack the important repayment options and consumer protections that come
with Federal loans.
Student loan borrowers from career colleges are more than twice as
likely to default as those from public colleges, and more than three
times as likely as those from nonprofit colleges. Even students who
graduate with a degree or certificate at a career college are at much
greater risk of defaulting than completers from other types of schools.
Among students who started in 2003-4 and completed an associate's
degree or certificate by 2006, those who attended career colleges were
four times more likely to be in default in 2009 than those from public
or nonprofit colleges. In fact, completers at career colleges were much
more likely to be in default than students who dropped out of public
and nonprofit colleges.
There are high costs for both students and taxpayers when students
are saddled with loans they cannot repay. Those who default on their
student loans will have difficulty renting an apartment or buying a
car, and increasingly, getting a job. The debt can follow you to the
grave and it is nearly impossible to discharge either Federal or
private student loans through bankruptcy.
Because the career college industry relies on federally funded
grants and taxpayer-backed loans for the bulk of its revenue, we all
have a lot at stake in the quality and cost of a career college
education. The sector enrolls about 10 percent of college students but
accounted for one in four Federal education loan dollars ($25.0
billion) and Pell Grant dollars ($7.6 billion) in 2009-10. This is
about double the share of Federal student aid that students at career
colleges received a decade earlier. In addition, career college
students represent nearly half (47 percent) of all Federal student loan
defaults.
While the Department of Education's new ``gainful employment'' rule
is a modest step towards preventing Federal taxpayer dollars from being
wasted on career education programs that leave students with little but
insurmountable debt, more must be done to prevent the waste of taxpayer
dollars and to protect students, including veterans. Given the rising
costs and stakes for students and taxpayers, we thank the committee for
raising important questions and for its commitment to preserving
student access to quality, affordable higher education.
______
Chairman Harkin, Ranking Member Enzi and members of the committee,
thank you for the opportunity to testify on the impact of debt on
students who attend for-profit career colleges and the need for reforms
to protect the substantial interests of both students and taxpayers.
The Institute for College Access & Success (TICAS) is an
independent, nonpartisan, nonprofit research and policy organization
based in Oakland, CA. Our mission is to improve both educational
opportunity and outcomes so that more underrepresented students
complete meaningful post-secondary credentials and do so without
incurring burdensome debt. Our Project on Student Debt, launched in
2005, focuses on increasing public understanding of rising student debt
and the implications for individuals, families, the economy and
society.
Our work has often focused on community colleges because they
enroll the largest share of the Nation's low-income, underrepresented
minority, older and part-time students, as well as the majority of
adult students who work full-time while going to school.\1\ However, in
our ongoing analyses of student debt trends at the national, State and
college levels, a disturbing pattern emerged that led us to look more
closely at what is happening to students in the growing career college
sector--also known as the proprietary or for-profit college sector.\2\
---------------------------------------------------------------------------
\1\ Calculations by The Institute for College Access & Success
(TICAS) on data from the U.S. Department of Education, National Center
for Education Statistics (NCES), National Postsecondary Student Aid
Study (NPSAS), 2007-8, http://nces.ed.gov/surveys/npsas. Unless
otherwise specified, ``students'' refers to undergraduate students
throughout this testimony.
\2\ The term ``career colleges'' refers to proprietary or for-
profit colleges throughout this testimony.
---------------------------------------------------------------------------
Compared to other types of colleges, career colleges have the
dubious distinction of the highest share of students with debt--with
the highest debt levels for degree completers and the worst Federal
student loan default rates. Career colleges now enroll approximately 1
in 10 post-secondary students in the United States, but they absorb a
far greater share of Federal student aid: one in four Federal Pell
Grant and loan dollars goes to students in the career college sector.
At the same time, career colleges also have the highest share of
students taking out private (nonfederal) student loans--one of the
riskiest ways to pay for higher education.\3\
---------------------------------------------------------------------------
\3\ Unless otherwise noted, in this testimony the term ``private
loans'' refers to all nonFederal student loans.
---------------------------------------------------------------------------
Because the career college sector recruits and enrolls a
disproportionate share of low-income students and students of color, we
and many other student, civil rights, college access, consumer and
veterans advocates are particularly concerned about the disparate
impact of this sector's alarmingly high student debt and default
levels. Considered together, the career college industry's rapid
growth, aggressive recruiting practices, heavy reliance on Federal
funds, high student debt and default levels, and disproportionate
enrollment of underrepresented students clearly point to high and
rising stakes for both students and taxpayers.
high debt and loan defaults: consequences for students and taxpayers
To be clear, not all student loan debt is harmful. Federal student
loans fulfill their purpose when they help students get a quality
education or training so they can pay off their loans, support
themselves and their families and contribute to our society and
economy--whether as teachers, truck drivers or technology
entrepreneurs.
Indeed, because Federal student loans can be a valuable tool both
for expanding college access and supporting student success, we have
urged all community colleges to participate in the Federal student loan
program, so that their students are not forced to rely on riskier and
more expensive forms of credit if they need to borrow to stay and
succeed in school.\4\
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\4\ The Project on Student Debt. Still Denied: How Community
Colleges Shortchange Students by Not Offering Federal Loans. April
2011. http://ticas.org/files/pub/still_denied.pdf.
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While student loans can help students acquire valuable skills and
credentials, they do carry real risks for borrowers. High student loan
debt, and even low debt when paired with low earnings, can leave
students with unmanageable payments that can jeopardize their families'
basic needs and lead to delinquency and default. Leaving college with
burdensome debt can also prevent or delay borrowers from taking
important steps that benefit not only individuals, but also our society
and economy as a whole. These include starting a business, buying a
home, marrying, having children, saving for retirement and saving for
their own children's education.
Defaulting on a student loan has severe and long-lasting
consequences.\5\ It can devastate a borrower's credit, making it
difficult to rent an apartment or buy a car and, increasingly, to get a
job. Borrowers may be hounded by collectors, and debt can balloon
because of default and collection fees. Borrowers who default on
Federal student loans cannot get Federal grants or loans to return to
school, and the government can garnish wages, seize tax refunds and
eventually dock Social Security payments. The debt can literally follow
borrowers to the grave.
---------------------------------------------------------------------------
\5\ U.S. Department of Education. Collections Guide to Defaulted
Student Loans. http://www2.ed.gov/offices/OSFAP/DCS/index.html. See
also, Default and Delinquency, Student Loan Borrower Assistance,
National Consumer Law Center. http://www.studentloanborrower
assistance.org/default-and-delinquency/.
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However, Federal student loans provide a variety of tools and
consumer protections that can help borrowers manage their debt and
avoid default. For instance, TICAS developed the policy framework for
what is now the Income-Based Repayment (IBR) program. IBR caps Federal
student loan payments at a reasonable percentage of the borrower's
income and forgives any remaining debt after 25 years of responsible
payments, or as soon as 10 years for borrowers who work in public
service.\6\
---------------------------------------------------------------------------
\6\ For more information on Income-Based Repayment, see
www.IBRinfo.org.
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Borrowers with private student loans, in contrast, can face much
higher costs and have far fewer options when their payments become
unmanageable. They are, ultimately, at the mercy of their lenders
because private loans lack the important deferment options, affordable
repayment plans, loan forgiveness programs and cancellation rights in
cases of death, severe disability and school closure that Federal
student loans provide. Experts agree that private student loans should
only be used as a last resort.
Even borrowers in so much financial distress that they meet the
requirements for declaring bankruptcy find it is nearly impossible to
have student loan debt discharged, whether for Federal or private
loans. To put it plainly, it is currently easier to get relief from
credit card and gambling debt than from student loan debt.
student debt at career colleges: most students borrow
and they borrow more
Student loan debt is rising in all sectors of higher education, but
the career college sector stands out with by far the highest share of
students who borrow and the highest average debt levels. Any way you
slice it, students at career colleges are much more likely to have debt
than students at other types of schools. Nearly every student who
attends a career college winds up with Federal loans, private loans or
both.
In 2007-8, almost all undergraduates (97 percent)
attending 2-year career colleges took out student loans, while only 13
percent of undergraduates attending public 2-year colleges took out
student loans.\7\
---------------------------------------------------------------------------
\7\ Calculations by TICAS on data from U.S. Department of
Education, NCES, NPSAS, 2007-08, http://nces.ed.gov.survey/npsas.
---------------------------------------------------------------------------
In 2007-8, 95 percent of undergraduates attending 4-year
career colleges took out student loans, while only 47 percent of
undergraduates attending public 4-year colleges took out student
loans.\8\
---------------------------------------------------------------------------
\8\ Ibid.
Looking only at those who actually receive an associate's or
bachelor's degree, nearly every student who graduates from a career
college has loans, compared to significantly lower shares of graduates
of other types of schools. And after graduation, degree holders from
career colleges have a lot more debt to pay off, on average, than those
who graduated with debt from public and nonprofit colleges.\9\
---------------------------------------------------------------------------
\9\ The term ``nonprofit colleges'' refers to private nonprofit
colleges throughout this testimony.
At career colleges, 98 percent of associate's degree
recipients had loans in 2007-8 and their average debt was $19,700. At
public and nonprofit colleges, 40 percent of associate's degree
recipients had loans and their average debt was $10,950.\10\
---------------------------------------------------------------------------
\10\ Calculations by TICAS on data from U.S. Department of
Education, NCES, NPSAS, 2007-8, http://nces.ed.gov.survey/npsas.
---------------------------------------------------------------------------
At career colleges, 96 percent of bachelor's degree
recipients had student loans in 2007-8 and their average debt was
$33,050. At public and nonprofit colleges, 65 percent of bachelor's
degree recipients had loans and their average debt was $22,750.\11\
---------------------------------------------------------------------------
\11\ Ibid.
---------------------------------------------------------------------------
Among bachelor's degree recipients, those who attended
career colleges are much more likely to have very high debt. Almost one
in four (24 percent) of all 2008 graduates from 4-year career colleges
owed at least $40,000 in student loans, compared to just 6 percent of
graduates from public 4-year colleges and 15 percent from nonprofit 4-
year colleges. The average debt for all 4-year college graduates with
loans, from all sectors, was $23,200.\12\
---------------------------------------------------------------------------
\12\ The Institute for College Access & Success. High Hopes, Big
Debts (Class of 2008). May 2010. http://ticas.org/files/pub/
High_Hopes_Big_Debts_2008.pdf.
---------------------------------------------------------------------------
private student loans: a particular problem at career colleges
In addition to high overall student debt, the career college sector
has the largest share of students with private student loans, which
carry serious financial risks for borrowers. Like credit cards, private
student loans typically have uncapped, variable interest rates that are
highest for those who can least afford them. Lenders typically reserve
the right to raise interest rates and charge high fees for myriad
reasons and to declare borrowers in default for something as simple as
being a day late on a payment.
Private student loan borrowers do not have access to the important
deferment, repayment, or forgiveness options that come with Federal
student loans. This leaves most private loan borrowers at the mercy of
the lender if they face financial distress due to unemployment,
disability, illness or military deployment, or when a school shuts down
before they can finish their certificate or degree.
The odds of taking out a private loan are highest for students at
career colleges. Among all career college students, 42 percent used a
private loan in 2007-8, the most recent year for which data are
available. At nonprofit 4-year schools, 25 percent of students have
taken out private loans; at public 4-year schools, only 14 percent; and
at community colleges, just 4 percent.\13\
---------------------------------------------------------------------------
\13\ The Institute for College Access & Success. Private Loans:
Facts and Trends. August 2009. http://projectonstudentdebt.org/files/
pub/private_loan_facts_trends_09.pdf. Note that ``private loans'' here
refers to bank and lender-originated private student loans, not all
nonFederal student loans.
---------------------------------------------------------------------------
The majority of students who complete a degree or certificate at a
career college have private loans.
In 2007-8, 60 percent of students who completed an
associate's degree at a career college had private loans, which is four
times the rate for associate's degree completers at community colleges
(15 percent).\14\
---------------------------------------------------------------------------
\14\ Baum, Sandy and Steele, Patricia. How Much are College
Students Borrowing? The College Board. August 2009. http://
advocacy.collegeboard.org/sites/default/files/09b_552_Policy
Brief_WEB_090730.pdf.
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For bachelor's degree completers, 64 percent graduated
from career colleges with private loans, compared to 28 percent at
public 4-year colleges and 42 percent at nonprofit 4-year colleges.\15\
---------------------------------------------------------------------------
\15\ Ibid.
---------------------------------------------------------------------------
Half (51 percent) of those who completed a certificate at
career colleges had private loans, compared to 12 percent at community
colleges.\16\
---------------------------------------------------------------------------
\16\ Ibid.
While private student loans are no more a form of financial aid
than a credit card is when used to pay for tuition or books, they are
sometimes included in financial aid packages, and some colleges offer
their own private loans directly to students. Some career colleges have
been aggressively expanding their own private lending to students who
are at very high risk of default.\17\
---------------------------------------------------------------------------
\17\ Pope, Justin. ``For-Profit Colleges' Increased Lending Prompts
Concerns.'' Associated Press. August 15, 2009. http://www.usatoday.com/
news/education/2009-08-15-profit-college-lending_N.htm.
---------------------------------------------------------------------------
Pushing these students to take on private loan debt they cannot
repay can be devastating for the students in the long run, but quite
profitable for the school. For example, Corinthian Colleges reports
that a ``significant number'' of its students have institutional loans
as well as Federal loans, and the company plans to double its
institutional loan volume to $240 million per year, even though it is
writing-off 55 percent of these loans.\18\ Other large career college
companies, such as ITT Educational Services and Career Education
Corporation, are also lending to their own students, despite
anticipating to write-off in excess of 40 percent of these loans.\19\
---------------------------------------------------------------------------
\18\ Corinthian Colleges Q3 2011 conference call. May 3, 2011.
http://newsroom.cci.edu/eventdetail.cfm?eventid=93960.
\19\ Career Education Corporation Q1 2009 Earnings Call Transcript.
May 7, 2009. http://seekingalpha.com/article/136209-career-education-
corporation-q1-2009-earnings-call-transcript?page=-1. ``For-Profit
Schools Face Detention Not Expulsion.'' Wall Street Journal. August 20,
2010. ITT Educational Services Q1 2011 Earnings Call. April 21, 2011.
http://www.ittesi.com/phoenix.zhtml?c=94519&p=irol-
eventDetails&EventId=3923596.
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These companies consider these loans good investments because their
profits from Federal grant and loan dollars far outweigh these write-
offs. Institutional lending became more common after career colleges
successfully lobbied Congress in 2008 to be able to immediately count
institutional loans towards the 10 percent of revenues they are
required to get from sources other than Federal student aid. From July
2008 through June 2012, the Higher Education Opportunity Act of 2008
(HEOA) temporarily lets them count the net present value of their
institutional loans as non-Federal revenue in the year the loans are
made, rather than counting them as revenue if and when they are
actually repaid by the students.\20\
---------------------------------------------------------------------------
\20\ ``For loans made to students by the institution from July 1,
2008, but before July 1, 2012, the net present value of the loans made
during a fiscal year if the loans are evidenced by promissory notes,
issued at intervals related to the institution's enrollment periods,
and are subject to regular loan repayments and collections. For loans
made on or after July 1, 2012, only the amount of loan repayments the
institution receives during a fiscal year, excluding repayment on any
loans for which the institution previously used the net present value
in its 90/10 calculation.'' From U.S. Department of Education, ``Dear
Colleague'' letter summarizing the Higher Education Opportunity Act
(DCL ID: GEN-08-12 FP-08-10). December 2010. http://www.ifap.
ed.gov/dpcletters/attachments/GEN0812FP0810AttachHEOADCL.pdf.
---------------------------------------------------------------------------
These career college institutional loans are attempts to get around
market corrections that appropriately reduced access to expensive,
subprime private loans for very high-risk borrowers. In 2008, Sallie
Mae stopped most of its lending to these types of schools because of
high default rates and other questionable practices.\21\
---------------------------------------------------------------------------
\21\ ``The Credit Crunch Takes a Toll.'' Inside Higher Ed. January
23, 2008. http://www.insidehighered.com/news/2008/01/23/credit. See
also, Burd, Stephen. Subprime Mess Reaches Higher Ed. Higher Ed Watch.
January 31, 2008. http://higheredwatch.newamerica.net/blogs/
education_policy/2008/01/subprime_student_loan_mess.
---------------------------------------------------------------------------
Subprime institutional lending is also an attempt to evade the
statutory requirement that someone other than the Federal Government
should be willing to pay for a school's education and training. Federal
law allows career colleges to get up to 90 percent of their revenue
from Federal student aid. It is common sense that if no one else is
willing to pay for what a school offers, taxpayers should not be paying
for it either.
Students who are pushed into private loans they cannot afford,
whether the loan is from their school or an outside lender, are stuck
with the debt even in bankruptcy, while the lenders can simply write
off the bad debt and move on. Since 2005, bankruptcy law has treated
private student loans much more harshly than other types of unsecured
consumer debt, such as credit card debt and even gambling debt. Bills
recently introduced in the U.S. Senate (S. 1102) and House of
Representatives (H.R. 2028) would restore fair treatment to private
student loan borrowers in severe financial distress.
low-income and underrepresented minority students borrow more
at career colleges
Most low-income and underrepresented minority students attend
either public or nonprofit schools, with the greatest concentration at
community colleges.\22\ Among all African-American and Hispanic
undergraduates, nearly 8 out of 10 (78 percent) attended public or
nonprofit schools in 2007-8, including 42 percent at community
colleges, while 15 percent attended career colleges.\23\ The
proportions are similar for low-income students and adult students
working full-time: 80 percent of students with below-median incomes
attend public and nonprofit colleges, and 81 percent of students age 24
and older who are working full-time attend public and nonprofit
colleges.\24\
---------------------------------------------------------------------------
\22\ Unless otherwise specified, ``low-income'' refers to students
whose family income is less than the median family income of all U.S.
undergraduates. Family income includes the student's income for all
students plus parents' income for dependent students and a spouse's
income for married independent students. According to the latest
available Federal data (NPSAS: 08), the median income for dependent
undergraduate students was $66,637 in 2008, and the median income for
independent undergraduate students was $26,099. Throughout this
document, ``underrepresented minorities'' refers to African-American
and Hispanic students.
\23\ These percentages do not sum to 100 because some students
attended more than one college during the 2007-8 year.
\24\ Calculations by TICAS on data from U.S. Department of
Education, NCES, NPSAS, 2007-8, http://nces.ed.gov/surveys/npsas.
---------------------------------------------------------------------------
However, while most low-income and underrepresented minority
students attend public colleges, these students are also heavily
recruited by many career colleges, where they enroll disproportionately
and in growing numbers.
African-American and Hispanic students make up 28 percent
of all undergraduates, but they represent nearly half (46 percent) of
undergraduates in the career college sector.\25\
---------------------------------------------------------------------------
\25\ Ibid.
---------------------------------------------------------------------------
Low-income students, many of whom are also students of
color, are also over-represented at career colleges; 64 percent of
students attending career colleges have incomes below the median for
all undergraduates.\26\
---------------------------------------------------------------------------
\26\ Ibid.
The majority of students who are low-income, underrepresented
minorities, and/or adults working full-time do not take out student
loans to pay for college.\27\ However, those who attend career colleges
are much more likely to borrow--and borrow more--than their
counterparts at other types of schools. The data clearly show that
across levels of income and categories of race/ethnicity, career
college students borrow more than those who attend elsewhere.
---------------------------------------------------------------------------
\27\ Ibid.
At career colleges, low-income and minority undergraduates
are about three times more likely to borrow Federal student loans--and
four times more likely to borrow private student loans--as their
counterparts at public or nonprofit colleges.\28\
---------------------------------------------------------------------------
\28\ Ibid.
---------------------------------------------------------------------------
Due at least in part to their over-representation at
career colleges, 17 percent of African-American undergraduates took out
a private student loan in 2007-8, making them the most likely to borrow
these risky products among all racial and ethnic groups. Their rate of
private loan borrowing has also risen the most steeply, quadrupling
from 2003-4 to 2007-8.\29\
---------------------------------------------------------------------------
\29\ Private Loans: Facts and Trends, August 2009. Note that
``private loans'' here refers to bank and lender-originated private
student loans, not all nonFederal student loans.
---------------------------------------------------------------------------
At career colleges, adults working full-time are almost
five times more likely to borrow Federal student loans--and over six
times more likely to borrow private student loans--than their
counterparts at public or nonprofit colleges.\30\
---------------------------------------------------------------------------
\30\ Calculations by TICAS on data from U.S. Department of
Education, NCES, NPSAS, 2007-8, http://nces.ed.gov/surveys/npsas.
---------------------------------------------------------------------------
Pell Grant recipients who graduate from 4-year colleges are more
likely to have debt--and to have high debt--if they attended a career
college. Most Pell Grant recipients have family incomes below $40,000.
Among graduating seniors in 2008, 23 percent of Pell Grant recipients
from career colleges carried at least $40,000 in student loans,
compared to 14 percent at all other colleges.\31\
---------------------------------------------------------------------------
\31\ High Hopes, Big Debts (Class of 2008), May 2010.
