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Proprietary Colleges Accused of Scamming Vulnerable Populations at Senate Hearing

Senator Tom Harkin of Iowa, who chairs the Health, Education, Labor and Pensions Committee, held the third in a series of hearings on Thursday to examine federal investment in for-profit colleges and universities.

The Iowa senator also released a new report titled “The Return on the Federal Investment in For-Profit Education: Debt Without a Diploma,” which found that, over a three-year period, approximately 1.9 million students have left 16 for-profit schools analyzed in the report with student loan debt and no marketable skills. The schools’ 2009 profits, however, totaled $2.7 billion. For 14 of the schools analyzed, federal dollars accounted for 85.2 percent to 93.1 percent of 2009 revenues. In the meantime, for-profits are spending what Harkin described as “a small fortune” in advertising to attract students to their institutions.

“The bottom line is this: For students enrolling in for-profit schools, graduation with a degree is a possibility, but debt without a diploma is a probability,” Harkin said in his opening statement. “Going to college should not be like going to a casino, where the odds are stacked against you and the house usually wins.”

Arnold Mitchem, president of the Council for Opportunity in Education, expressed deep concern that low-income students and their families do not have the financial literacy skills necessary to protect themselves from assuming unaffordable debt. This is particularly true, he said, for first-generation students entering the college marketplace.

“A sophisticated business with a high-cost product it wants to sell and a poorly informed consumer is a cocktail for abuse,” Mitchem said. “TRIO educators over and over again point to students choosing high-cost for-profit programs and taking out large loans to do so, when a comparable program is available to the same student at a much lower cost often within reasonable