---------------------------------------------------------------------------
higher default rates at career colleges: not just demographics
Students who attend career colleges face much higher odds of
defaulting on a Federal student loan than students who attend other
types of schools. As a sector, career colleges have by far the highest
default rate for Federal student loans.\32\
---------------------------------------------------------------------------
\32\ Unless otherwise noted, default rates and shares of defaulters
reflect only those who default within 2 years of first entering
repayment. Federal student loan default data are not available by
borrowers' income or race/ethnicity.
---------------------------------------------------------------------------
Nearly half of all Federal student loan borrowers who
entered repayment in 2009 and defaulted by 2010 attended career
colleges (47 percent), even though only about 10 percent of all
students attended these schools.\33\
---------------------------------------------------------------------------
\33\ Calculations by TICAS on data from U.S. Department of
Education, ``FY 2009 Draft Student Loan Cohort Default Rates,'' posted
May 20, 2011, http://ifap.ed.gov/eannouncements/attachments/
052011AttachFY2009FY2009DraftNationalCDRWithPrior2yrscomparison.pdf,
and U.S. Department of Education, NCES, IPEDS, http://
nces.ed.gov.ipeds. Default figures include borrowers who entered
repayment in Federal fiscal year 2009 and had defaulted by the end of
the 2010 Federal fiscal year.
---------------------------------------------------------------------------
The average 2-year default rate for Federal loan borrowers
at career colleges is more than double the average rate at public
colleges, and it is more than triple the rate at nonprofit
colleges.\34\
---------------------------------------------------------------------------
\34\ Ibid. These 2-year default rates include borrowers who entered
repayment in Federal fiscal year 2009 and had defaulted by the end of
the 2010 Federal fiscal year.
---------------------------------------------------------------------------
The average 3-year default rate at career colleges is 22
percent, again more than double the rate at public colleges and triple
the rate at nonprofit colleges (10 percent and 7 percent,
respectively).\35\ Career colleges with 3-year default rates over 40
percent received more than $217 million in Pell Grants in 2009-10
alone.\36\
---------------------------------------------------------------------------
\35\ Calculations by TICAS on data from the U.S. Department of
Education, ``Trial Three-Year Cohort Default Rates FY 2008.'' http://
federalstudentaid.ed.gov/datacenter/cohort.html. Accessed May 19, 2011.
These 3-year default rates represent Federal student loan borrowers who
entered repayment in Federal fiscal year 2008 and defaulted by the end
of the 2010 Federal fiscal year.
\36\ Calculations by TICAS on data from the U.S. Department of
Education, ``Trial Three-Year Cohort Default Rates FY 2008,'' http://
federalstudentaid.ed.gov/datacenter/cohort.html, and U.S. Department of
Education, Federal Student Aid Data Center, Programmatic Volume
Reports. http://federalstudentaid.ed.gov/datacenter/programmatic.html.
Accessed April 26, 2011. These 3-year default rates represent Federal
student loan borrowers who entered repayment in Federal fiscal year
2008 and defaulted by the end of the 2010 Federal fiscal year.
While student demographics play a role, the evidence is clear that
demographics are by no means the sole explanation for the sector's high
---------------------------------------------------------------------------
default rates. Schools play an important role as well.
The Career College Association's own study concludes that
even after accounting for differences in student demographics, students
attending career colleges are at least twice as likely to default as
students at other types of colleges.\37\
---------------------------------------------------------------------------
\37\ Charles River Associates for the Career College Association.
Report on Gainful Employment. April 2010. http://www.whitehouse.gov/
sites/default/files/omb/assets/oira_1840/1840_0423
2010-h.pdf.
---------------------------------------------------------------------------
Lenders report that the school attended affects a
student's chance of default. In its private student loan business,
Sallie Mae expects to see a 30 percent difference in default rates for
a borrower with a FICO score greater than 700, ``depending on the
school that borrower attends.'' \38\
---------------------------------------------------------------------------
\38\ Student Lending Analytics. Highlights of Sallie Mae Investor
Meeting at Credit Suisse Conference. February 12, 2010. http://
studentlendinganalytics.typepad.com/student_lending_
analytics/2010/02/highlights-of-sallie-mae-investor-meeting-at-credit-
suisse-conference.html.
---------------------------------------------------------------------------
Career college industry executives regularly tell
investors that they can lower their default rates. For example, in a
recent press release, Corinthian Colleges attributes a drop in its
default rates to ``substantial investment in cohort default management
over the past 18 months.'' \39\
---------------------------------------------------------------------------
\39\ Corinthian Colleges, Inc. Corinthian Colleges Reports Fiscal
2011 Third Quarter Results. May 3, 2011. http://investors.cci.edu/
releasedetail.cfm?ReleaseID=573924.
---------------------------------------------------------------------------
A 2010 Education Sector report also documents the role
schools can play in lowering default rates:
``[T]he experience of the Texas HBCUs, along with a new
statistical analysis of cohort default rates, suggests that
dangerously high default rates for institutions that serve at-
risk students are not inevitable . . . Their [the Texas HBCUs]
success is not only applicable to other similar institutions,
but to all schools that serve those students most at risk for
default and who are committed to helping them succeed.'' \40\
---------------------------------------------------------------------------
\40\ Dillon, Erin and Smiles, Robert. Lowering Student Loan Default
Rates: What One Consortium of Historically Black Institutions Did to
Succeed. Education Sector. February 2010. http://
www.educationsector.org/usr_doc/Default_Rates_HBCU.pdf.
Indeed, many career colleges have kept Federal student loan default
rates down during the period when cohort default rates are measured and
could affect schools' eligibility for Federal student aid. In
preparation for the shift from measuring a school's cohort default rate
based on the 2 years of repayment to the first 3 years of repayment,
the U.S. Department of Education has published data showing what school
default rates would look like based on a 3-year window. The default
rates at 202 career colleges were at least 15 percentage points higher
for a 3-year window compared to a 2-year window (e.g., a school's
default rate increased from 20 percent to at least 35 percent when the
additional year was included).\41\ This suggests that colleges kept
defaults down during, but not after, the period in which they were
being tracked as a measure of institutional accountability. These 202
career colleges collectively enrolled 13 percent of all students
attending career colleges. By comparison, only 10 schools in all other
sectors saw a similar increase in their default rates when the window
was extended from 2 to 3 years, and these 10 schools enrolled one-tenth
of 1 percent of students in all other sectors. Clearly, career colleges
are not at the mercy of student demographics when it comes to managing
default rates, and they have demonstrated a willingness and ability to
be responsive to changes in policy that have implications for their
bottom line.
---------------------------------------------------------------------------
\41\ Calculations by TICAS on data from the U.S. Department of
Education, ``Trial Three-Year Cohort Default Rates FY 2008.'' http://
federalstudentaid.ed.gov/datacenter/cohort.html. Accessed May 19, 2011.
Foreign institutions and institutions with 50 or fewer borrowers who
entered repayment in Federal fiscal year 2008 are excluded from the
count of colleges with large increases in default rates.
---------------------------------------------------------------------------
consequences of not completing are worse for students at career
colleges
Completion rates vary considerably both across and within different
types of schools.\42\ Some schools offer more support than others to
help students succeed and do a better job of matching students with
programs suited to them, and students can face all kinds of obstacles
to completing their course of study, from financial challenges to
family health crises.
---------------------------------------------------------------------------
\42\ See, for example: Haycock, Kati, Lynch, M., and Engle, J.
Opportunity Adrift: Our Flagship Universities are Straying from their
Public Mission. The Education Trust. January 2010. http://
www.edtrust.org/sites/edtrust.org/files/publications/files/
Opportunity%20Adrift%28%29.pdf. Hess, Frederick, et al. Diplomas and
Dropouts: Which Colleges Actually Graduate their Students (and Which
Don't). American Enterprise Institute. June 2009. http://www.aei.org/
docLib/Diplomas%20and%20Dropouts%20final.pdf. Miller, Ben, and Ly, P.
``College Dropout Factories.'' Washington Monthly. August 23, 2010.
http://www.washingtonmonthly.com/college_guide/feature/
college_dropout_factories.php?page=all.
---------------------------------------------------------------------------
Graduaion rates are much lower at career colleges than at other
types of colleges for students seeking bachelor's degrees, as
documented by a report issued last year by the College Board.
The 6-year graduation rate for first-time, full-time
bachelor's degree students is just 22 percent at 4-year career
colleges, less than half the rate at public 4-year colleges (55
percent) and only a third of the rate at nonprofit 4-year colleges (65
percent).\43\
---------------------------------------------------------------------------
\43\ Baum, Sandy, Ma, J., and Payea, K. Education Pays: The
Benefits of Higher Education for Individuals and Society. The College
Board. September 2010. http://trends.collegeboard.org/downloads/
Education_Pays_2010.pdf.
---------------------------------------------------------------------------
This rate is lowest for African-American students at
career colleges (16 percent), much lower than for African-American
students at public 4-year colleges (39 percent) or nonprofit colleges
(45 percent). Career colleges also have the widest gap between
bachelor's degree completion rates for African-American students and
for White and Asian students.\44\
---------------------------------------------------------------------------
\44\ Ibid.
A recent study by The Education Trust found that low graduation
rates at career colleges cannot be explained away by their admissions
---------------------------------------------------------------------------
policies.
At open admission colleges, where all applicants are
admitted, the graduation rate at 4-year career colleges (11 percent)
was about three times lower than the rates at public and nonprofit 4-
year colleges (31 percent and 36 percent, respectively).\45\
---------------------------------------------------------------------------
\45\ The Education Trust. Subprime Opportunity: The Unfulfilled
Promise of For-Profit Colleges and Universities. November 2010. http://
www.edtrust.org/sites/edtrust.org/files/publications/files/
Subprime_report_1.pdf. The study measured 6-year graduation rates at 4-
year colleges.
---------------------------------------------------------------------------
At the most selective colleges, which admit less than 50
percent of applicants, career colleges still had the lowest graduation
rates: 43 percent, compared to 62 percent at public colleges and 78
percent at nonprofit colleges.\46\
---------------------------------------------------------------------------
\46\ Ibid.
These graduation rates, which all colleges report annually to the
U.S. Department of Education, paint an incomplete picture because they
only capture full-time students who complete a degree or certificate
from the college where they first enrolled. However, recently released
persistence and completion data from a national longitudinal study that
includes part-time and transfer students reveal the same trends, not
only for students pursuing bachelor's degrees, but for those pursing
associate's degrees and certificates as well.
Taking into account part-time and transfer students, students at
career colleges still have the least favorable outcomes. Students who
started at career colleges in 2003-4 were much less likely to complete
a credential or stay enrolled than those who started at other types of
colleges.\47\ In other words, students who started at career colleges
were more likely to drop out without a degree or certificate.
---------------------------------------------------------------------------
\47\ Persistence and Attainment of 2003-4 Beginning Postsecondary
Students: After 6 Years. December 2010. U.S. Department of Education,
National Center for Education Statistics. http://nces.ed.gov/pubs2011/
2011151.pdf.
More than three-quarters of students starting at public
and nonprofit 4-year colleges persist or complete (78 percent and 81
percent, respectively), compared to less than half of students who
first enroll at 4-year career colleges (45 percent).\48\
---------------------------------------------------------------------------
\48\ Ibid.
---------------------------------------------------------------------------
Students starting at public and nonprofit 2-year colleges
have roughly comparable persistence and completion rates as those
starting at 2-year career colleges, but they are more likely to
complete credentials with higher value. Twelve percent of students
starting at community colleges ended up completing a bachelor's degree
within 6 years, compared to almost no students (0 percent) at 2-year
career colleges.
Because nearly all students at career colleges borrow to cover the
high costs, the consequences of not completing are far worse for
students who drop out of career colleges. Drop-outs from career
colleges are much more likely to have student loans and have higher
debt than drop-outs from other colleges. Four out of five (81 percent)
students who started at career colleges in 2003-4 and dropped out
within 3 years took out student loans, compared to 23 percent of
students who dropped out of public and nonprofit colleges. Of those who
borrowed, the drop-outs from career colleges left with much higher debt
(17 percent more) than students who dropped out from public and
nonprofit colleges.\49\
---------------------------------------------------------------------------
\49\ Calculations by TICAS on data from U.S. Department of
Education, National Center for Education Statistics (NCES), 2003-04
Beginning Postsecondary Students Longitudinal Study, Second Follow-up
(BPS:04/09). http://nces.ed.gov/surveys/bps/.
---------------------------------------------------------------------------
Moreover, students who drop out of career colleges are much more
likely to default on their Federal loans than students who drop out of
other types of colleges. More than one in five (23 percent) students
who started at career colleges in 2003-4 and dropped out within 3 years
were in default on their Federal student loans in 2009, compared to 3
percent of students who dropped out of public and nonprofit
colleges.\50\
---------------------------------------------------------------------------
\50\ Ibid.
---------------------------------------------------------------------------
In other words, students are taking a much bigger risk by going to
a costly career college than to a community college. Students who do
not or cannot finish a program of study at a career college are likely
to be left with a lot of debt that will be difficult to pay off. In
contrast, those who attend community college and find that they cannot
keep up with the coursework because of a family illness or job loss, or
who determine that they are not suited for the field of study they were
pursuing, will probably have no debt, or very little debt, to pay off.
Those who did borrow to attend community college will in most cases
have only Federal student loans, which give borrowers many more options
for managing their debt and staying out of default.
debt for worthless degrees--when completion doesn't pay
While college completion, in general, leaves students better off, a
worthless or grossly overpriced credential can be worse than no
credential at all, especially if the graduate borrowed to pay for it.
We analyzed recently released data and found that students who complete
a degree or certificate at a career college are at much greater risk of
defaulting than students who graduate from other types of schools.
Among students who started in 2003-4 and completed an associate's
degree or certificate by 2006, those who attended career colleges were
four times more likely to be in default in 2009 than those who attended
public or nonprofit colleges (12 percent vs. 3 percent,
respectively).\51\ In fact, completers at career colleges were much
more likely to be in default than students who dropped out of public
and nonprofit colleges.
---------------------------------------------------------------------------
\51\ Ibid.
---------------------------------------------------------------------------
The associate's degree and certificate completers from career
colleges were also almost twice as likely to be unemployed. Forty-one
percent of students completing associate's degrees or certificates at
career colleges by 2006 experienced 3 months or more of unemployment
since their graduation, compared to 22 percent of students graduating
from public and nonprofit colleges.\52\
---------------------------------------------------------------------------
\52\ Ibid.
---------------------------------------------------------------------------
At previous hearings, this committee heard testimony that may help
to explain why so many career college graduates experience unemployment
and default. Last June, Yasmine Issa, a single mother, testified that
she completed a career college program that purported to prepare her
for work as a sonographer, only to find out $32,000 later--including
$15,000 in loans--that the program did not actually qualify her to sit
for the licensing exam or work in the field. The school's recruiters
went out of their way to tell her that the school was accredited, but
what they did not tell her was that its sonography program was
unaccredited and effectively worthless. She found out too late that the
local community college offered an accredited sonography program for
about half the cost.
It is unlikely that any student would know that an accredited
school could offer an unaccredited program. As David Hawkins of the
National Association for College Admission Counseling (NACAC) testified
before this committee last August, ``the information asymmetry between
the employees in charge of recruiting and prospective students is
immense. In an unregulated environment, the potential for
misrepresentation and outright fraud is a clear and present threat,
which can result in harm to students and, in the case of Federal aid
and loans, to the taxpayer.'' \53\
---------------------------------------------------------------------------
\53\ Testimony of David Hawkins, Director of Public Policy and
Research, National Association for College Admission Counseling, before
the Senate Health, Education, Labor, and Pensions Committee, Hearing on
Marketing and Recruitment in For-Profit Education. August 4, 2010.
http://help.senate.gov/imo/media/doc/Hawkins1.pdf.
---------------------------------------------------------------------------
For example, an article in last June's issue of Good Housekeeping
magazine offered a thoughtful but daunting list of 11 different kinds
of research students should do if they are considering a career
college, from checking with local public colleges to see if they offer
similar programs at lower cost, to interviewing prospective employers,
to figuring out the name of the school's parent company and, if it is
publicly held, reading its most recent 10-K filing with the SEC.\54\
The ability to interpret corporate SEC filings and detailed knowledge
of the different types of accreditation should not be required to avoid
getting ripped off by a career college.
---------------------------------------------------------------------------
\54\ Yeoman, Barry. ``School of Hard Knocks.'' Good Housekeeping.
June 2010. http://www.barryyeoman.com/articles/hardknocks.html.
---------------------------------------------------------------------------
Other questionable practices by career colleges can lead to
worthless degrees. The Chronicle of Higher Education recently reported
that former and current career college employees say the schools
pressure them to falsify attendance records, raise grades and
manipulate job-placement numbers.\55\ According to The Chronicle,
---------------------------------------------------------------------------
\55\ Field, Kelly. ``Faculty at For-Profits Allege Constant
Pressure to Keep Students Enrolled.'' The Chronicle of Higher
Education. May 8, 2011. http://chronicle.com/article/Pawns-in-the-For-
Profit/127424/.
``More than a dozen current and former professors from six of
the seven largest publicly traded education companies say they
were leaned on to dumb down courses, offer lengthy extensions
---------------------------------------------------------------------------
and change failing grades.''
The article also confirmed that many career colleges tie teacher
pay to the number of students who complete their classes, creating a
strong financial incentive for teachers to pass students regardless of
a student's performance. Faculty members reported tremendous pressure
to keep students enrolled and keep their grades high enough so that
they continue qualifying for Federal student aid, the primary source of
revenue for most career colleges. In fact, former faculty at ITT
Technical Institute reported being fired after reporting altered grades
or refusing to change students' grades.
costs and risks for taxpayers
Because the career college industry relies on federally funded
grants and taxpayer-backed loans for the bulk of its revenue,
taxpayers, as well as students, have a lot at stake in the quality and
cost of career college education. While career colleges have a
fiduciary responsibility to act in the best interest of their
shareholders and generate profits, Congress has a fiduciary
responsibility to act in the best interest of taxpayers.
This committee's June 2010 report, Emerging Risk, outlined just how
heavily taxpayers are subsidizing the career college industry.\56\
While career colleges may get up to 90 percent of their revenue from
Federal student aid from the Department of Education (Title IV grants
and loans), that extraordinarily high percentage currently excludes
some Federal student loans, and it does not include other government
revenue sources, such as G.I. bill benefits or Federal job training
funds. Here are just a few examples of how much taxpayers are spending
on career colleges.
---------------------------------------------------------------------------
\56\ U.S. Senate Health, Education, Labor, and Pensions Committee.
Emerging Risk?: An Overview of Growth, Spending, Student Debt and
Unanswered Questions in For-Profit Higher Education. U.S. Senate. June
24, 2010. http://harkin.senate.gov/documents/pdf/4c23515814dca.pdf.
One in four Federal Pell Grant dollars ($7.6 billion) went
to students attending career colleges in 2009-10, almost double the
share a decade earlier.\57\ In the coming year, career colleges are
expected to receive an estimated $10.2 billion in Pell Grant
dollars.\58\
---------------------------------------------------------------------------
\57\ Calculations by TICAS on data from U.S. Department of
Education, Office of Postsecondary Education (OPE). ``Pell End of Year
Report, 2009-10'' and ``Pell End of Year Report, 1999-2000.'' http://
www2.ed.gov/finaid/prof/resources/data/pell-data.html, accessed May 19,
2011.
\58\ Calculations by TICAS on data from U.S. Department of
Education. ``Fiscal Year 2012 Budget Request: Student Financial
Assistance.'' http://www2.ed.gov/about/overview/budget/budget12/
justifications/p-sfa.pdf.
---------------------------------------------------------------------------
One in four Federal loan dollars ($25.0 billion) went to
students at career colleges in 2009-10, more than double the share in
1999-2000.\59\ In the coming year, career colleges are expected to
account for an estimated $33 billion in Federal student loans.\60\
---------------------------------------------------------------------------
\59\ Calculations by TICAS on data from U.S. Department of
Education, Federal Student Aid Data Center, Programmatic Volume
Reports. http://federalstudentaid.ed.gov/datacenter/programmatic.html,
accessed May 19, 2011.
\60\ Calculations by TICAS on data from the U.S. Department of
Education. ``Fiscal Year 2012 Budget Request: Student Loans Overview.''
http://www2.ed.gov/about/overview/budget/budget12/justifications/s-
loansoverview.pdf.
---------------------------------------------------------------------------
In the first year of the Post-9/11 G.I. bill, 36 percent
of tuition payments ($640 million) went to career colleges.\61\ Current
and former recruiters report intense pressure to enroll veterans, whose
Federal aid dollars from the G.I. bill do not count toward career
colleges' 90 percent cap on revenue from the Federal Government. One
former military admissions adviser said, ``[W]e knew that most of them
would drop out after the first session. . . . Instead of helping
people, too often I felt like we were almost tricking them.'' \62\
---------------------------------------------------------------------------
\61\ Lipton, Eric. ``Profits and Scrutiny for Colleges Courting
Veterans.'' The New York Times. December 8, 2010. http://
www.nytimes.com/2010/12/09/education/09colleges.html?ref=for
profitschools.
\62\ Ibid.
---------------------------------------------------------------------------
About 40 percent of the $580 million in tuition assistance
for active-duty troops went to online career colleges in fiscal year
2010.\63\ Online career colleges that market heavily to members of the
military typically price their course credits at the maximum amount
covered by G.I. bill benefits, $250, which can be five times more than
the cost of community college credits offered on military bases.\64\
---------------------------------------------------------------------------
\63\ Reed, Charlie. ``DOD to tighten scrutiny of for-profit, online
colleges.'' Stars and Stripes. September 24, 2010. http://
www.stripes.com/news/dod-to-tighten-scrutiny-of-for-profit-online-
colleges-1.119391.
\64\ Golden, Dan. ``Marine Can't Recall His Lessons at For-Profit
College.'' Bloomberg. December 15, 2009. http://www.bloomberg.com/apps/
news?pid=newsarchive&sid=al8HttoCG.ps.
---------------------------------------------------------------------------
In addition, some State grants can be used to attend
career colleges. For example, in California, career college students
received $94 million in State Cal Grants in 2009-10, much more than the
$78 million awarded to community college students.\65\ By contrast, the
State's community colleges enroll eight times as many students as
career colleges in the State.\66\
---------------------------------------------------------------------------
\65\ Morain, Dan. ``Cut waste? Start with for-profit colleges.''
The Sacramento Bee. February 17, 2011. http://www.sacbee.com/2011/02/
17/3409537/cut-waste-start-with-for-profit.html#story
link=misearch.
\66\ Calculations by TICAS on data from U.S. Department of
Education, NCES, IPEDS. http://nces.ed.gov.ipeds.
The career college industry readily admits that their programs cost
students much more than similar programs elsewhere. The best available
estimate for the average, undiscounted cost of tuition and fees for
career colleges in 2010-11 is nearly $14,000, which is almost twice the
average undiscounted cost for in-state students at public 4-year
colleges, and more than five times the cost at public 2-year
colleges.\67\
---------------------------------------------------------------------------
\67\ The College Board. Trends in College Pricing 2010. http://
trends.collegeboard.org/college_pricing/report_findings/indicator/
Tuition_and_Fee_and_Room_and_Board_
Charges_2010_11.
---------------------------------------------------------------------------
Even after taking substantial State subsidies for public colleges
into account, taxpayers and students combined can still end up paying
less for career education programs at public colleges than at career
colleges. This is what the Florida Office of Program Policy Analysis
and Government Accountability (OPPAGA) found last year, when it
compared five career education programs offered by both public and
career colleges in the State.\68\
---------------------------------------------------------------------------
\68\ Florida Office of Program Policy Analysis and Government
Accountability (OPPAGA), Public Career Education Programs Differ From
Private Programs on Their Admission Requirements, Costs, Financial Aid
Availability, and Student Outcomes. January 2010. http://www.oppaga
.state.fl.us/MonitorDocs/Reports/pdf/1018rpt.pdf.
Three out of the five programs studied cost thousands of
dollars less at public colleges than at career colleges after combining
the student and State contributions. These programs were $2,250 to
nearly $5,100 cheaper at public colleges. The two programs that cost
less at career colleges were cheaper by much smaller amounts: $46 and
$837.
One career college program--massage therapy--had a per-
student cost more than double the public college program's cost, along
with fewer completions and a lower pass rate on the licensure exam.
The public programs also had much higher rates of
accreditation and much higher pass rates on licensure and certification
exams. For example, 95 percent of the public phlebotomy programs were
accredited, compared to 26 percent of the career college programs.
deja vu all over again
Sadly, this is not the first time that these kinds of problems have
emerged in the career college sector. Following the creation of the
G.I. bill in 1944, thousands of career colleges sprung up virtually
overnight to enroll veterans.\69\ In response to well-founded concerns
about waste, fraud and abuse, Congress established an important market
mechanism for veteran education programs. It capped the percentage of a
program's students that could receive veteran benefits at 85 percent.
This ``85-15 Rule'' is intended to ensure that at least 15 percent of a
program's students are willing to pay the sticker price without the
Federal subsidy.\70\
---------------------------------------------------------------------------
\69\ Altschuler, Glenn C. and Blumin, Stuart M. The G.I. bill: A
New Deal for Veterans. Oxford University Press. 2009.
\70\ Decision by the U.S. Supreme Court: 435 U.S. 213, 98 S.Ct.
1024, 55 L.Ed.2d 225, Max CLELAND, Administrator of the Veterans
Administration, et al. v. National College Of Business, No. 77-716.
March 20, 1978.
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In 1972, amendments to the Higher Education Act allowed career
colleges to participate in the Federal Title IV Student Financial
Assistance programs for the first time. Problems arose almost
immediately. Throughout the next two decades, there were congressional
hearings, investigations and legislative attempts to uncover and thwart
deceptive and fraudulent practices in the career college sector. The
most notable investigation came in 1990, when the Senate Permanent
Subcommittee on Investigations, led by Senator Sam Nunn, documented a
wide range of pervasive problems plaguing virtually every part of
career college administration and oversight.\71\
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\71\ The 1990 hearings culminated in Senate Report 102-58, Abuses
in Federal Student Aid Programs, Report Made by the Permanent
Subcommittee on Investigations of the Committee on Governmental
Affairs, United States Senate, May 17, 1991.
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In response, Congress passed a series of reforms in 1992 with
strong bipartisan support. These included establishing an 85-15 rule
for title IV financial aid, modeled after the G.I. bill provision but
focused on revenues rather than students. It required career colleges
to get at least 15 percent of their revenues from sources other than
title IV programs. A ``50 percent rule'' made schools ineligible for
title IV funds if more than half their courses were provided through
correspondence. The 1992 reforms also banned incentive compensation for
college recruiters and personnel. The results were clear. In less than
10 years, career college default rates fell from 29 percent in 1991 to
9 percent in 2000.\72\
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\72\ Calculations by TICAS on U.S. Department of Education data on
student loan defaults, for Federal fiscal years 1991 and 2000.
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However, it did not take long for the newly strengthened rules to
get weakened under intense lobbying from the career college industry.
In 1998, Congress reduced the percentage of revenue that schools had to
obtain from non-title IV sources from 15 percent to 10 percent
(changing the 85-15 rule to 90-10). This was just 1 year after a GAO
report concluded that career colleges that relied more heavily on title
IV funds tended to have poorer student outcomes: ``Our analysis showed
that, on average, the higher a school's reliance on title IV, the lower
its students' completion and placement rates, and the higher its
students' default rates.'' \73\ The rules continued to be watered down
through the 2000s, including:\74\
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\73\ GAO. Proprietary Schools: Poorer Student Outcomes at Schools
That Rely More on Federal Student Aid, GAO/HEHS-97-103 Proprietary
Schools and Student Aid. June 1997.
\74\ Congressional Research Service Report RL-33909. Institutional
Eligibility for Participation in Title IV Student Aid Programs Under
the Higher Education Act: Background and Reauthorization Issues, by
Rebecca R. Skinner.
2002--The Department of Education added ``safe harbors''
to the ban on incentive compensation which, in direct contradiction to
the statute, allowed forms of incentive compensation. These loopholes
directly contributed to the growth of high-pressure recruiting tactics
at some career colleges.\75\
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\75\ Testimony of David Hawkins, Director of Public Policy and
Research, National Association for College Admission Counseling, before
the Senate Health, Education, Labor, and Pensions Committee, Hearing on
Marketing and Recruitment in For-Profit Education. August 4, 2010.
http://help.senate.gov/imo/media/doc/Hawkins1.pdf.
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2005--The rule limiting ``correspondence'' courses to 50
percent of a college's total enrollment was gutted by eliminating the
requirement that telecommunications (i.e., online) courses be included
in the count. Doing so allowed short-term, online programs to be
eligible for Federal aid for the first time. This opened the door to
100 percent online colleges, enabling colleges to double in size
virtually overnight.
2008--The Higher Education Opportunity Act (HEOA)
substantially weakened the already weak 90-10 rule. It allowed career
schools to immediately count institutional loans towards their 10
percent of non-Federal revenues, rather than counting them as they are
repaid; allowed schools to count some title IV aid towards the 10
percent, rather than the 90 percent, side of the 90-10 calculation; and
eased penalties for career colleges that fail to comply with the 90-10
rule.
Unfortunately and predictably, weakened regulation and reduced
oversight, combined with a large potential revenue stream of Federal
dollars, have led once again to an environment where the incentives for
career colleges to game the system appear to exceed the risks. At the
same time, the risks to students and taxpayers are much larger in scale
and cost than ever before.
The last time Congress cracked down on abuses at career colleges,
the sector was a shadow of the size it is today. In 1991--the point at
which the Permanent Subcommittee on Investigations found career
colleges to be ``leaving hundreds of thousands of students with little
or no training, no jobs, and significant debts that they cannot
possibly repay''--there were fewer students enrolled in the entire
career college sector than there are enrolled today in just the
University of Phoenix. In 1991, the University of Phoenix enrolled just
over 7,000 students.\76\ Today, it enrolls more than 400,000.\77\
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\76\ Calculations by TICAS on data from U.S. Department of
Education, NCES, IPEDS, http://nces.ed.gov.ipeds.
\77\ Apollo Group Q2 2011 earnings call transcript. March 29, 2011.
http://seekingalpha.com/article/260792-apollo-group-s-ceo-discusses-
f2q11-results-earnings-call-transcript.
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The fact that career colleges are growing quickly is not inherently
problematic, but the high stakes for both students and taxpayers
suggest that the sector should be actively and carefully monitored.
The Obama administration has taken some important steps in this
direction. In 2009, the U.S. Department of Education convened a panel
of negotiators to develop stronger rules for ensuring the integrity of
the Federal financial aid programs. These rules apply to all types of
colleges, but the problems they address are most frequently seen in
career colleges, where the financial incentives for owners and
investors to profit from Federal student aid can run counter to the
best interests of students and taxpayers.
Next month, on July 1, 2011, the first of these regulations will go
into effect. For example, new incentive compensation rules eliminate
the ``safe harbors'' created in 2002, bringing the regulation back in
line with the Federal law banning payments to college employees and
contractors based on how many students they enroll or how much Federal
aid they bring in. Under the new rules on misrepresentation, schools
are prohibited from misleading students about critical aspects of their
programs, such as cost, subject matter, and graduates' ability to get
jobs in their field. The new Ability-to-Benefit (ATB) rule removes
harmful conflicts of interest from the administration of screening
tests to students who lack a high school diploma or GED, reducing the
odds that such students will be fraudulently classified as eligible for
Federal grants and loans. The career college trade association has
filed a lawsuit against the Department of Education seeking to block
several of these common-sense rules, including the provisions on
misrepresentation.\78\
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\78\ Career College Assn. d/b/a Assn. of Private Sector Colleges
and Universities v. Duncan and U.S. Dept. of Ed., (Filed D.C. Cir., 11
Jan. 2011). http://www.career.org/iMISPublic/AM/CM/
ContentDisplay.cfm?ContentFileID=12948&MicrositeID=0&FusePreview=Yes.
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Last year, Congress wisely gave the new Consumer Financial Reform
Bureau authority over private student loans, including supervisory and
investigatory authority over private student lending by career colleges
and other nonbank lenders. Thanks to an amendment by Senators Sherrod
Brown, Bennet, Franken and Mikulski, the Bureau will include a Private
Education Loan Ombudsman, which for the first time will give private
loan borrowers a place to turn for help and give policymakers a clear
view of what these consumers are experiencing.
Recently, 11 State attorneys general from both parties launched a
joint investigation of the career college industry's recruiting,
financing and other practices, and the Justice Department and at least
two State attorneys general joined a whistleblower lawsuit against one
of the largest publicly traded career college corporations.\79\
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\79\ Wallack, Todd. ``Mass. investigating top for-profit college:
AG demands University of Phoenix data on recruiting, finances.'' The
Boston Globe, May 17, 2011. http://articles.boston.com/2011-05-17/
business/29552871_1_college-access-success-college-students-schools;
Lewin, Tamar. ``Questions follow leader of for-profit colleges.'' The
New York Times. May 26, 2011. http://www.nytimes.com/2011/05/27/
education/27edmc.html?_r=1.
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Last week, the Administration took a modest step toward preventing
Federal taxpayer dollars from being wasted on those career education
programs that leave students with little but insurmountable debt. The
final gainful employment rule applies to all career education programs,
whether offered by a public, non-profit or for-profit college. By
defining gainful employment, the Department will be able to enforce the
long-standing Federal law requiring all post-secondary career education
programs that receive Federal financial aid to ``prepare students for
gainful employment in a recognized occupation.''
The final rule, by including private student loans in its debt
measures, may help to discourage the types of subprime private student
lending discussed earlier. And because the final rule is based in part
on whether a program's former students are repaying their loans, it may
also provide a disincentive for schools to simply delay defaults--
through deferments and forbearances--until after the period when
schools are held accountable for them.
Unfortunately, the final rule does not provide strong, immediate
protections for students and taxpayers and will allow many programs
that over-charge and under-deliver to continue to receive Federal
student aid. A broad coalition of student, civil rights, consumer,
higher education and college access organizations submitted a series of
recommendations to strengthen the modest draft rule published last
July, none of which were incorporated.\80\ Programs with debt levels
well beyond what experts recommend, and where very few former students
are repaying their loans, will continue to receive millions of taxpayer
dollars. While the final rule is a step in the right direction for
students, including veterans, and taxpayers, it is substantially weaker
than the draft rule and it will take longer to protect students and
taxpayers from the worst of the programs.
---------------------------------------------------------------------------
\80\ ``Coalition Letter to the Honorable Arne Duncan, Secretary of
Education.'' Protect Students and Taxpayers. August 12, 2010. http://
www.protectstudentsandtaxpayers.org/wp-content/uploads/2011/06/
Coalition-ltr-on-GE-NPRM-September-9.pdf.
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More needs to be done--by the Administration, Congress, States,
schools and others. For example, the Department of Education already
has authority to address some of the troubling practices uncovered by
this committee's investigation and oversight hearings, and soon the
Consumer Financial Protection Bureau will also. Where the
Administration does not believe it has adequate authority, it should
request it from Congress. The Department is initiating a new negotiated
rulemaking process to address issues related to Federal student loans,
which gives the Administration an important opportunity to tighten some
regulations and provide needed relief to students, veterans and
taxpayers who have been harmed by school practices. Congress also
should do more to hold schools accountable for taxpayer funds and to
more closely align the incentives for schools with the interests of
students and taxpayers. Taxpayers should not be subsidizing worthless
or overpriced programs, and students--and our economy--should not be
saddled with unmanageable debt by unscrupulous schools.
Thank you for holding today's hearing and for the opportunity to
testify today. I look forward to answering your questions.
The Chairman. Ms. Abernathy, thank you for your testimony
and thank you very much for the Institute and all the great
work that you've done. As you can probably tell, some of the
things that we use are from the analysis that you have provided
through your institute.
We will begin a round of 7-minute questions now. I want to
start with Mr. Schmitt, and again to thank you for
personalizing this and bringing it to a personal basis. I thank
you for writing me that letter, otherwise we never would have
known you.
Mr. Schmitt. You are welcome.
The Chairman. Mr. Schmitt attended Kaplan, which he said
has a strong presence in Iowa, but I don't think it is unique
to Kaplan. I also want to make it very clear, that Kaplan
stands alone amongst the large, for-profit education companies
for having taken what are, in my opinion, real and significant
steps to reduce high withdrawal rates and high default rates by
implementing the Kaplan Commitment Program. I have followed
this over the last year, the program allows a student to attend
actual classes for a 5-week period at which time Kaplan or the
student may decide that the student should not continue, but
with no cost to the student and no Federal loans or grants
being taken out.
I would also like to note that Kaplan Higher Education and
its CEO, Andrew Rosen, have been standouts for the level of
cooperation that they have offered to the committee through the
course of this investigation. So again, I want to compliment
Kaplan for taking these very, very significant steps.
However, that is not to lessen what has happened to Mr.
Schmitt and so many others who attended Kaplan and other career
colleges around the United States.
One question, you said you had an externship and they had
you placed, Kaplan counted you as successfully placed. Why
didn't that work out?
Mr. Schmitt. That externship was in a law office that was,
to put it mildly, in a State of chaos that eventually that
lawyer was suspended indefinitely.
The Chairman. Disbarred?
Mr. Schmitt. No, just suspended indefinitely.
The Chairman. I see.
Mr. Schmitt. I really didn't want to count that against
Kaplan, because there is no way they could control that lawyer,
but I figured out fairly early on that that employment
relationship was not going anywhere.
The Chairman. Your written testimony made reference, and I
think you made a slight reference in your testimony to the dean
encouraging you to go to Kaplan's law school.
Mr. Schmitt. Yes.
The Chairman. How did that factor into your education and
what did you discover? You discovered that you couldn't take
the Iowa Bar?
Mr. Schmitt. Yes. During the conversation with the dean
about adding the later classes for my associates graduation it
came out that I was interested in going to law school. He told
me about Concord University and that they offered a law school
online. It never came up during that conversation that Concord
Law does not allow you to sit for the bar in Iowa.
So I continued back for my bachelors. And the only way I
ended up finding out is a one-term adjunct instructor came in,
about three-quarters into my bachelors degree and when I was
just talking to her about my plans, she said, you can't sit for
the bar in Iowa with a degree from Concord. By that point it
was too late, what was I supposed to do, drop out?
The Chairman. Mr. Henderson, let me turn to you. I would
like to have the chart, Document No. 1 put up, if I could,
please.
It is a recruiting training manual produced by Corinthian.
You should have that, I hope you have that in front of you. Do
you have that or not? Can you see the chart there, Wade?
Mr. Henderson. Yes.
The Chairman. There's a section called ``Common Objections
and Responses,'' from the recruiting training manual. The first
reads, ``How much does it cost?'' The proposed training
response is, ``John, the cost of the program will vary. Is your
question really how much is it going to cost in out-of-pocket
dollars?''
The second objection is, ``Can you tell me the cost of your
course?'' To which the proposed response is, ``If you are like
most people I talk to, you are probably more concerned with how
you can pay for school than how much it costs.''
This document goes on to other subjects such as
transferability of credits. I would urge all members of the
committee to read the entire document, but what I am getting at
here is recruiting.
You pointed out in your testimony, let me find it here,
that in some of the documents--we have one company's training
manual, that was Vatterott Training Manual for Recruiting
Staff, identified the following quote, ``Student Profiles for
Recruitment.'' This is in your testimony. Here is who they want
to go after, welfare mom with kids, pregnant ladies, they need
an update on that.
[Laughter.]
Recent divorce, low self-esteem, vocational rehabilitation,
experienced a recent death, physically, mentally abused, drug
rehabilitation, fired, laid off. And so it just seems to me
that many times what they are doing is they are targeting, I
think as Miss Abernathy pointed out, they are actually
targeting low-income people for getting them recruited into the
schools.
Do you suppose this has anything to do with the fact that
the poorer the student--here is the kind of a business model,
the poorer the person you can go after, the more they qualify
for higher Pell Grants and higher student loans, obviously.
Mr. Henderson. Absolutely.
The Chairman. If you are not poor you don't quality for
either.
Mr. Henderson. Absolutely.
The Chairman. So the poorer you are the more you get and
the more you then turn over to the school. So it seemed to me
that these schools would be targeted, very low-income minority
students, and I think you pointed out or Miss Abernathy,
sometimes your testimonies overlapped a little bit on the
proportion of African-American and Hispanics that are recruited
by these schools.
Mr. Henderson. Absolutely.
The Chairman [continuing]. So, address yourself to that and
those types of recruiting. Because a lot of people say, ``well
why do these kids go to these schools? Why do they go if they
are so expensive? Why do these kids do this?''
Mr. Henderson. Chairman Harkin, I think your question, your
perceptive question goes to the very heart of the business
model of many of the for-profit institutions that we have
investigated.
Let me say at the outset, that for-profit colleges have an
important role to play in the overall scheme of educational
opportunities. I think most of the witnesses this morning have
confirmed that. However, you pointed out correctly that there
does seem to be, at least in some instances, and the one you
cited from my testimony, where some schools actually target
individuals who are clearly vulnerable to an overstatement of
the promises that the school can deliver. It is the most
graphic case of let the buyer beware, you know, caveat emptor,
that we have seen in terms of how educational opportunities are
provided.
Not to take us too far afield, many of the problems that we
are addressing today have their genesis in the lack of quality
public education available to students in schools around the
country. That is obviously something that we in the civil
rights community have focused on for generations and are trying
mightily to challenge. The lack of investment in early
childhood education often leave kids with a quarter of a
million vocabulary deficit at the start of school and that
achievement gap is never overcome.
Having said that, these programs that we are talking about
today offer the last clear chance of the promise of educational
opportunity and what it can bring to students. When Mr. Schmitt
said today that ``look, it may be too late for me, having now
saddled myself with $45,000 in nondischargeable debt and
dealing with the struggles of keeping a family together,'' it
broke my heart because there are many individuals like Mr.
Schmitt who believed the overstated promises that these schools
often use as inducements for registration and enrollment. And
without some sort of guard, some regulation to limit what
schools can say and promises, victims like Mr. Schmitt abound.
So who among us hasn't seen the television ad of the young
woman in pajamas, shortie pajamas, talking about how wonderful
it would be to sit before the computer all day doing my school
work. What an attractive inducement that is to take advantage
of the opportunity she promises. And yet behind that you see
the very kinds of rampant techniques, which are indeed borne
from rapacious greed.
I do understand there is a fiduciary responsibility in the
private market to address the interests of your shareholders.
But there has to be a concomitant balance in favor of the
public interest that says that modest regulation, that prevents
the exploitation of individuals who, because of their lack of
formal educational attainment, do need to have someone who is
sitting in place or in judgment of the quality of the
advertising that is out there. I think the evidence that Miss
Abernathy has unearthed and her organization has identified and
that we presented in our testimony confirms that very point.
One last point, Mr. Chairman. The Consumer Financial
Protection Bureau that you and others fought so hard to create,
is designed to prevent precisely the kind of exploitation that
we see in an unregulated or loosely regulated market that
purports to offer opportunity when, in fact, it is debt
designed as opportunity that can't be overcome. I think it is a
huge problem.
The Chairman. Mr. Henderson, thank you very much. I have
followup questions for Miss Baum and Miss Abernathy, but we
will now go around. I have, in order of appearance, Senator
Blumenthal, Senator Whitehouse, Senator Merkley, Senator
Franken, Senator Hagan.
Senator Blumenthal.
Statement of Senator Blumenthal
Senator Blumenthal. Thank you, Senator Harkin. I want to
join Mr. Chairman in thanking you for your profoundly important
and historic work on this topic which I think provides a model
for not only what oversight can and should be, but also to
really provide improvement for countless people who are
depending on this body to fulfill their hopes and dreams.
Mr. Henderson, I was very moved by the statement you just
made about those hopes and dreams and it seems to me we are
dealing here with a situation that is fundamentally different
from the subprime housing market where there are objective
indicia, the value of the house, somebody's income, that lead
to clearly objective ways to assess whether or not someone can
afford a particular house. And the liar's loans and the no doc
loans and so forth, were in some ways, a different kind of
problem. What strikes me as different here is that we are
dealing with hopes and dreams, someone is trying to better
himself and increase opportunity.
You have very rightly said that some of these for-profit
colleges fill a void that we all have a responsibility for
having created. Maybe we wish that there were no need for
colleges to make a profit by providing this education, but that
reality exists and for better or worse, it is a reality for
lower income students and students of color.
So I come to my question which is to all of you, how do we
improve on the consumer protections that are available? How do
we make sure that the promises are accurate, going beyond the
gainful employment regulations, how do we make sure that the
expectations created by the marketing and the promotion are not
false expectations?
And in particular, and I want to join in saying, that
Kaplan has taken significant steps, how do we encourage others
to do the same? How do we encourage more of this to happen?
Mr. Henderson. Senator Blumenthal, thank you. And I will
start the discussion but I think you have invited all to
address it.
Let me say that I agree with you completely with regard to
the distinctions between predatory lending in the housing
market where there are certain objective measures that can be
used and predatory lending in the for-profit student loan
industry where there are not quite the same objective measures
to be examined. Having said that, they do share, however, a
common characteristic in that we have an unregulated or largely
under-regulated industry that is enormously profitable where
institutions are engaging in
exotic lending instruments, for example, schools creating their
own subprime loans, as well as a market of students who are
eligible for a panoply of financial support but who are largely
under-educated with respect to the consequences of using those
financial supports to their own detriment. And I am referring
now to the inability to discharge those debts.
It does seem to me that where the Federal Government or
State government have failed to provide the kind of quality
education that would at least minimally prepare individuals to
respond to these challenges, then it is a doubly harsh
consequence to deny individuals the right to discharge those
loans in bankruptcy. I am not suggesting that bankruptcy laws
be amended to be more generous with respect to students who
have borrowed money from for-profit schools, but I do think it
imposes an additional duty on the Congress to examine the
issue, as Chairman Harkin and your committee are now doing, and
to come up with reasonable standards that help move the market
in places where, for example, Kaplan has chosen to go, but are
not being adopted by others who are in that industry.
I know that there has been great criticism, at least on the
part of some in the civil and human rights community, of the
Department of Education's new gainful employment regulations.
But the truth is, it appears that the Department, by taking a
modest step, sought to insulate its rule from attack by those
members who would argue over regulation and would seek a
legislative override of that rule.
I think it is important that the rule be established, that
it generate support as a minimal first step. I think the CFPB,
the Consumer Financial Protection Bureau, be charged with the
responsibility of examining this area of work and produce a set
of proposed rules that, in addition to gainful employment would
help regulate the manner in which some of these outlandish,
outlandish statements of what--and deceptive, not just
outlandish, outlandish and deceptive statements that are now
used to induce students into taking out loans and enrolling of
these schools be curbed. And that would be a first
recommendation.
Senator Blumenthal. I would encourage others to respond as
well. Are there other good guys that should be encouraged?
Should the regulations be strengthened? How do we stop the over
promises and the excess expectations that are purposefully
created?
Ms. Baum. I think we have to be sure to think about this
both from the side of the students, the consumers in the
market, and from the institutions, the producers in the market,
because on neither side are the decisions being made
appropriate.
For students, as I said in my testimony, the only students
who are choosing these institutions are students who do not
have good information, who do not have good guidance, they
don't have parents who have a college education, they don't
have good high school counselors. So obviously if they were
given the kinds of information that would allow them to wisely
choose opportunities in the way that other students do, they
would make different choices. We are absolutely right to
subsidize these students and to subsidize students who actually
are very much at risk of failure, but that doesn't mean that we
should subsidize them to make whatever educational choice might
tempt them. They need more guidance than that, we need more
control over our funds.
Institutions obviously also have to be restricted. There is
no reason why we should be subsidizing these institutions so
extremely. We need some--to provide incentives for these
institutions. The fact of what Kaplan is doing now is an
indication that institutions, I am not sure that what they are
doing is enough, but that the institutions will respond to
incentives, they won't do it out of the goodness of their heart
or out of social generosity, they will do it if that is what
they know they have to do in order to survive. And we have to
make sure that we provide those appropriate incentives.
I would also say that income-based repayment, that program
needs to be strengthened, but if it works well these students
won't default. So we have to be careful about using default as
the only indicator because while it is good for students to be
on an income-based repayment, that doesn't solve the taxpayer's
problem.
Senator Blumenthal. Ms. Abernathy.
Ms. Abernathy. Yes, I would echo what my colleagues just
said. There is no one single solution. There are a whole range
of things that need to be done and need to be done urgently,
given the scale and scope of this problem. Clearly the Consumer
Financial Protection Bureau, as Mr. Henderson just said, as
soon as it has the power to do so needs to be investigating and
supervising this kind of institution loan lending with the
kinds of write-off rates and interest rates that your documents
have revealed.
The Department of Education currently has authority, we
believe, to do much more to help the students who have been
saddled with debt because of the practices that have been done
and particularly where they have been, with the case of a
program that is unaccredited, again, take the example of
Yasmine Issa who testified last year. That program does not
prepare anyone for employment in that profession, because it is
unaccredited and you can't sit for the exam and no one will
hire you unless you have passed that exam. So that is a false
certification and those loans should be discharged for the
students who attended those programs and taxpayers should not
have to pay for those loans, the corporations should have to
pay for those loans. We believe the Department currently has
the authority to do that.
If there is a negotiated rulemaking process that is just
starting up, that would be one avenue to address that. If the
Department doesn't believe they can do that then they should be
requesting, in our opinion, authority from Congress to make
sure that we're not just stopping these kinds of practices
going forward, but we're doing something for the thousands of
students who are now saddled with debt for the rest of their
lives as a result of these practices.
There are a host of other things that clearly need to be
done. We need to do something about the schools who have
purchased their accreditation. And not just stop it going
forward, but do something about those that have it now.
Likewise, we need to make sure that there are not perverse
incentives for colleges to aggressively recruit veterans and
active duty military, because of the way we have structured our
laws.
So there is just a whole host of things that we stand
ready, along with a whole host of other organizations, to work
with you and the administration to move swiftly to address
this.
Senator Blumenthal. My time has expired, but I really want
to thank you and the Chairman for this very, very useful
testimony and just say, as I was listening to you, especially
Mr. Henderson, I was struck that home ownership is commonly
called The American Dream, but American education is the
American Dream. Some of the worst practices here have turned
that dream into a nightmare. What we want to do is really
encourage the best practices and make sure that they become
common practice.
I would be interested in following up with you, all of you.
And again, thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Merkley.
Statement of Senator Merkley
Senator Merkley. Thank you very much.
Ms. Abernathy, I wanted to understand one piece in your
testimony when you referred to institutional loans. I gather
that the key was that the institutional loans could count as
non-Federal funding. So for example, if I had a program and I
am the institution and I raise the cost by 10 percent, I then
lend that 10 percent back to the student. You mentioned that
some of these loans are done in a predatory fashion or a
subprime fashion. I would, as the institution have met,
essentially, the requirement for the non-Federal 10 percent,
even though I am doing so in a fashion that perhaps is further
exploiting the student. Is that the right analysis of what
sometimes happen?
Ms. Abernathy. Yes, you are absolutely correct. It is
happening in large part because of a change in the law that the
industry lobbied for, successfully, in 2008 which allowed them
to count all of that loan amount as soon as the loan is made,
rather than only counting the payments by the students, if and
when they repay those loans toward the 10 percent, if you will.
So that change in the 2008 law, which is a temporary change
that is due to expire next year, and in our opinion should
expire immediately and not wait another year, it is what has
created this incentive for schools to do this as a way to work
around the requirement that they not be fully federally funded.
Senator Merkley. I didn't see it in your testimony, though
perhaps I missed it. I would like to follow up and get a better
sense of whether the bulk of those loans are fair and decent
loans or whether the bulk of them are predatory and if so, in
what kind of fashion. Do they have exploding interest rates? Do
they have variable rates with huge spreads? Also, whether those
loans are disposable upon bankruptcy.
Ms. Abernathy. Just briefly right now.
Senator Merkley. Very briefly, because I want to ask some
other questions as well.
Ms. Abernathy. Right. The loans absolutely are not
dischargeable in bankruptcy, again because of a change in the
law that was sought in 2005 that treats them like Federal
loans. I will just say that from--the only information that is
publicly available until today about these loans is what is
given to the SEC and to investors by these companies. And all
that was clear from that is that they were writing off 40, 50
percent or more of these loans. The terms of the loans have not
been public until today, with this new batch of documents.
Senator Merkley. Mr. Schmitt, are some of your loans
institutional loans?
Mr. Schmitt. No, they are not.
Senator Merkley. OK. Mr. Schmitt, I wanted to turn to some
other pieces of your testimony and thank you for sharing your
story. Were you anticipating that when you entered the
bachelors program that was through the law school, but it was a
bachelors program?
Mr. Schmitt. No. The bachelors program was still through
Kaplan. The Concord School of Law is owned by Kaplan, but it is
marketed as a separate school.
Senator Merkley. I see. And were you expecting to be able
to sit for the bar exam, if you went to the Concord Law school,
and that is partly why you were getting your bachelors so you
were qualified to be able to go to the Concord Law school?
Mr. Schmitt. Yes.
Senator Merkley. I see. OK, that is helpful.
Going back to when you were told that there was 100 percent
placement, I think the Chair's question clarified this, but I
wanted to make sure. The externship counted towards placement
statistics?
Mr. Schmitt. I have been told since that Kaplan has counted
me as successfully placed. Why specifically I cannot say. I
would assume it is the externship, but----
Senator Merkley. I would like to explore a little bit more,
we will submit some questions for the record to try to
understand that.
Certainly it sounded like that was a factor in your
excitement over joining the paralegal program was that people
finished the program and they were getting jobs. And as you had
dialogue with other students going through the program, were
they getting jobs? Were there a lot of paralegals that went
through the program, that you know of, able to get jobs as
paralegals?
Mr. Schmitt. Of the students that graduated with me--with
their degrees--I know of, to date, only four students, of more
than two dozen that I knew personally, that have gotten jobs as
paralegals.
Senator Merkley. OK. Four out of?
Mr. Schmitt. Two dozen, three dozen.
Senator Merkley. So it would have been more appropriate to
tell you the placement rate was 20 percent or something of that
fashion, based on your experience?
Mr. Schmitt. Yes.
Senator Merkley. Were there community college options in
your area where you could get the same paralegal training?
Mr. Schmitt. The only community college that offers the
paralegal training that I know of is in Des Moines, IA, DMACC.
I lived in Waterloo at the time so that was not possible for
me.
Kirkwood College, which I believe is in Cedar Rapids did
offer it, but we were told that our program was so much better
than Kirkwood, which I find interesting, since the Kirkwood
program is actually ABA accredited and Kaplan's is not.
Senator Merkley. And that lack of accreditation of the
particular program was a key factor in whether or not you were
able to get placed?
Mr. Schmitt. I would have to assume so.
Senator Merkley. OK. This is an issue that I have had a lot
of concern about, an institution being accredited but not a
program. I think it really is a key to this puzzle.
We had a student, Yasmine Issa, who testified at the June
24th hearing about her sonogram training, and she said she
couldn't get a job because her program was not accredited. The
institution, Sanford-Brown, was, but the program wasn't. This
seems like a key point where it is very confusing because you
may be told, as an applicant, that the school is accredited and
you are assuming that the program is accredited.
At what point in your experience did you realize that the
program wasn't accredited and that it was going to be a
problem? Was it not until you started applying for jobs?
Mr. Schmitt. About 2 weeks ago, talking to the Senate HELP
Committee. There is no accreditation requirement by law in
Iowa, however--for the paralegal programs. However, it seems
there is industrial accreditation to get these higher level
paralegal jobs, which obviously I am not qualified for.
Senator Merkley. Thank you.
Mr. Schmitt. You are welcome.
The Chairman. Senator Franken.
Statement of Senator Franken
Senator Franken. I am concerned here for a number of
reasons, they are all pretty apparent. One thing I am concerned
about is that we do not have our colleagues, our Republican
colleagues here. Because I know that there are for-profit, and
I think every witness has acknowledged this, it would have been
nice to have had a witness from the other, I don't know, to
represent the for-profit schools, because there are for-profit
schools in Minnesota that do a great job. There are others
around the country that do a great job. And I think you have
all acknowledged that.
This is all very, very sad because we have two victims
here. One is the taxpayers and I would love to know how much
the taxpayers eat because of for-profits. But the victims are
also the students and students like Mr. Schmitt.
We are talking here about trying to be fiscally
responsible. My wife's father died when she was 17 months old,
leaving her mom widowed at age 29 with five kids, four
daughters, every daughter went to college. They went on
combinations of Pell Grants and scholarships. So there is no
bigger champion of Pell Grants than me. So I want our Pell
Grants to be used properly. And I want to be a good fiscal
steward. So this actually enrages me.
At the same time I wish the for-profit industry was here. I
don't understand why good players in this business don't want
to weed out the bad actors. The bad actors who are saying,
let's recruit--here is the list of qualities to look for, low
self esteem, being abused, that is who we are trying to
recruit? That is a recruiting document. Why aren't the good
actors working here helping us weed out the bad actors and help
the industry improve itself?
Does anyone know how much the taxpayers eat because of for-
profits? Does anyone have some kind of estimate? How much is it
costing--I mean we are trying to balance the budget here, we
are trying to reduce our deficit.
Ms. Abernathy. We know how much Federal student loans and
Pell Grants go to students attending for-profits and we know
the default rates, but we don't necessarily know then what
share of the Pell Grant dollars are being wasted. One in four
Pell Grant dollars now go to students attending for-profit
colleges. Some of those Pell Grants are creating opportunity,
but clearly many are not.
One statistic that career colleges, for-profit colleges--
with default rates over 40 percent--received $217 million in
Pell Grants in 2009 and I am sure more last year. So that gives
you some indication. And certainly before we start cutting Pell
Grants more--we just reduced Pell Grants by $4 billion in the
budget agreement last year--for students who need it to get to
college, like your wife did, we should be going after those
kinds of wasted dollars that are going to schools that are
clearly, systematically failing students.
Ms. Baum. One reason we don't have a good answer to that
question is that calculating the cost of student loan defaults
is complicated and depends on what kind of--which accounting
you use, how you account for that. There was a recent report
written by the for-profit sector that tried to compare the cost
to taxpayers, of public institutions and for-profit
institutions and you should read that with caution because
there the cost of defaulted loans is zero and there is some
over counting of some of the taxpayer subsidizes to public
institutions.
So I think having a good answer to your question would be
an important task.
Senator Franken. OK. But, then there is the cost to people
like Mr. Schmitt. That is the cost, too. Because here is
someone that has this hanging over him and I suppose the
government is probably very good at getting you to pay it,
ultimately.
So here you are. Kirkwood, how far away was Kirkwood from
your home?
Mr. Schmitt. I think it is in Cedar Rapids. I am assuming
Cedar Rapids is--well Cedar Rapids was 45 minutes away.
Senator Franken. So in retrospect you would have----
Mr. Schmitt. In retrospect, yes.
Senator Franken [continuing]. You would have gone to
Kirkwood?
Mr. Schmitt. Yes.
Senator Franken. OK. You were 27 years old, so this is
why--see someone made the point that you don't have parents who
went to college or you don't have good counselors, well a 27-
year-old--you are a father too, right?
Mr. Schmitt. Yes.
Senator Franken. Two boys. Two kids.
Mr. Schmitt. Two kids.
Senator Franken. So you are not going to have access to a
counselor and you have people telling you, this is a good
choice for you. This is a really good choice for you. Right?
That is how----
Mr. Schmitt. Yes.
Senator Franken. Go to the law school here, go to our law
school. So you figure, OK, I will get the 4-year degree because
that will get me into the law school and then I will go to the
law school and then I will take the bar, except that you can't
take the bar in Iowa if you go to that law school. And no one
tells you? No one tells you that you can't take the bar at the
school?
Mr. Schmitt. Not until the adjunct instructor told me in
the third term when we were just talking about it.
Senator Franken. Just as a happenstance it happened?
Mr. Schmitt. Yes.
Senator Franken. Boy, that is just awful.
Mr. Henderson, very quickly because I am running out of my
time. Some people argue that if you are going to crack down on
these for-profits which spend $3,000 a year on education as
opposed to a public nonprofit, 7,500 as opposed to a private
nonprofit $15,000 a year on education, that if you crack down
on this it is bad for racial minorities and etc. Can you speak
to that?
And first say the reasoning that they use and then answer
it, if you would.
Mr. Henderson. Yes, there is a very cynical hypocrisy that
goes into a statement made by some for-profit institutions that
by supporting even modest regulation you are somehow curbing
opportunities for racial minorities.
As I exchanged with Chairman Harkin, the most effective way
of addressing the core problem is to provide a quality
education for every student. We are striving to accomplish that
goal. But it has been an elusive goal and even almost six
decades after the U.S. Supreme Court decided, in Brown vs. The
Board of Education, to dismantle largely racially segregated
schools, we still have pockets of racial isolation, poor
quality public education, poor instruction and a lack of
resources to achieve the kind of quality education we are
talking about.
The students who are themselves attempting to use the
opportunities that they see available to them, by way of
attending for-profit schools, are attempting to make the great
leap forward, to overcome the difficulties of the past and to
try to achieve something meaningful in their lives. And yet,
the deceptive practices which many of these institutions
employ, the emphasis on recruiting among the most vulnerable
and emotionally ill-prepared of students to address these
issues, results in the kinds of problems that you and Mr.
Schmitt just exchanged.
This is nothing short of, nothing less than the hijacking
of the American Dream and in doing so, by offering promises
that can't possibly be met and by not providing even the
minimum of adequate information necessary to make an informed
judgment. As a law professor recognizing the importance of the
American Bar Association accreditation, for every student who
seeks to take a bar, not just in Iowa but in other States, it
borders on the criminal to withhold essential information that
would have allowed Mr. Schmitt to make that judgment.
With respect to students of color, I think that it is
really an unfortunate use of a commitment to provide an equal
opportunity, turned on its head, because the truth is the
students who these institutions purport to be most concerned by
are the very students who are carrying the highest debt load
and who are less likely and the least likely to be able to
address the problems that we have talked about.
It is cruel, it is unjust and ultimately it is immoral. I
mean I don't use that term lightly and very often. But when you
have that kind of exploitation without the minimal level of
regulation necessary to protect the public, it borders on the
immoral.
Senator Franken. Yes, I am far over my time, I just want to
again say there are for-profits that do a good job. And I think
they have every reason to want to crack down on the ones who
don't.
The Chairman. And my friend from Minnesota, I had said this
before, that one of those that came to us was Regency Beauty
Schools, headquartered in Minneapolis, they were very
supportive of a strong gainful employment rule, very active in
trying to clean up the industry and from all of the indications
they have, they are doing a very good job. So there are some
good ones out there. One happens to be the Regency Beauty
Schools in Minneapolis.
Senator Hagan.
Statement of Senator Hagan
Senator Hagan. Thank you, Mr. Chairman and thank you very
much for having this hearing today.
I wanted to talk to the panel about the GI bill and how
this impacts for-profit institutions. My husband went to law
school on the GI bill and I am a strong, strong supporter of
it. Especially during a time when all of our soldiers are
returning from Iraq and Afghanistan. In North Carolina, we are
the most military-friendly State in the Nation, with about a
third of our population either in the military, a veteran, or
related to the military. So it is very important, that the
educational benefits that we provide to our returning veterans
are used wisely.
I am also concerned because last month in the unemployment
numbers, about 12.5 percent of our Iraq and Afghanistan
veterans were unemployed. I think education is key in matching
skill sets with the employers.
But with the generous post-9/11 benefit package and given
the high tuition at many of the for-profit schools, a veteran
can easily exhaust their benefits pursuing a degree at a for-
profit institution. And to the dismay of the veteran, in many
cases their accumulated credits are not recognized, if they
attempt to transfer, in some cases, to a public institution.
Do you believe the GI bill should be counted as Federal
financial aid for the purposes of enforcing the 90/10 rule? And
do you believe that the gainful employment regulation provides
sufficient incentive for the for-profit schools to keep the
tuition growth to more reasonable levels than what we have seen
in recent years? I welcome any of you to comment on these two
questions.
Ms. Baum. I think it is hard to understand why any Federal
funds should not be counted as Federal funds. So if the goal is
to limit Federal funds, of course that should be counted. And
the idea is, will people pay out of their own resources for
this? So, yes.
In terms of gainful employment, I think that we really need
to look at what the impact is going to be. It is pretty clear
that the teeth have been taken out of the rules that were
proposed. I think we need to be careful about bureaucracy and
about how schools will get around the rules, and it is not
clear that just strengthening the numbers is going to solve the
problem. But as written, it is highly unlikely that this is the
solution to the problem.
Mr. Henderson. But Senator, I think you put your finger on
one of the most vulnerable populations in this entire
discussion and one that Congress and the American people, quite
frankly, should be more concerned about than almost any. I mean
these are people who have risked their lives in the national
interest. These are people who have served their country by
volunteering to serve in the military. They come out, they seek
to better their lives and they enroll in for-profit
institutions, and again, no slur intended for for-profit
institutions in their entirety. But many of our returning
veterans enroll in schools and are shamelessly exploited.
First and foremost, the Pentagon has a responsibility to
educate every veteran about to be discharged, on the options
and risks that currently exist, regardless of what we would
like to change, to make sure that these individuals are better
prepared to meet the challenges of discharge. And certainly
knowing more about the education systems which are making a
decided effort to recruit among our veterans, is a necessary
protection.
Senator Hagan. Do you have any recommendations as to what
needs to be done?
Mr. Henderson. I certainly think, with respect to ensuring
that students understand the risks that exist currently, the
fact that they can't discharge these debts, the fact that the
schools in which they seek to enroll should be accredited by
the bodies that would allow them, for example, to take the bar
or to pursue careers. I think public education from the
Pentagon is among the first things that I would try to
emphasize, in addition to changes on the regulations.
And I would only leave you with this one reality. The truth
is that these are for-profit institutions. They are
participating in the capitalistic system, which we all support.
But they also bring to bear disproportionate pressure to curb
even modest regulation in an area where regulation does not
exist. If you think it is going to be possible to create the
bipartisan support necessary to regulate this institution, you
have got to show me where the bipartisan support exists. I
don't see it today. And I think that it is going to be very
hard to generate it without a stronger public reaction.
Senator Hagan. The Education Trust which is a research and
advocacy group recently released a report titled ``Priced Out:
How the Wrong Financial Aid Policies Hurt Low Income
Students.'' And this report examined cost and graduation rates
of nearly 1,200 4-year colleges and out of these 1,200
institutions only 5 were determined to be serving low-income
students well. And I am proud to say that one of these five
schools was the University of North Carolina at Greensboro. I
think it is notable that there were not any for-profit colleges
represented on this list, the very schools, in many instances
that claim to serve our most high-need, low-income students.
How do we change the mentality of all institutions of
higher education to ensure that college is a realistic option
for the lowest income Americans and not just a select few?
Miss Abernathy.
Ms. Abernathy. There is no one single solution, but clearly
we need to ensure that there are great incentives and rewards
for enrolling low-income and disadvantaged students. And not
just enrolling them, but successfully enrolling them and
producing the kind of outcomes we want. The schools documented
in that report demonstrate that it is possible and it doesn't
necessarily require--the colleges that do it well are not
inherently different than some of the other colleges that are
not. They have made a decision, they have prioritized, they
have made leadership and we need to make more of them.
Mr. Henderson. I mean Senator again, not to belabor the
point, I think that low-income students have special challenges
that are borne out of the poverty and isolation that many of
them have grown up with. And it certainly has affected the
quality of education they have had in K through 12. Every
student, whether from low-income or from upper income, is not
ready for college, some students have to have additional
preparation.
Community colleges play a vitally important role in helping
to prepare students for the rigors of college. They do a
terrific job in providing, relatively speaking, low cost, high
quality programs. And to the extent that students are induced
or encouraged to pursue a particular course of action,
community colleges, it seems to me, represent a very important
and effective model to be used in this process.
Senator Hagan. I agree with you totally. In North Carolina
we have 58 community colleges, most of them within a 30-minute
drive of any place.
Mr. Henderson. They are extraordinary institutions. They,
in many instances, are under-utilized and under-valued. And
they can certainly play an important role in helping to prepare
students from disadvantaged, low-income backgrounds into the
rigors of quality public education.
I would also say it is important to ensure that there are
objective standards that are applied both to for-profit and
nonprofit educational institutions to avoid student
exploitation.
And to the degree that there is a recognized fiduciary
responsibility for those in the private sector, so too should
there be a community standard that is used to evaluate the
quality of institutions for the betterment of the national
interest. And until the regulators who are involved in this
area, whether it is the Department of Education, the Consumer
Financial Protection Bureau or others help to establish that
standard, we are still going to have a system with a patchwork
of regulation which is dictated largely at the State level,
with virtually no regulation at the Federal level of response
to the problems we have talked about today.
Senator Hagan. Thank you, Mr. Chairman.
The Chairman. Senator, as I think I said earlier, you may
not have been present when I said that, I said that I think
that maybe this committee really ought to be looking at ways to
assist and to promote community colleges to fill a niche, more
than they are doing. Rather than to continue to provide
unlimited amounts of money through the loan program or through
Pell Grants for the for-profit schools, maybe more of that
ought to be focused on the community colleges.
Senator Hagan. Our community colleges in North Carolina are
the place to go for workforce training, to get that 2-year
degree. And all the colleges have agreements with the public
university system that all of the class work will transfer to a
4-year degree program.
The Chairman. Could the Senator tell me, how many of those
really have vigorous, comprehensive, online programs? It seems
to me that is where the community colleges are not filling a
niche, where they could be having online programs at
substantially less cost, and probably better quality, because
they would connect it through the university systems in the
various States.
Senator Hagan. I know some of them do and I could certainly
get that information.
The Chairman. I would like to work with you on that.
Senator Hagan. OK.
The Chairman. Because I think that this committee ought to
be looking at how----
Senator Hagan. I know our universities, our public
universities have a host of online courses for the 4-year
degree program, quite a few, and very reputable, very good,
high quality.
The Chairman. I am looking for----
Senator Hagan. My son has actually taken some.
The Chairman. I am looking for suggestions on how we do
this with the community colleges around the country. Thank you,
Senator Hagan.
We will start another round. I wanted to again get to the
issue I think that was raised by Senator Merkley and that is we
always look at the 2- to 3-year default rates, but what are the
lifetime--because he asked the question, what does this mean
for the taxpayers of this country. I discussed that in my
opening statement. Right now our best measure is that over 22
percent of for-profit students default within 3 years, but we
don't really know, overall, what happens after that.
Let me just share some internal estimates by two separate
schools. I think you have these in front of you, I especially
say Miss Abernathy and Miss Baum, I believe you have these in
front of you. This would be Document 11, Chart 8. There is no
way you can see what that says there. But I believe you have
that with you, if you look at Document 11. I tried to make sure
we prepared all that for you. Some of it has been redacted, but
it starts out, the first sentence says, ``Brian, per your
request we have summarized below the default dollars by closed
cohort year. Do you have that now? ''
Ms. Abernathy. I am not sure that I do, but I appreciate--
oh, I do have it. Thank you.
The Chairman. OK. All right. Thanks.
Here is what it says, this is a document that was produced
by Apollo. That is the parent company of the University of
Phoenix. The document is an internal analysis of the lifetime
default rates of the University of Phoenix and Western
International University, WIU, where most of the students in
the Axia associate degree program are enrolled.
The document begins by explaining that the estimates are
based on logic developed by the Texas Guarantee Agency that
47.5 percent of defaults will occur in the first 3 years. It
then goes on to estimate that the 10-year default rate, or what
we might call the lifetime default rate, for WIU will
potentially be 60.4 percent for 2005, 77.5 percent for 2006,
55.8 percent for 2007.
That is from the documents from Apollo. If you look at
2005, 2006, 2007, at the last line there is a 10-year estimated
default rate. That is what they are saying they are estimating.
So it is not just 20-some percent, 55 to 77 percent for a
lifetime default rate.
If you will look at the next document, Document 12, there
was a 2010 Kaplan estimate of the lifetime default rates for
the students at Kaplan University, entering repayment in 2007
is 64.4 percent. This includes the campus that Mr. Schmitt
attended. Kaplan, as a whole, had an internal estimated default
rate of 76.5 percent for that same period.
[The information referred to can be found at
www.harkin.senate.gov; click on: Issues & Agenda; then For-
Profit College Investigation; Hearings; hearing title; charts
and/or documents.]
The Chairman. So I guess what I would ask is what does this
tell us about the effectiveness of a 2- or even 3-year cohort
window at judging the real default rates? What does this mean
for the 2 million students currently enrolled in for-profit
institutions? In other words, there are too many of these
students enrolled, if the lifetime default rate is 55 to 70
percent or somewhere in that neighborhood, what does that mean
for them and what does it mean for the taxpayers, to get to Mr.
Merkley's question? Is the current practice of looking at only
a 2- to 3-year window of default for Federal loans adequate to
protect taxpayers?
If you have default rates that high, it costs money to go
after those to pay it. So some collection agency is making
money, maybe you don't get 100 cents on the dollar, maybe you
get 50 cents or 40 cents, but the collection agency gets a
large share of that. And so that is a loss to the taxpayer. It
is hard to estimate, but I just ask you, if you are looking at
these 10-year default rates, what does that mean 10 years from
now for that cohort that is in these schools right now and how
much of a loss will that be on the taxpayers and shouldn't we
be looking at longer window default rates than just 2 or 3
years?
Miss Abernathy.
Ms. Abernathy. I mean a 76.5 percent default rate is
astounding. Clearly our 2-year and even our 3-year cohort
default rates are inadequate and these numbers demonstrate
that. The Department of Education has released lifetime default
rates for sectors, not for individual colleges, but for
sectors. And for the for-profit career college sector they
estimate that for this cohort that you are citing here, the
lifetime default rate is 47 percent. So 50 percent of the
students----
The Chairman. That is all of the schools?
Ms. Abernathy. All of the career colleges. Clearly at the
college that Mr. Schmitt attended, the school itself knew that
their rate was much, much higher. And how they continued to
justify enrolling students knowing that 76 percent, three out
of four students, were going to default, I am not certain. It
seems unconscionable.
It clearly indicates that we are not doing enough with our
2-year and 3-year cohort default rates. And even our 3-year
cohort default rates, which we know are a much better
indicator, are not going to start to be enforced until 2014.
That is 3 years from now, while schools will continue to
receive money.
From a taxpayer's perspective, many of the Federal loans
will be collected, at great cost to the students and to the
taxpayers, because of the collection costs, as you say. But,
they will receive them, because the government has the power to
garnish wages, seize tax refunds, actually even take social
security payments if you still haven't paid off at that point.
What it doesn't do though is recoup the Pell Grant dollars and
the damage done to people's lives.
And so the cost is really--it just seems unconscionable. So
clearly more needs to be done to hold schools accountable. And
the documents here that really clearly demonstrate that schools
are delaying defaults until after the school is no longer held
accountable for them, rather than preventing the defaults from
occurring.
Ms. Baum. I think it is clear that we need to look at
default rates for longer periods of time. And I agree with
everything that Miss Abernathy said. We also can't forget about
the short-term default rates, because we need to do something
quickly when we see these things happening. So you wouldn't
want to have to wait until 10 years after students had
graduated to do something about it.
I would also like to reiterate the point that I made
before, which is that there are ways, as we see, to manage
default rates, income-based repayment will increasingly be one
of those ways. So looking at loan repayment and not just
default is terrifically important.
The Chairman. Also, I just want to add, but my time is
running over, I will yield, that we also have internal
documents that show that a high percentage of these lifetime
defaults are students who did not complete the program. They
took courses and then they dropped out. So they don't have a
diploma, they have a debt and they have used Pell Grants to go
to these institutions. And yet they have no degree whatsoever,
they have nothing to show for it. But the for-profit school,
they have the Pell Grants and they have the guaranteed loans.
The school doesn't have to give any of that money back, they
have the money.
I think something that needs to be looked at is how many of
these are students--it gets back to something that we uncovered
a long time ago in our investigations, that is the churning of
students, the churning of students that takes place in these
for-profit schools. If they just come in, they take a few
courses--and I really do think that this is what led--and
again, I compliment Kaplan for this, publicly, for instituting
that 5-week thing where they can come in and test it out
without any Pell Grants, without any student loans. I think
that is a big step in the right direction. I think looking at
that probably compelled them to start looking at instituting
that kind of a reform.
Ms. Baum. I think that is right. I would also like to point
out one thing that I don't think has been mentioned yet today,
which is that one of the dangers is not just the risk, the
terrible risk to the taxpayers and the students, that we have
discussed, but also this whole student loan program and student
debt is getting a bad name, because of these terrible problems
people face. Students need to borrow to finance their education
and many students are being deprived of the opportunity of an
education because they are terrified to borrow because they
hear these stories. It is another reason to prevent these
stories from occurring.
The Chairman. Yes, thank you.
Senator Blumenthal.
Senator Blumenthal. Yes, thank you, Mr. Chairman. I would
like to join you in the effort to provide more support for
community colleges that you and Senator Hagan were discussing
earlier. I went on Friday to the graduation ceremony for one of
our community colleges in the State of Connecticut, Asnuntuck,
and 92 percent of their graduates have jobs coming out of
school, 92 percent. So the contrast here is very vivid and
striking. And I would like to join you in that initiative.
And second, Senator Franken's mention that there are a lot
of good guys, as I said earlier, in the for-profit college
industry and we need to encourage and support them as well and
commend schools like Kaplan when they improve their services.
But I would like to come back to the issue that we have
talked about a little bit which is the veterans. And Mr.
Henderson, not only the Department of Defense but also the
Veterans Administration has an obligation here. And very often
the transition from active duty to veterans status is not
accompanied by the kind of education that is necessary.
I introduced a bill a couple of weeks ago, Honoring all
Veterans Act, which provides for more transitional services.
And the Consumer Financial Protection Board actually has a
unit, headed by Holly Petraeus, related to General Petraeus by
marriage, and they are beginning this kind of work. So I think
the more ideas we can get from you to improve protection of
veterans, particularly because they are an especially
vulnerable population. So any ideas you have now or going
forward--Ms. Abernathy also mentioned that issue, alluded to it
in her last answer to me. I would welcome them now or in the
future.
Mr. Henderson. Senator Blumenthal, thank you for your
question. Just as an aside, Mrs. Petraeus is someone that I
have worked with in the context of attempting to resolve the
foreclosure crisis that is affecting many homeowners in the
country today and most especially there are concerns about the
status of veterans who often, through no fault of their own,
find that they are--and those in active duty, through no fault
of their own, find that they are holding notes to homes that
are, as the realtors say, ``under water,'' meaning that they
owe more on their note than the home is worth.
In the case of active duty service people, they sometimes
will get orders of reassignment which will then force them to
make a stark choice about their home, either to abandon the
home because they certainly can't sell it, the bank won't take
it back, they can't rent it because they can't make enough on
the home. And were they to foreclose they would compromise
their security clearance, for those that have them.
Mrs. Petraeus has been, I thought, a terrific help in
trying to advance, very quickly, efforts by banks and service
lenders to respond to that significant problem. And she has, in
the effort, tremendous support from the civil and human rights
committee.
Senator Blumenthal. I wholeheartedly agree with you, by the
way.
Mr. Henderson. Yes, I think she is doing a terrific job.
I think that as a country we owe a higher standard of care
to the men and women who have served their country and who now
seek to integrate themselves back into our society and
education options like those that are being discussed today are
being presented to them as among the more attractive ways of
using their GI benefits and the other resources that they have
available to them.
I think it is unconscionable that they do not get the
advice and counseling, as a community, that they need and
deserve. So just as now we are turning our attention to the
problem of homeless veterans, which is a significant issue in
many communities that has largely gone unrecognized, even
though it is right before our very eyes, do we have a
responsibility to supervise this area of our work with respect
to returning veterans. I think we can do better without
necessarily having to enact new laws. I think more vigorous
enforcement, a greater willingness to use the education
networks that we have available to us and a commitment to
prevent the exploitation of returning veterans, because simply
as a moral standard we should not permit that to happen and I
think if we made that declaration we could do better with the
existing system now. So that is what I hope comes out of this
hearing.
Ms. Abernathy. I certainly agree. We need to provide much
more information to our veterans and active duty service
members. On the other hand, currently the DOD and Veterans
Administration aren't even collecting some of the data that
would need to be provided to them. So we need to collect it and
we need to provide it.
Having said that, information alone is not enough. We don't
just provide information about salmonella and eggs, we take
them off the market. Likewise, we don't tell people there is
lead in some toys, we take them off the market. So if there is
evidence that a program is this bad, we should not be
subsidizing. In this case it is not even a market where a
product is being offered, we as taxpayers are subsidizing and
providing the funding for these programs.
So there is an even higher bar, both because of who is
consuming them, our veterans, but also because we as taxpayers
are funding these services. And so we have every right to say
there is a minimum level of quality that we expect and draw the
line. And then provide information about those programs that
are all above that line. But there is no reason why we should
be subsidizing programs we know are damaging and harmful.
Senator Blumenthal. I think you make a good point, which is
to distinguish a truly unacceptably, substandard educational
institution from a worthwhile institution that may be providing
loans to students that can't be repaid because of factors that
can be controlled. In other words, if the education is
substandard, if it fails to meet minimum quality criteria, it
shouldn't be in business. And that is the function of the
accreditation process, and you alluded to it earlier and that
applies no matter how students are financed to go there.
But I do want to conclude because my time has expired, just
by saying that the statements that you all have made,
particularly so far as they concern veterans, are really very
important and pertinent and they really require solutions that
should be bipartisan solutions. And so to come back to sort of
what is the elephant in the room, I hope that our Republican
colleagues will join us in seeking those kinds of solutions,
because they truly have to be bipartisan and should be.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
I just have one other thing I wanted to go over with the
panel before we bring up our second panel. And that had to do
with the management of cohort default rates. Do you have the
second chart that I had up before? Yes, that one. I don't know
if you have another one down there or not.
But basically, I had mentioned in my opening statement that
schools manage its cohort default rates, or CDR's as they are
called, and sometimes they hire outside contractors to do that.
This chart here shows what default management means for
students--there are four schools represented there.
Ashford, DeVry, ITT and Strayer, all four employed GRC, it
is a subsidiary of Sallie Mae, to contact students who are late
making payments and try to fix that before they default. But
this chart shows that the vast majority of the students that
are cured, as they call it, by GRC, don't actually start making
loan payments but are instead entered into deferment or
forbearance.
We know that is a good thing from the perspective of the
schools. What does it mean for the students? Miss Abernathy,
could you address yourself to that? What does that mean when
they go into forbearance? What does that mean for the schools
and the students?
Ms. Abernathy. For the schools it means they are avoiding
default. For the borrower it means their balance is increasing.
The Chairman. And that is important because the law says
that they cannot have a, what, a 3-year running average of over
25 percent?
Ms. Abernathy. Currently 25 percent. It will go up to 30
percent.
The Chairman. So when they go up to 25 percent, they get
near that, they want to get more students into----
Ms. Abernathy. Out of default.
The Chairman. Out.
Ms. Abernathy. Not in default.
The Chairman. Right. And that is forbearance?
Ms. Abernathy. That is one form. Repayment is another. And
ideally we want students repaying their loans, not in
forbearance where their loan balances are increasing. And
putting students willy-nilly into forbearance when it is not in
their interest to be in forbearance, just increases the
likelihood of default, because the balance is increasing during
the time that they are in forbearance.
The Chairman. That is happening to Mr. Schmitt, right? Yes,
OK.
Mr. Schmitt. That is correct.
Ms. Abernathy. And I want to follow up on the comment on
income-based repayment, because my organization was one of the
champions of income-based repayment and we strongly believe
that more needs to be done to let borrowers know that it is
available and will allow them to repay their loans as a share
of their income so that their Federal loan payments at least
will be manageable.
Having said that, income-based repayment is intended to be
a benefit for borrowers, not a shelter for schools. Just in the
same way that mortgage or homeowner's insurance is intended to
be a benefit for homeowners not an excuse for builders to build
substandard homes. It is there for borrowers and so again what
we are seeing here is an interest just in putting students into
forbearance and not into helping them ensure that they can
repay or that they are in repayment.
The gainful employment regulation that was just finalized
may help address this to some extent, because one of the
factors it looks at is the share of students who are in
repayment. So if schools are putting all of their students into
forbearance, that will affect their repayment rate. Having said
that, the measure doesn't go into full effect until 2015 and
the standards are so modest that even a school will still be
able to do this kind of tactic as a way to manage their cohort
default rates, which simply delays defaults rather than
prevents them. And that the gainful employment regulation in
and of itself won't cure this.
What these documents tell me or suggest to me is that we do
need to re-look at our forbearance policies to change our
policies to prevent the abuse of forbearance where it is used
to--as a shelter for schools rather than a benefit for
borrowers.
The Chairman. Miss Baum, did you have anything to add to
that at all, on this whole issue? These companies really are
hiring outside agencies to contact students to put them in
forbearance because they are managing that CDR. You know?
Ms. Baum. It is a very complicated question, because of
course designing a program that will help students by relieving
their obligation to pay, by definition prevents them from
defaulting and helps the schools. So I think that--I mean we
want loan counseling, we would rather, for an individual who
cannot pay, to go into one of these programs. But I think it
requires looking at who is actually going into these programs
and how are these programs designed.
So income-based repayment, for example, for too many
students their balances will also continue to increase. If
students really can't pay, if they really are in a situation
where they are not going to be able to pay long-term, then we
need to prevent those balances from increasing so that we
protect students who are put into these programs. Obviously, we
need to get measures that cannot be so easily manipulated by
the institutions.
The Chairman. All right. Miss Abernathy, you had something
to add to that?
Ms. Abernathy. Yes. It is just my understanding that some
of the documents that you are releasing indicate that the
schools have been paying people up to a thousand dollars a
student to get the students into forbearance. And forbearance
is the only option those people are being paid to put the
students in----
The Chairman. Why?
Ms. Abernathy [continuing]. So they are not counseling the
student on what is in their best interest, they are simply paid
a thousand dollars a head, they really are bounty hunters,
which Senator Mikulski, at a previous hearing referred to them
as bounty hunters and she was more right than I think anyone
realized, but the sole direction they are being given is put
them in forbearance, which only increases their loan balance
and increases their chances of default.
The Chairman. Why is the school paying that kind of money
to do that?
Ms. Abernathy. Clearly they are making enough profit off of
these loans and grants and students that they can afford to
spend a thousand dollars putting students into forbearance.
The Chairman. So that they don't go over the 25 percent? Is
that----
Ms. Abernathy. Correct.
The Chairman. That is? Yes. Interesting.
This has been most helpful. I thank you all very, very much
and for being here and for your testimonies and for helping us
to think this thing through.
I would close this panel by just saying that, yes, we do
need better regulations, I think. We need better structures in
place. I am not certain that regulations can do it all,
regulations can come and go. I am just thinking that there must
be some legislative type of an approach to this that is longer
lasting, more enduring that people know will last more than
just one administration to the next or something like that. And
of course this committee is going to be consulting with members
of the committee and others to develop that type of legislation
that will build on the gainful employment modest step that the
Administration has taken.
But I agree with you, Mr. Henderson, the most I have looked
at this over the last year and I say again publicly, when we
started on this I had no idea what was going on. I had thought
for-profit schools were fine, what is the problem? Until we got
into it and began to see what was happening.
When someone can start a school from scratch in 2005 with
300 students and today they have over 80,000 students and the
profit went from $3 million to $216 million and the CEO is
making $20.5 million a year, and they have a huge default rate,
you have got to start asking questions. I hate to paint it with
a broad brush. Because there are some for-profit schools--and
you know what we have looked at, I would say this also that it
tends to be--the for-profit schools that tend to be doing, at
least from my vantage point, from what I have seen, doing a
good job, being really supportive of their students, are--well
you might call the mom and pops--the ones that are kind of
smaller in nature, they have been around for some time, they
usually have a course of study for students, it is usually one,
you can't go there to get a degree in accounting or pre-law or
something like that, they are usually geared toward some
occupation, and by and large they have been pretty darn good.
Not to say they are all good, but they happen. That strikes me
as interesting.
And that what Sam Nunn did in 1992 with the hearings he
held and the legislation we passed, which was then subsequently
overcome by rules and regulations, I think was pointed in the
right direction. And at that time it was 85/15. Then it went to
90/10 and the industry wanted to push for 95/5. And now we have
the situation with the military where that is counted on the 10
side, not on the 90 side, but it is still the same taxpayers'
money. And Mr. Henderson, you are absolutely right, it is
just--what they are doing to the GI's--and I think Senator
Carper brought out in his hearing the fact that the Department
of Defense isn't even tracking this. They have no idea.
It seems to me they have a responsibility to these young
GI's, men and women, to give them good guidance and good
counseling on what they are going to use their GI bill benefits
for, because you only get it one time, you get it once. And to
follow and track them, to know what is happening to these young
GI's. That is another thing I think that we are going to be
looking at. That is something that I will be working with
Senator Carper on in that regard.
Thank you all very, very much. You have added greatly to
this deliberation. Appreciate you being here. Thank you.
Now we will call our second panel.
The second panel we have the Honorable Martha Kanter, Under
Secretary at the U.S. Department of Education. Secretary Kanter
oversees the Administration's goal to have the highest
proportion of college graduates in the world over the next
decade, by focusing on ways to provide students more access to
quality postsecondary educational opportunities and help them
complete it.
Before being confirmed by the U.S. Senate in June 2009,
Under Secretary Kanter was chancellor of the Foothill-De Anza
Community College District, and we just talked a lot about
community colleges, in Los Altos Hills, CA, one of the largest
community college districts in the country.
She also served as president of De Anza College, vice
president of instruction and student services at San Jose City
College where she also established the first program for
students with learning disabilities. And as an alternative high
school teacher in Massachusetts and New York. Dr. Kanter is the
first community college leader to serve as under secretary.
We have your testimony. It will be made a part of the
record in its entirety, Ms. Kanter. And if you could sum up
your testimony in 5 to 7 minutes, we would appreciate it.
STATEMENT OF THE HONORABLE MARTHA KANTER, UNDER SECRETARY U.S.
DEPARTMENT OF EDUCATION, WASHINGTON, DC
Ms. Kanter. Thank you, Mr. Chairman. Mr. Chairman and
Senator Bennet, I am here on behalf of Education Secretary Arne
Duncan who was unable to come this morning because he is
recuperating from a back injury.
We are here to talk about student loans, loans that enable
access to higher education. Without them, as we heard this
morning, millions of Americans would not be able to afford a
college education. College is an investment that yields
significant returns over a lifetime for individuals, for the
tax base of our Nation and most importantly for our Nation's
social and economic vitality and security.
Census data shows that workers with bachelors degrees earn
70 percent more than a person with only a high school diploma.
College graduates are half as likely to be unemployed than
those with only a high school diploma. And more than two-thirds
of our Nation's jobs are going to require a postsecondary
education.
Education is at the heart of the American promise for a
nation built by immigrants and sustained by the energy and
ideas of people from all across the world. Education remains
the gateway to citizenship, civic engagement and prosperity.
Our goal in the Administration is to have, as you said, the
highest percentage of college-educated workers in the world by
the end of the decade. A generation ago we were first in the
world, today we are ninth. To achieve the 2020 goal, thereby
increasing our global competitiveness, we need every segment of
the educational sector to boost productivity and achievement
from early learning through higher education.
Today one in four young people don't graduate from high
school. Of those that do, about two-thirds enroll in college
and large numbers, as we heard, never finish. Depending on
whether you look at private, public or for-profit 4-year or 2-
year institutions. We believe it is a national crisis that on
average half of America's undergraduates fail to graduate in 6
years. This is the reason why our college access, quality and
completion agenda is such a high priority for the department.
Meanwhile, tuitions keep rising as fiscally challenged
States cut back on education spending and as institutions
struggle to cover the cost of a quality education. Two-thirds
of American college students today graduate with student loan
debt, averaging about $23,000, a more than 25 percent increase
since 2004. Simply stated, too many students and their families
are challenged to repay their loans, default rates are climbing
and are now in the range of 15 percent for all schools and 45
percent for for-profit schools.
As a former community college instructor, dean and
president, I did everything over the years to help students
land part-time jobs, get Pell Grants, scholarships and work
study to minimize the impact of the loans that they would have
to take. I didn't want to see as many as we could get that loan
indebtedness that you heard about this morning.
But I knew that eventually many of them would have to take
out loans as they continued their education and training
throughout their lives. Student loans are a powerful tool for
bringing higher education within reach, but like any tool, they
can be misused, leaving students and taxpayers with few
options.
To address these challenges our department published the
gainful employment and 13 other program integrity rules this
year, challenging career college programs, both for-profit and
nonprofit, to meet new standards over the next 4 years to lower
default rates and ensure that the education they are providing
leads to real jobs. The rules were enacted to respond to the
escalating default rates and poor graduation rates of too many
Americans and the marketing, lending and compensation practices
that became increasingly prevalent in the career college
programs, especially in the for-profit sector.
Our research showed that 92 percent of students at for-
profit institutions borrowed to finance their education in
2007-8. By contrast, the sector with the next highest borrowing
rate was at 4-year private, nonprofit institutions where 59
percent of students borrowed. At public 2- and 4-year
institutions, just 13 percent and 46 percent respectively, of
students, borrowed. On balance the gainful employment
regulations require each particular to demonstrate that at
least 35 percent of its students pay their loans and the debt
burdens for typical students don't far exceed the
recommendations we receive from our experts.
A number of the for-profit colleges have already accepted
the challenge and have begun taking steps to improve their
programs. Some are offering, as we heard, tuition-free trial
periods to give students an opportunity to decide if they
really want to enroll before taking on the debt. And toward
this end, today we are releasing a guidance letter to encourage
these trial periods in more institutions and announcing a new
pilot program inviting applications that will give institutions
new tools to reduce student debt.
The Department is committed to striking a balance that is
going to draw upon the strengths of the sector, the for-profit
sector specifically, while avoiding its pitfalls, protecting
students and ensuring that Federal dollars are well spent.
But let me be perfectly clear about one thing. Our gainful
employment rule will do nothing to hurt the educational
opportunities for low-income students and students of color,
just the opposite is true. In the years ahead, the
disadvantaged students that are disproportionately likely to
enroll in these programs are going to see higher graduation
rates, lower default rates and programs that provide better
value in the labor market. We shouldn't be saddling any
students with debt they won't be able to repay and that is no
less true when students come from disadvantaged backgrounds.
Only 1 percent of the variation in repayment rates is explained
by the percent of the student body who are racial or ethnic
minorities.
Our written testimony reviewed all of our efforts to keep
colleges cost affordable for young people, for working
Americans, for displaced workers and for adults who never had
the chance, so I won't go through them in detail right now, but
I will be available to answer your questions.
Let me close by saying that America faces a stark choice in
this era of growing Federal deficit and shrinking State and
local revenues. Either we come together as a nation and meet
this challenge collectively, to educate our way to a better,
stronger and more productive economy, or we watch our
competitive advantage in the global economy slowly erode.
We are grateful to have a strong partner in Congress,
thanks to your generosity and your vision and commitment of
leaders here and on both sides of the aisle, we have to have an
American system that will remain strong and vibrant. And at
this point we are still the envy of the world and we want to
keep it that way.
So let me thank you for the opportunity and I am available
to answer your questions.
[The prepared statement of Ms. Kanter follows:]
Prepared Statement of Hon. Martha Kanter
Mr. Chairman, Ranking Member Enzi and members of the committee,
thank you for the opportunity to appear before you today to discuss the
issue of student loan debt.
The President and I believe that postsecondary education should be
within the reach of every American. As you know, this belief transpired
into a goal for America to once again have the highest proportion of
college graduates in the world by 2020. To be clear, this goal is
founded on more than a belief. Rather, it is a strategy for
competitiveness, growth, and shared prosperity that is deeply rooted in
the economic well-being of our country.
For students, too, college remains an excellent investment. College
graduates with an associate's degree earn at least 30 percent more than
those who attended only high school, and they are half as likely to be
unemployed. In June 2010 Georgetown University's Center on Education
and the Workforce released a report titled ``Projections of Jobs and
Education Requirements Through 2018.'' The report says that nearly two-
thirds of the job vacancies between 2008-18 will require some
postsecondary education.
And, of course, education has important civic benefits, helping
students broaden their horizons and engage in their communities and our
democracy.
Student loans are a powerful tool for bringing higher education
within reach. Like any tool, they can be misused or even risky, and
some students are struggling to repay their loans. Yet it holds true
that for most students, borrowing to pay for college will be one of the
best investments of a lifetime. As such, the Federal student loan
program continues to be a pillar of our college affordability efforts.
There remains concern, however, that students are taking on debt
they cannot afford in order to attend education programs that leave
them with poor employment prospects. Student loan defaults are on the
rise, particularly in the for-profit sector and particularly for
students who have not completed certificate or degree programs. We have
a responsibility to make sure that all students have the critical
information and appropriate protections to make smart financial
decisions about postsecondary education.
The Administration has made a landmark investment in postsecondary
education and is taking new steps to make student loans more affordable
and strengthen the American system of higher education. I would like to
describe those efforts before addressing for-profit colleges
specifically.
background
A little more than a year ago, with the leadership of this
committee, Congress enacted the most significant changes to the student
aid programs since their creation four decades ago. Due to student loan
reform, all new Federal student loans are made through the Direct Loan
program--using low-cost capital from the Treasury and delivered and
serviced through student loan companies under performance-based
contracts. These reforms are estimated to save taxpayers over $60
billion over the next decade, allowing for increased investments in
Pell Grants and community colleges, and making student loans more
affordable, while still reducing the deficit.
The student loan programs have grown significantly in recent years.
Currently, 36.1 million Americans hold over $740 billion in outstanding
Federal student loans. When combined with outstanding private education
loans, student loan debt is now greater than the total volume of credit
card debt. This year, the Department expects to make $116 billion in
new student loans. The program's growth is due to the down-turned
economy coupled with growing student enrollment, changes Congress made
to expand student loan eligibility, and increased prices of
postsecondary education--particularly outside of the community college
sector.
There remains a robust market in private student loans--including
loans made by schools themselves--outside of the government system of
student lending. Private loans totaled $8.5 billion this year,
according to the College Board. While these loans are necessary for
some students to afford the high cost of tuition--such as students in
very expensive programs or those students who are not eligible for
Federal loans--they typically carry much higher, interest rates and
lack important borrower protections available under Federal student
loan programs such as discharge for disability of death, and affordable
repayment options such as income-based repayment.
The most recent data from the Department's National Postsecondary
Student Aid Study (NPSAS) shows that in 2008, two-thirds of students
graduating from 4-year colleges and universities had student loan debt.
At the same time, average debt levels for graduating seniors with
student loans rose to $23,100 in 2008--a 24 percent increase from 2004.
Still, over half of all associate degree recipients and one-third of
all bachelor's degree recipients did not have any educational debt.
In most cases, loans are excellent investments. Workers with a 4-
year college degree earn 70 percent more than those with only a high
school diploma, and are typically only half as likely to be unemployed.
Workers with 2-year degrees earn 30 percent more.
But there is evidence that, for a fraction of students, student
loan debts are not affordable. A recent survey conducted by the Pew
Research Center and the Chronicle of Higher Education shows that an
overwhelming majority of college graduates say that college was a good
investment for them personally. But about a quarter of students
surveyed said their loans have affected their career choices adversely,
and a quarter also said that college loans have made it harder to buy a
home.
Default rates are climbing as well. The projected 2009 2-year
cohort default rate is now 8.9 percent, up 27 percent from only 2 years
ago. Among former students at for-profit colleges, the projected 2009
data indicates 15.2 percent are defaulting within 2 years of their
first scheduled payment. (see ``Attachment A'')
The Department works very hard to protect taxpayers from the costs
of defaulted student loans, and appropriately so. We eventually collect
about 85 cents for every dollar that enters default, on a present-value
basis, including anticipated collections from charges to students for
costs of collecting defaulted student loans.
But for students, the consequences of default can be severe.
Collection costs can be added to the size of the loan. In addition,
third-party debt collectors, tax and Federal benefit offsets, and a
variety of other tools can be used to collect the loan. Only very
rarely can defaulted student loans be discharged in bankruptcy. As a
result, we need to be careful to make sure that students are borrowing
appropriate amounts and using the tools that are available to help
students better manage their educational debts.
striking the right balance on for-profit colleges
As indicated by the fact that Chairman Harkin is holding this
hearing, student debt is a particular concern for students at for-
profit institutions.
For-profit career colleges can be helpful partners in reaching the
President's goal of once again leading the world with the highest
proportion of college graduates. Many of them do a great job preparing
students for work. As a sector, for-profit institutions have done a lot
to introduce important technological innovations, increase access to
higher education, and create new career opportunities for millions of
Americans--especially for low income and working adults.
At the same time, student debt is particularly prevalent at for-
profit schools. According to NPSAS, 92 percent of students at for-
profit institutions borrowed to finance their education in 2007-8. By
contrast, the sector with the next highest borrowing rate was at 4-year
private nonprofit institutions, where 59 percent of students borrowed.
At public 2- and 4-year institutions, just 13 percent and 46 percent,
respectively, of students borrowed.
Not only do students at for-profit institutions borrow at a greater
rate than their peers, on average, the amount they borrow is greater
than all but one sector. Students at for-profit institutions on average
borrowed $8,100, compared to $6,600 for students at public 4-year
institutions and $4,100 for students at public 2-year institutions.
Students attending private nonprofit 4-year institutions borrowed
$9,100 for programs that are typically much longer than proprietary
programs.
Burdened with higher borrowing rates and larger debt levels,
borrowers at for-profit institutions have worse repayment outcomes than
their peers at other institutions. In the 2008 cohort, students at for-
profit institutions represented just 12 percent of students, but they
accounted for 26 percent of borrowers and over 46 percent of students
who defaulted within 3 years of leaving school. In fact, for-profit
institutions produced a larger share of students who defaulted on their
loans than the entire public sector of higher education combined.
The Department is committed to striking a balance that will draw
upon the strengths of the for-profit sector while avoiding its
pitfalls, protecting students, and ensuring that Federal dollars are
well spent. As you may know, over the past 2 years the Department has
taken a series of efforts to strengthen program rules, such as
prohibiting recruiters from being paid based upon the number of
students they recruit.
With the help of over 90,000 public comments, last week we released
final regulations defining the term ``gainful employment,'' setting
requirements for eligibility for occupational training programs. While
the regulations apply to programs at all types of institutions, for-
profit programs are most likely to leave their students with
unaffordable debts and poor employment prospects.
Our final regulations require each program to demonstrate that at
least 35 percent of its students are paying their loans and that debt
burdens for typical students do not far exceed expert recommendations.
By setting a minimum standard of expectation, we hope to improve the
lowest performing programs; those who can't or won't improve will lose
access to Federal loans.
I want to be perfectly clear about one thing: This rule will do
nothing to hurt the educational opportunities for low-income students
and students of color. Just the opposite is true. The disadvantaged
students that are disproportionately likely to enroll in these programs
will see higher graduation rates, lower default rates, and programs
that provide better value in the labor market. They will also be able
to make more informed choices. Our final rule equips students and their
families with critical information about gainful employment programs by
requiring disclosure of program costs, completion, placement, and loan
repayment rates. Disclosures are important, but do not erase the need
for minimum safeguards to ensure that students are well served by their
educational institutions and taxpayers are protected from abuse of the
student aid programs.
I reject the premise that we need to lower our standards for
programs that enroll large numbers of disadvantaged students. We should
not be saddling any students with debts they won't be able to repay,
and that's no less true when students come from disadvantaged
backgrounds. Nor is it true that some types of students won't repay
their loans. We found that only 1 percent of the variation in repayment
rates is explained by the percentage of the student body who are racial
or ethnic minorities.
At the end of the day, we believe that because industry will
quickly adapt to the regulations and clean its own house, very few
programs will lose title IV funds. In fact it is already happening,
with some segments of the career college industry taking meaningful
steps by closing down low performing programs, reducing student debt,
offering free trial periods, and reforming recruiting practices.
Today, I am directing my staff to take two new steps to help
institutions rise to these new standards. First, we will release
guidance providing a blueprint for institutions that want to offer free
trial periods for new students mirroring approaches that some in the
for-profit industry have already pioneered. And in the coming days, we
will invite applications for a pilot project giving institutions new
tools to reduce student debt. We will let institutions reduce the size
of student loans, while carefully measuring the impact on students'
access and success, to see if it's possible to design lower cost
programs.
Together with our new regulations, these steps will help ensure
that students at these schools are getting what they pay for: solid
preparation for a good job. We're giving career colleges every
opportunity to reform themselves but we're not letting them off the
hook, because too many vulnerable students are being hurt.
This is a significant step forward, but only one example of how we
are working tirelessly to ensure that students of every age and
background succeed in college and career.
improving access to need-based funds
In the past 2 years, Congress and the Administration have worked
together to make more aid available to college students. First, we have
significantly expanded our investment in Pell Grants. Since 2008, the
maximum award has grown by $819 and the number of recipients has grown
by 50 percent, from 6.2 million to 9.4 million. These investments were
made possible, in part, by reforming the student loan programs and
eliminating unnecessary bank subsidies in the guaranteed student loan
program. As you know, the Pell grant program is in peril due to rising
program costs and because, in past years, one-time funding was used as
a temporary solution and shortfalls have accumulated. In order to
continue investments in higher education that are critical to America's
future, while also choosing to maintain fiscal discipline, the
Administration remains committed to an approach that will maintain the
maximum award at $5,550 and put Pell Grants on a sound financial
footing for future years.
There is also evidence that the complexity of the student aid
application--known as the FAFSA--and lack of awareness of aid
eligibility have been obstacles to students entering college and
receiving aid. In 2008, more than 2 million students who were eligible
for Pell Grants failed to apply for Federal student aid, of which over
60 percent said they didn't think they were eligible. One pilot program
found that providing modest assistance in filling out the FAFSA boosted
college enrollment among low-income high school graduates by 7
percentage points.
Over the past 2 years, the Department has also used online
technology to enable students and parents to automatically skip
unnecessary questions and to electronically retrieve their tax
information directly from the IRS, making the FAFSA both easier to
complete and more accurate. We have proposed legislation to eliminate
20 questions that require the applicant to obtain information that is
unavailable from the IRS, so that a student could apply for aid on our
Web site with only basic information such as his or her address and
college choices. We are also working to provide FAFSA assistance to
potential college students by working with school systems, high
schools, and Volunteer Income Tax Assistance (VITA) sites across the
country. In addition to its support for investments in Pell Grants, the
Administration worked with Congress to reauthorize the American
Opportunity Tax Credit to help offset higher education costs for
students and families. For the first time, the credit is now refundable
to families who earn too little to pay income taxes. The credit is now
worth $10,000 for 4 years of college.
All told, Federal funds available through Pell Grants and the
American Opportunity Tax Credit have grown by approximately $25 billion
a year. Last year, the College Board released a study that revealed
that the net price of tuition--the cost after grant aid and tax
benefits--is actually lower than it was 5 years ago. We are
tremendously proud of our role in that accomplishment.
student loan affordability
With your help, Mr. Chairman, we have also expanded the loan
repayment options that are available for borrowers to help ensure that
students are able to pursue careers about which they are truly
passionate, without taking on an unmanageable student loan debt.
Towards this end, the income-based repayment plan is available for all
eligible student loan borrowers. This plan ensures that payments on
Federal student loans are never more than 15 percent of a borrower's
income after a basic living allowance is taken into consideration. In
addition, under the Public Service Loan Forgiveness Program, the
Federal Government will now forgive a borrower's outstanding loan
balance after 10 years of successful repayment if the borrower serves
as a teacher, nurse, or other public service professional, and 25 years
for all others. This is a good deal for students today and will be a
better deal in 2014 when the income cap will be lowered to 10 percent
of a borrower's income and remaining debt will be forgiven in 10 years
for those in public service and 20 years for all others.
To illustrate just how important income-based repayment is for
borrowers, consider the following example. Imagine an out-of-school
borrower making $30,000 a year, but saddled with $40,000 in Federal
student loan debt. Payments for that borrower would be:
$460.32 per month under the standard 10-year repayment
plan; or
$277.63 per month under an extended 25-year repayment
plan; or
$174.94 per month under our income-based repayment plan.
Beginning in 2014, a new borrower with similar income and debt
would pay only $114.63 per month. Income-Based Repayment is the
equivalent to a very sizable monthly tax cut for borrowers, again paid
for by reducing unnecessary bank subsidies that had been present in our
Federal student loan system. The fiscal year 2012 Budget Resolution
passed by the House (H. Con. Res. 34) proposes to repeal the provision
of last year's student loan reform including funding for the income-
based repayment plan. We must work together to protect this important
safeguard for student loan borrowers, and ensure that student loan
borrowers, especially those committed to careers in public service,
benefit from a stronger plan in 2014. The Administration also has
proposed that the debt forgiven through Income-Based Repayment should
not be taxed.
In addition to ensuring that loans are affordable, we need to make
sure that they are sufficiently and appropriately available. While
there are well-founded concerns about the increasing debt levels among
some borrowers, it is also true that current annual loan limits in the
Federal student loan programs are inadequate for certain students. The
existing Perkins Loan Program provides students with additional low-
interest loans, but the program is too small, inefficient, and
inequitably structured to help many students. For these reasons, this
Administration supports creating an expanded, modernized Perkins Loan
program that will provide $8.5 billion in new loan volume annually--
8\1/2\ times the current Perkins volume--and, when fully implemented,
would reach over a total of 3 million students at as many as 2,700
additional post-secondary education institutions.
As important as grants, tax benefits, and loans are, it is
important to keep in mind there are two sides to the college
affordability ledger. There is financial aid on one side and college
costs on the other. States and colleges themselves have a
responsibility to keep cost growth down. We know that declining State
spending is a major driver of tuition increases at public universities.
Colleges themselves need to keep an eye on their mission of providing a
quality education at an affordable cost. Public institutions like the
University of Maryland and some private institutions like Cornell are
finding ways to combat rising tuition without compromising on quality.
We know that there are ways to improve learning at a lower cost. Carol
Twigg's work at the National Center for Academic Transformation is
encouraging the thoughtful use of technology to drive down
instructional costs while simultaneously improving student outcomes is
heartening. I want to join President Obama in challenging every
university and college president to do more of the same to get a handle
on spiraling costs.
Given the varying prices, the likely payoffs of different post-
secondary education programs, and the significant consequences for
getting into trouble with debt, it is important for students and
families to make informed decisions about which college to choose and
how to pay for it. We need to make sure that they have the information
they need to evaluate schools based on price, quality, and fit. Just as
it should be easy for Americans to compare mortgage or credit card
offers, it should be easy to compare colleges and financial aid
packages. We are implementing a number of new provisions in the Higher
Education Act to empower them to make those comparisons so that
students and families have the information they need to vote with their
feet.
The College Navigator Web site maintained by our National Center
for Education Statistics includes average net price tuition amounts,
which gives students and their families a more accurate picture of
information on college costs than just a school's ``sticker price.'' By
October, all institutions of higher education will have their own net
price calculators on their Web sites. The Department has given schools
a template to use for the net price calculator, or they can design
their own.
Later this month, we will unveil a new College Affordability and
Transparency Center to provide information on postsecondary
institutions' published tuition and net prices, ranked from high to
low, and indicating which institutions' prices are climbing fastest.
And we are developing a model financial aid award letter that, if
adopted, would make it easier for students to compare financial aid
offers across schools.
We're proud of these efforts, but they will help only if students
use them. That is why we created the Financial Education for College
Access and Success program last year. This initiative provides funds
for State-led efforts to, among other things, improve student financial
literacy. For example, the Tennessee Department of Education will
develop and evaluate new instructional materials--which will be
available at no cost to States--that help middle school and high school
teachers prepare their students for financial decisions related to
investing in postsecondary education. We also established a partnership
with the Federal Deposit Insurance Corporation and the National Credit
Union Administration to provide students with safe, affordable deposit
accounts so they can learn about finances while managing and saving
their own money. If we wait until students are taking out a loan before
providing relevant and effective financial education and counseling
then we are too late.
Just last week, our Federal Student Aid office invited guaranty
agencies to propose innovative business models that we expect will
include new, outcomes-focused approaches to provide financial
counseling, debt management, and default prevention without additional
costs to taxpayers.
helping make postsecondary education pay off
We are also working hard to encourage efforts by institutions to
improve the quality of instruction at an affordable cost. An example of
this is our effort, we are collaborating with the Department of Labor
on a program they administer, to support and enhance education and
training programs that can be completed in 2 years or less through the
$2 billion investment in the Trade Adjustment Assistance Community
College Career Training Grant program that was funded as part of last
years' legislation that included student loan reforms.
As you may know, this program's application period for the first
$500 million dollar investment closed earlier this spring, with award
notifications scheduled to take place later this year. Our hope is that
every community college in the country; indeed, every school in the
country, will have access to all of the high-quality materials created
with these funds.
I am also calling on States and colleges to boost completion rates,
because we know that students who fail to graduate often struggle to
repay their loans. Currently, only about 60 percent of students at 4-
year colleges earn a degree within 6 years of initial enrollment. At 4-
year for-profit institutions the completion rate is only about half
that. At 2-year institutions, students in for-profit programs earn
credentials at rates slightly above their peers at public programs, but
nonetheless only one student graduates from these programs at these
institutions for every two who leaves with no degree to show for the
time and investment.
Our fiscal year 2012 budget request includes investments that are
targeted to help disadvantaged students enroll in and complete college.
Our request includes a new national innovation fund to support programs
that explore innovative practices to accelerate learning, boost
completion rates, and hold down tuition costs. We are also proposing to
reward States and colleges that produce more college graduates. We have
also released a ``College Completion Tool Kit'' of low cost and no cost
strategies that States can pursue to boost attainment and associated
Federal revenue streams to draw upon these strategies. The best jobs
and fastest growing firms will gravitate to communities, counties, and
States with a highly educated workforce, and we are committed to
helping each State educate its way to a better economy.
conclusion
Ensuring that every qualified American has the opportunity to
pursue his or her college goals is among the most critical priorities
for this Administration.
Equipping our citizens with the skills and knowledge offered by our
higher education system will ensure that all Americans can contribute
to our shared goal to out-build, out-innovate, and out-educate the rest
of the world. The Administration will continue to work tirelessly to
ensure that students and families have the resources to pay for college
and the tools they need to make the best decisions for themselves about
pursuing postsecondary education.
The value of a college degree remains much higher than its price--
and higher education, in general, is certainly still a worthwhile
investment. But, we need to continue to ensure that students can afford
to enroll in and complete college and that they have the protections in
place if by chance, their college choices do not pay off.
The Chairman. Thank you very much, Secretary Kanter.
We will begin with 7-minute rounds. I know Senator Bennet
had some questions, too.
First of all, we often hear that the gainful employment
rule only affects for-profit schools. Is that correct?
Ms. Kanter. The gainful employment rule actually protects
all students, public, for-profit, nonprofit, wherever programs
reside that lead to gainful employment.
The Chairman. Can you explain how the Department of
Education expects the gainful employment rule to influence the
behavior of institutions?
Ms. Kanter. Yes. One thing we are doing is disclosure. It
is a very important tool for providing students and families
with the information they need to make good decisions. Our
final rule will give them more disclosure information.
On July 1st we will be publishing completion rates,
placement rates, total debt, total tuition charges at
institutions, so that is going to help families make better
choices. In terms of the for-profit sector, we have an
improvement process. The gainful employment regulations are
going to protect all students, that is the purpose of this, but
what we wanted is a rule that will go after the bad actors, as
Secretary Duncan has said, and create an improvement model so
that more of the sector can educate students for the quality
that they came to the schools to get.
The Chairman. We have presented evidence that some for-
profit colleges are making institutional loans to students at
interest rates as high as 18 percent, I presented that earlier.
And the expected default rates exceed 50 percent, the schools
themselves expected default rates to be over 50 percent, yet
they make these loans with high interest rates.
I pointed out, Secretary Kanter, where that money comes
from. It doesn't come from Wall Street, that money comes from
the taxpayers. So they take the money that comes through with
student loans and Pell Grants and then they can turn around and
make institutional loans to students to keep on that 90/10
split. And yet they expect half of their students to default.
You have run an institution of higher education. Haven't
you?
Ms. Kanter. Yes.
The Chairman. What do you think about a school's decision
to make those kinds of loans? Would your school make those
kinds of loans, if you knew that half of them were going to
default?
Ms. Kanter. No, we wouldn't.
The Chairman. Then why do you think these schools--and what
in the gainful employment rule is ever going to do to make that
change?
Ms. Kanter. Right now we have a situation where career
colleges are measured by a 2-year cohort default rate, meaning
that we track the borrowers who enter repayment within a 2 year
window. In 2008, the latest year for which we have official
data, the students defaulted at a rate of 11.6 percent compared
to 4 percent of students at privates and 6 percent of students
at publics.
So we have looked at recent changes in the law. And the
reasoning behind the changes were due to concerns that colleges
weren't managing their default rates, as you said.
The Chairman. That is right.
Ms. Kanter. The 3-year rate is going to give us a better
picture of how many borrowers are going to be able to repay
their student loans. And we have been giving these rates to
colleges, for informational purposes, over the last couple of
years to help them better track their progress and work to fix
those programs before sanctions would apply.
In the case of for-profit institutions, we want them to use
these tools to better manage the kind of debt that students are
taking, far beyond students signing up for loans. Particularly
we have released lifetime default rates, as you heard this
morning, to also be an area that we want some change in the
sector.
The Chairman. Is the Department going to take into account
10-year default or lifetime default rates, which I showed this
morning sometimes are as high as 70 percent, by their own
internal documents of the for-profit schools.
Ms. Kanter. Right. I mean that is something we will have to
look at, absolutely. But frankly, we want to get students right
at the beginning, in the first year--before they take a loan.
That is really where the interaction has to take place. And
then once they get a loan how to best manage it and where they
can get the best value.
The Chairman. Madame Secretary, I understand that and as I
said earlier, I considered the gainful employment rule modest,
it certainly was a step back from what the proposed rule was
and I thought the proposed rule was modest and now we have this
new thing. Is it better than nothing? Yes. Better than nothing.
But I must say to you that I looked and what does it say to
you, Madame Secretary, that after this rule was published last
week, stock prices of these larger for-profit schools soared?
What does that say?
Ms. Kanter. Right. We don't control the markets.
The Chairman. I am not saying the market out there--they
saw the gainful employment rule and the stocks boomed.
Ms. Kanter. We want the sector to succeed, I think that was
one of the fundamental tenets of the rule. We have 11 percent
of students in these programs, we have to create a model that
is going to help them improve and actually target the worst
performing programs and either have them improve or eliminate
its eligibility for Federal aid.
The Chairman. So you are saying it is fine for them to make
even more profits than what they are making?
Ms. Kanter. I can't judge----
The Chairman. Is that what you are saying?
Ms. Kanter [continuing]. How much profit an institution or
a corporation----
The Chairman. That doesn't----
Ms. Kanter [continuing]. Wants to build, but I do think
their business models ought to be based on consumer protection,
what is best for students. I think the goals ought to be to
lower the default rates, that was one strong part of our
proposal. To increase the graduate rates which is a second
part. And to actually do the front-end services so students
don't have to take loans at higher interest rates than the
average. I mean that is a real concern for us.
The Chairman. What it said to me was that the investors and
Wall Street looked at this and said, ``you know, for the next 3
or 4 years, at least, things are going to be pretty good,
because this doesn't go into effect until 2015.''
Ms. Kanter. We publish 14 rules including gainful
employment. So we think the package of program integrity rules,
when taken together, will really provide the kind of direction,
and I think that many have said this is a positive first step.
It is not the be-all and the end-all, but we had to make some
progress and I think we have done our best to create a good
starting point for this.
The Chairman. I read your background, Secretary Kanter, you
spent your career working with low-income students. If you were
here for the first panel, I don't know when you arrived, but
see when you have a business model out there that says you will
make more profit, you will make more profit by getting the
poorest people in, obviously because they get the most Pell
Grants and the most student loans, and so you target, as we
heard, vulnerable people and you bring them in, because that is
how you increase your profit. And if they default after 3
years, who cares? It is no skin off their teeth. They keep the
loans, they keep the Pell Grants.
We have seen the profit structure of some of these schools,
tremendous. I am not against profit but when it comes only from
taxpayers, I mean this is not something--they aren't making
something that is competing with somebody else, a device or
something that they have patented, some new invention, this is
education. And it is coming from the taxpayers. And I just
wonder how they can say it is for-profit when over 90 percent
of their money is coming from the taxpayers. How can that be
for-profit?
Ms. Kanter. Right.
The Chairman. People said there is a role for for-profit's,
as I have said before, there are some that are doing a great
job out there. But, it looks to me that in the last, 15 years I
would say, perhaps--well, I go back to when it was increased
from 85/15 to 90/10, in 1998, I believe and when the rule was
promulgated in 2001 on paying recruiters to recruit, the so-
called Safe Harbor Provisions of 2001, and then the final blow
was in 2005 when the final thing was that 50 percent of our
students had to be on campus was taken out, so everybody could
be online. And you have seen a sector here that, whereas I
pointed out before in many of our hearings, many of these large
schools are owned by Wall Street investors and investment
houses, private equity companies.
We have listened in, our staff has, I didn't, listened in
on the investor's call and the investor's call for the schools
that they listen in on, not one word was said about how are the
students are doing, it was all, how much money are you making.
The last quarter you made great profits, and that was
wonderful. That is the investor's call, because it is geared
toward making more profits.
As I said, I am not against profits but when it is coming
from the taxpayers of the country and it is going after the
poorest people in our society, and they are being put at risk
through aggressive recruiting, and I have put this out on the
floor of the Senate, I have read the different kinds of ways
that they go after students or people, like Mr. Schmitt and
others that are vulnerable, maybe don't have any family
background of people going to college to try to guide and
direct them, I think it is what Miss Abernathy said, you have a
toxic mix. A toxic mix. And I believe it is going to take more
than those rules.
I think it is a first step. It is a modest first step,
granted. But to really bring this, I think into line and to
make the commitment of these schools to the success of their
students, both in school and after school, to make that
equivalent, equal to their commitment to the profit side, then
you are getting somewhere. That is not where it is. Their
commitment is not to those students. The commitment is to the
profit side and somehow that has to be righted and I think it
is going to take a much more aggressive policy than what we
have done in the past.
I didn't mean to take so long. But I didn't know if you had
a response to that. You don't have to respond to it if you
don't care to.
Ms. Kanter. I can say that it is totally unacceptable to
prey on students. Students are going to all institutions to get
a quality education. Accreditation has got to do a better job.
We are doing a lot of work in that arena. We have an advisory
commission to look at high impact strategies that the secretary
can think about the AGA reauthorization in the future.
In my personal experience, we can help poor students
succeed without sending them into debt. And that is why our
rules are looking at practices like incentive compensation, the
misrepresentation and the certain thresholds that the
institutions have to meet. I mean we are looking at a whole
package of reforms to help that particular sector do a much
better job so that students can be first, students must be
first in this equation. That is why students are coming to
college.
I am concerned. The 90/10 rule was based upon a market
principle that said, 10 percent would at least be devoted to
the value that an individual would pay to go to those
institutions. So there are other ways that are being accounted
for that 10 percent, that can certainly be revisited, but that
is a great concern as well.
The Chairman. I am just concerned about the students who
have been there and the students who are there now, but also
for the next 3 or 4 years. And you know, we are up to what, $37
billion now? How much?
Ms. Kanter. Thirty?
The Chairman. Thirty billion. We are up to $30 billion a
year now going to the for-profit sector and that has been
increasing and increasing. I am going to be here and I am going
to see next year if it increases more and it increases more and
increases more, that is why I am alarmed that we aren't doing
more to look ahead and say, ``wait a minute, we have to do some
things now or we are going to be either further in the hole and
we are even going to have even more students with more debt,
not having diplomas, not having succeeded in these for-profit
schools. And we will be back here 3 years from now with the
same kind of problems we have now.'' That is my big concern.
I would like to thank each of our witnesses for being with
us today. We will leave the record open for 10 days and
witnesses may submit statements for the record, or supplemental
statements.
I think we have heard today how for-profit colleges target
low-income students as sources of revenue, much like the
subprime lenders did in the mortgage crisis. The difference,
though, as we have seen, between a mortgage crisis and the for-
profit colleges, is that students are left with debt that stays
with them for the rest of their lives. People who lost their
houses can walk away from their house, students can't walk away
from this.
Why should the taxpayers be expected to invest in these
schools when even the companies themselves write off up to 80
percent of their institutional loans? If they think it is a bad
investment why should the taxpayers think it is a good
investment?
The Department of Education I think, has taken some good
first steps. This hearing, I think, has made the case that we
need to take additional action to protect students and
taxpayers from subprime colleges. These schools need to be held
responsible for their students being unable to repay the loans.
And with that, this hearing of the HELP Committee will
stand adjourned.
[Additional material follows.]
ADDITIONAL MATERIAL
The Leadership Conference,
February 3, 2011.
Hon. Arne Duncan,
Secretary of Education,
U.S. Department of Education,
400 Maryland Avenue, SW,
Washington, DC 20202.
Re: Proposed ``Gainful Employment'' Rule, Docket ID ED-2010-OPE-0012
Dear Secretary Duncan: On behalf of The Leadership Conference on
Civil and Human Rights, a coalition charged by its diverse membership
of more than 200 national organizations to promote and protect the
rights of all persons in the United States, along with the undersigned
organizations, we write to express our collective support for a strong
``gainful employment'' rule.
The Department's proposed regulation to define gainful employment
under Title IV of the Higher Education Act of 1965 and to protect
students from programs that do not deliver on their marketed promises
of a better future falls within our mission and has generated
significant support from our members. In fact, many of our members--
including the American Association of University Women, the American
Federation of Teachers, the Mexican American Legal Defense and
Educational Fund, the National Council of La Raza, the National
Education Association, and the United States Student Association--
submitted comments in response to the Federal Register notice published
on July 26, 2010. Accordingly, we urge the prompt adoption of a strong
final gainful employment rule, one that will protect students and
taxpayers no later than the 2012 academic year.
In order to be eligible to receive student financial aid grants and
loans under title IV, current Federal law requires all post-secondary
career education programs, including all public and nonprofit college
programs of less than 2 years and nearly all for-profit college
programs, to ``prepare students for gainful employment in a recognized
occupation.'' What constitutes ``gainful employment,'' however, has yet
to be defined. The proposed rule, if finalized, would fill this void
and enable long overdue Federal enforcement, protecting students and
taxpayers alike from millions of dollars in wasted Pell Grants and
defaulted student loans.
The need for the rule is particularly urgent for students enrolled
in the for-profit school sector. The American Prospect recently noted
that,
``[f]or-profit schools have little incentive [now] to care
whether their students land well-paying jobs; if graduates
can't pay back their loans, taxpayers will, because the Federal
Government guarantees the loans.''
Students enrolled in for-profit schools represent just 10 percent
of all postsecondary students in the United States but account for 44
percent of all student loan defaults. The proposed rule would provide
significant protection to students, by sparing them entry into a proven
dead-end educational track, while also sparing taxpayers otherwise on
the hook for their Federal student loans.
We support the approach in the proposed rule, which makes program
eligibility under title IV contingent on median student debt-to-income
ratios and repayment rates. Such markers are sound proxies for
meaningful preparation for employment and ensuring that students are
not incurring unmanageable levels of student loan debt. Those programs
that serve their students well will easily pass this review, narrowing
the Department's focus to those that fall short on delivering the
American Dream.
These proposed protections are particularly important for (1)
students of color, who represent about half of the undergraduate
students in for-profit programs; (2) low-income students, who make up 6
in 10 for-profit college students; (3) women, who comprise nearly two-
thirds of for-profit college undergraduates; and (4) armed-service
members and veterans, a growing target student body for many of for-
profit colleges since the passage of the Post-9/11 G.I. bill:
Minorities: While most (66 percent) underrepresented
minority students attend public colleges, they are disproportionately
represented at for-profit colleges. African-American and Hispanic
students make up 28 percent of all undergraduates, but they represent
nearly half (46 percent) of undergraduates at for-profit colleges.--
Source: National Postsecondary Student Aid Study 2008.
Low-Income: While most (70 percent) low-income students
attend public colleges, they are disproportionately represented at for-
profit colleges. Sixty-four percent of students attending for-profit
colleges have incomes below the median for all students.--Source:
National Postsecondary Student Aid Study 2008.
Intersection of Minority and Low-Income Groupings: At for-
profit colleges, low-income and minority undergraduates are about three
times more likely to borrow Federal student loans, and four times more
likely to borrow private student loans, as their counterparts at public
or private nonprofit colleges. Eighty-eight percent of students with
below-median incomes attending for-profit colleges borrowed Federal
student loans in 2007-8, compared to 33 percent of those attending
public and private nonprofit colleges. Forty-one percent of students
with below-median incomes attending for-profit colleges borrowed
private (non-Federal) student loans in 2007-8, compared to 12 percent
of those attending public and private nonprofit colleges. Eighty-six
percent of African-American undergraduates attending for-profit
colleges borrowed Federal student loans in 2007-8, compared to 29
percent of those attending public and private nonprofit colleges.--
Source: National Postsecondary Student Aid Study 2008.
Women: Women make up almost two-thirds (64 percent) of the
undergraduates attending for-profit colleges. The gender imbalance is
especially stark at private for-profit colleges of less than 2 years,
where women comprise three out of four (75 percent) of undergraduates.
To put this in context, women make up 55 percent of those attending
public colleges of all levels and 58 percent of those attending private
nonprofit colleges.--Source: 2008-9 data from the Federal Integrated
Postsecondary Education Data System.
Armed-Service Members and Veterans: The Senate Health,
Education, Labor, and Pensions Committee found that 20 for-profit
colleges pulled in $521 million in taxpayer-funded military and
veterans tuition assistance in 2010, nearly eight times more than in
2006.--Source: John Lauerman, For-Profit Colleges Scam Military for
$521 Million, Report Says, Bloomberg Newswire, Dec. 9. 2010.
To be clear, the civil and human rights community supports policies
that maximize meaningful postsecondary educational and equitable
employment opportunities. Unfortunately, too many for-profit college
recruitment practices targeted at vulnerable students appear to
sacrifice ``quality'' college opportunities in favor of ``quantity''
profits for the institutions. It is worth noting, however, that we do
not believe all for-profit colleges are bad actors. The way to separate
the wheat from the chaff is to finalize and enforce a vigorous gainful
employment rule.
We understand the final comment period has closed. Given that
opponents of the rule have asked the Department to retract, delay or
weaken the regulation, however, we feel a strong need to communicate
our members' support for a strong regulation. In addition, on behalf of
our members that did weigh in with the Department during the public
comment process, we respectfully request a meeting with you to discuss
the benefits of the proposed rule and to reply to claims by opponents.
Finally, as raised by some of our members during the comment
period, many stakeholders believe the final rule should be stronger
than the draft rule. For example, a number of organizations believe
that students--and in particular the more vulnerable and
underrepresented students who disproportionately attend for-profit
colleges--deserve career education programs that are held to even
higher standards than those that the Department has proposed. Given
that student indebtedness and default rates are on the rise, we believe
this is an important first step for the Department to take and one that
should be taken immediately.
In closing, we agree with your recent observation that ``some bad
actors are saddling students with debt they cannot afford in exchange
for degrees and certificates they cannot use.'' To that end, we applaud
the Department for proposing these regulations, which will provide
much-needed oversight for career education programs that leave students
with little other than burdensome debt and dashed dreams. We encourage
the Department to act quickly and decisively and issue a final
regulation.
We look forward to hearing back from your office regarding a
meeting with members of The Leadership Conference. In order to schedule
the meeting, or to discuss any of the points raised in this letter,
please contact Dianne Piche, Leadership Conference Senior Counsel, at
202-466-3311.
Thank you for your consideration.
Sincerely,
Wade Henderson,
President & CEO.
Nancy Zirkin,
Executive Vice President.
American Association of University Women
American Federation of Teachers
AFL-CIO
Center for Media and Democracy
Consumers Union
Gay Lesbian and Straight Education Network
Hip Hop Caucus
Mexican American Legal Defense and Educational Fund
National Association for the Advancement of Colored People
National Council of La Raza
National Education Association
National Partnership for Women and Families
National Women's Law Center
Southeast Asia Resource Action Center
Southern Poverty Law Center
United States Student Association
______
Law Offices, Williams & Connolly LLP,
Washington, DC 20005-5901,
June 16, 2011.
Hon. Tom Harkin, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Hart Senate Office Building,
Washington, DC 20510.
Dear Chairman Harkin: I am writing on behalf of Kaplan Higher
Education Corporation to set the record straight on a number of matters
touched upon in the testimony of a former Kaplan student at the hearing
before the Senate Committee on Health, Education, Labor, and Pensions
on June 7, 2011. I ask that this letter be made part of the record of
that hearing.
The faculty, staff and administrators at Kaplan care about each one
of its graduates and sympathize with the difficulties this student has
faced in finding employment. At the same time, this student's testimony
did not paint a complete and accurate picture of his experiences at
Kaplan, the placement rate of the program in which he participated, or
the possible reasons for his current unemployment.
First, in his written statement to the committee the student
characterized his Kaplan-arranged 2004 externship experience as a
``less than rewarding experience.'' That contrasts quite sharply with
what this student wrote on a student survey at the time of his
externship, a copy of which was provided to your staff in advance of
the hearing. Asked at that time, ``What portion of your externship
experience was most beneficial to you?'' he answered: ``The most
beneficial experience was seeing what a paralegal really does.'' Asked
``What portion of your externship experience was least beneficial to
you?'' he answered: ``Can't help you. I have found it all very
beneficial.'' (Emphasis added). Asked ``What changes would you
recommend to the externship program at the College?'' he answered:
``None. The externship program works reasonably well as is.'' (Emphasis
added). In short, the student felt that the externship experience was
in fact a rewarding one at the time.
Second, the student failed to acknowledge anywhere in his written
or oral testimony that upon completion of his Associate's degree
program he did, in fact, receive and accept a permanent offer of
employment from the firm with which he had his externship. He went to
work at the firm and only 5 months later informed Kaplan that he had
left the firm. While there is no question that he left the firm for
good reasons, it was misleading for the student to omit this placement
from his testimony and then to express surprise to the committee that
Kaplan regarded him as having been placed when he graduated. The
student was, in fact, placed in a permanent position, and the committee
should be aware of that fact.
Third, the student testified that he knew of no more than four
students out of the dozens in his class who secured permanent
employment after receiving their Associate's degrees. In fact, as
Kaplan informed your staff before the hearing, there were 22 students
in the paralegal graduating class in 2004 at Cedar Falls. Of those who
did not continue their education beyond the Associate's degree, 14 of
17 were placed. In fact, the latest overall job placement rate for all
programs at the Cedar Falls, IA campus is 94 percent.
Fourth, the student testified that the Dean at the Cedar Falls
campus mentioned that Kaplan had a law school (Concord Law School in
California) but failed to mention that graduates of Concord cannot take
the Iowa Bar exam. As the student's written statement makes clear, the
Dean's alleged comment about Kaplan's law school was made in the course
of a conversation about courses in the second year of the Associate's
degree program. At that time, as the student told me and your staff
members in a joint telephone interview conducted the week before the
hearing, law school was no more than a distant thought on the horizon.
Associate's degree recipients are not eligible to apply for law school.
This student didn't even begin his studies toward a Bachelor's degree,
which would be required for admission to law school, until 4 years
after this passing conversation with the Dean, and even then there is
no indication that law school was part of his plan. His written
statement says simply:
``In early 2006 I enrolled [in the Bachelor's degree program
at Kaplan University], eager to continue my education since I
assumed it had to have been my fault that I never received an
interview. I also wanted desperately to leave the customer
service industry and I thought that a 4-year degree would
better help me do that.''
In short, he enrolled for further education at Kaplan University
because he was seeking a Bachelor's degree, not because he intended to
go to law school.
This former student never, in fact, applied to Concord or any other
law school and, apparently, never even visited the Concord Law School
Web site. To our knowledge, he never took the Law School Admission
Test. If he had contacted Concord Law School or visited the Web site,
he would have learned immediately what he learned from his instructor
in the Kaplan University Bachelor's degree program--that he would not
be eligible to sit for the Iowa bar with a Concord degree. In short,
this student was never misled about the effect of a Concord degree, and
he did not enroll in any Kaplan program because of any misunderstanding
on that subject.
Fifth, the student told me and your staff in our joint interview
with him that he could only recall five paralegal vacancies for which
he has applied since receiving his Bachelor's degree in paralegal
studies in 2008. A survey published on Careerbuilder.com, however,
indicates that there have been 152 paralegal vacancies that have
existed in Iowa during the last 6 months, with only 1.7 job seekers per
opening. This student lives in a town of 4,200, where paralegal jobs
are not likely to exist, but many of the 152 vacancies have been within
commuting distance from his home. Yet he seems to have applied for only
five. And he has affirmatively not considered positions in Des Moines,
where the largest number of paralegal jobs exists, because he is not
interested in moving to Des Moines.
Nor has this student availed himself of the services of the Kaplan
Cedar Falls Career Services office at any time since he received his
Bachelor's degree from Kaplan University. As a graduate of the Cedar
Falls campus, he is entitled to seek the assistance of the Cedar Falls
Career Services office at any time during his career. Career Services
remains available to assist him at this time.
Sixth, I should note that this student was mistaken when he
testified that he now owes $45,000 in student loans. The National
Student Loan Data System indicates that he owes approximately $38,000.
The average Kaplan University graduate leaves with about $28,000 in
debt. This compares favorably to the average debt loads of the
graduates of the public and private colleges in Iowa, according to the
Project on Student Debt:\1\ $31,000 at Iowa State University; $22,684
at the University of Iowa; $34,386 at Clark College; and $34,919 at
Drake University.
---------------------------------------------------------------------------
\1\ http://projectonstudentdebt.org/state_by_state-
view2010.php?area=IA.
---------------------------------------------------------------------------
Finally, Mr. Chairman, I know that the testimony of this student
was offered merely as an example of the burdens that one student has
faced. As noted above, the experience of this student was not typical
of the students in the paralegal program at Cedar Falls. Nor is it
typical of Kaplan University students. To provide a different
perspective, I would like to tell you of the story of Maria Zeno, a
2008 graduate of Kaplan University's paralegal program who has
authorized us to recount the following:
Ms. Zeno has been employed by the same lawyer for 9 years. During
one of her early years with this lawyer, she was going through
materials with a lawyer from a different firm, when she caught
something in that attorney's paperwork that was not accurate. The
lawyer refused to take Maria seriously because of her lack of formal
postsecondary training. Shocked by his reaction, Maria enrolled in
Kaplan University the same day. Maria explains that it was not easy to
complete her studies: ``I was juggling school, work and a personal life
that required me to care for my three children and a husband. It was a
rocky road, but I got through it.'' Maria received her Bachelor's
degree in paralegal studies in 2008 and was immediately granted a
$3,000 pay increase by her employer. Maria continues to work for the
same attorney today, and her future is looking bright. She paid back
her student loans of approximately $38,000 in 5 years, and she is now
enrolled in law school. ``Because of my hard work at Kaplan,'' she
says, ``I was top of my class in the first year of law school and I was
able to get scholarship money.'' Maria is looking forward to completing
her law degree in 2013. Her boss, a sole practitioner, plans to make
Maria his partner once she passes the bar. She aspires someday to argue
before the Supreme Court. She says that she will never forget the
attention she received when she was a student at Kaplan University.
Mr. Chairman, Kaplan very much appreciates your remarks at the last
committee hearing, when you stated that:
``Kaplan stands alone among the large, for-profit education
companies for having taken what are, in my opinion, real and
significant steps to reduce high withdrawal rates and high
default rates by implementing the Kaplan Commitment program.''
Andrew Rosen, Kaplan's CEO, is grateful in particular for your
complimenting him and Kaplan as ``stand-outs for the level of
cooperation that they have offered to the committee through the course
of this investigation.'' Kaplan has taken these matters very seriously,
and believe me when I say that it is truly encouraging to everyone at
Kaplan to know that their efforts have not gone unnoticed.
Sincerely,
Kevin T. Baine.
______
Letter Regarding Kaplan's Statement in Response to Testimony at U.S.
Senate Health, Education, Labor, and Pensions Committee Hearing June 7,
2011
Kaplan recently released a statement calling into question the
accuracy of my testimony at the U.S. Senate Health, Education, Labor,
and Pensions Committee Hearing regarding for-profit colleges. I feel it
necessary to address the points that Kaplan has made, not in the spirit
of revenge, but in the spirit of holding the for-profit education
industry accountable to their students. There is no amount of criticism
I can give Kaplan that will make me feel better, or my future brighter.
I want to put my days at Kaplan and my degree behind me in order to try
to salvage a viable future. Fortunately, Kaplan has recently taken
positive steps to put students first through the program, ``The Kaplan
Commitment,'' which allows students to attend for 5 weeks with no
commitment. While this is a step in the right direction, I did work
hard for a degree that has ultimately done nothing to improve my life.
I understand that Kaplan had to make a statement about my testimony
from the recent hearing in order to preserve their reputation, and I
now feel that it is necessary for me to clarify what was written.
adding context to the student survey
Kaplan wrote:
``First, the student today characterized his Kaplan-arranged
2004 externship experience as a `less than rewarding
experience.' '' That contrasts quite sharply with what this
student wrote on a student survey at the time of his
externship. At that time, when asked ``What portion of your
externship experience was most beneficial to you? '' he
answered: ``The most beneficial experience was seeing what a
paralegal really does.'' Asked ``What portion of your
externship experience was least beneficial to you?'' he
answered: ``Can't help you. I have found it all very
beneficial.'' Asked ``What changes would you recommend to the
externship program at the College?'' he answered: ``None. The
externship program works reasonably well as is.''
I did find that the experience of observing what a paralegal does
in a solo practitioner office as beneficial because it allowed me to
discover in practical terms what I did and did not like about my chosen
field. However, while the externship allowed me to learn about the
different roles in a law office, I soon realized that these were roles
that Kaplan's programs did not prepare me for. Additionally, while I
did indicate on the survey that I would not recommend any changes, at
this time I was more interested in a positive reference letter and felt
that anything negative I said would have been held against me. I was
approaching graduation and was excited at the thought of putting my
education to work in the real world. However, I have now had my degree
for some time now and have sadly realized that it is likely that I may
never find a job relating to my degree.
accepting a job in a corrupt environment
Kaplan wrote:
``In today's testimony, this student fails to acknowledge
that, in fact, he received and accepted a permanent offer of
employment from the firm with which he had his externship. This
student then resigned from this job.''
While Kaplan is correct that I did accept an offer of employment
for the firm with which I had my externship, Kaplan is incorrect to
leave out information regarding the corrupt environment that led me to
leave shortly after. I interned at Hall law firm from February 2004 to
early April 2004, working for free past the normal end of the
externship in hopes of securing employment. I was not hired at that
time and thereafter left the unpaid externship and began to seek paid
work in the area. Upon stopping at the office to pick up a few personal
items from my externship, the attorney then offered me a job that I
accepted. I worked at the law firm for less than a month due to the
increasingly erratic and fraudulent behavior of the attorney. I
received one payment of $200. After I left the office, I later learned
that he had been suspended indefinitely. Although I do think Kaplan
could do a better job in placing students in externships, I do not
blame Kaplan or myself for how the events unfolded. I later learned
that Kaplan counted me as employed for their statistics and therefore a
``success story.'' However, I do not consider this short experience as
employment and definitely not a success story.
kaplan's definition of success
Kaplan wrote:
``Putting the student's own experience aside, the experience
of other students in his class was decidedly different. Of the
others who did not continue their education beyond the
Associates degree, 13 of 16 were placed. In fact, the latest
overall job placement rate for all programs at the Cedar Falls,
IA campus is 94 percent.''
Kaplan claims to have a placement rate of 94 percent, but does not
provide any information as to how this number is calculated. I
personally know of one IT graduate told by potential employers that
Kaplan programs do not teach the skills needed in order for students to
succeed in the workforce. I remember that Kaplan also pushed him to
sign a waiver releasing Kaplan of any job placement responsibilities in
order to get his diploma. If I am considered a successfully placed
graduate to Kaplan, how many other Kaplan graduates have negative
similar stories to mine, yet are considered a success?
diligent job search
Kaplan wrote:
``Second, unfortunately this student has not availed himself
of the services of the Kaplan University Cedar Falls career
services office during this period. Had he done so the office
could have directed him to the roughly 150 paralegal jobs
posted on multiple job boards in Iowa during the last 6
months--many within commuting distance of his home. The career
services office at Kaplan Cedar Falls is available to all
graduates throughout their careers, and it remains prepared at
any time to assist this witness in finding employment should he
wish to avail himself of that assistance.''
If this number of job postings is correct on Kaplan's Career
Services department job board, then I congratulate Kaplan for improving
their Career Services since I attended. However, when I was using
Kaplan's Career Services in 2006, career services had considerably less
opportunities for paralegals. Most of the job opportunities were for
wait staff or retail clerks, which are not the type of jobs that I went
back to school and worked hard to obtain a degree for. I soon developed
my own diligent job search process without any help by Kaplan, and
continued this search even when I moved 80 miles away.
setting the record straight on concord law school
Kaplan wrote:
``In his testimony, Mr. Schmitt said that a dean mentioned
Concord Law School, but did not say that students can only sit
for the bar in the State of California. According to Schmitt's
written testimony, this was a casual encounter he had while he
was in his associate's degree program, not an official
conversation with a Concord admissions advisor. At that time,
Mr. Schmitt was not eligible to apply to Concord, but had he
looked at Concord's Web site or reviewed any Concord materials,
he would have seen that Concord's accreditation was very
clearly articulated.''
This was a conversation I had with a Kaplan education professional.
As such, he should have known that a certain amount of weight would be
given to his words. While I am sure I could have eventually found the
status of Concord School of Law had I gone to the Web site, I assumed,
naively it turns out, that I could also obtain information like this by
a representative of the school. When talking to a dean employed by
Kaplan about my future plans involving law school, information about
the restrictive limits on where I could actually use that degree seems
to be an important piece of information that should most definitely be
talked about. I feel that withholding this type of information is very
misleading.
Upon reading my clarifications and explanations of the statements
made by Kaplan I hope the members of this committee and the public who
read this statement have a better context upon which to judge my
testimony. My hope and reason in testifying is that fewer students will
have to go through the hard work I did only to find that none of it
leads to a better future. My battle is not with Kaplan in particular,
but to try and ensure that all for-profit education institutions begin
to put students first. The failure to provide a proper and fair
regulatory and legislative framework for the for-profit sector is an
important issue that I hope gets the attention it deserves.
Sincerely,
Eric Schmitt.
[Whereupon, at 12:44 p.m., the hearing was adjourned.]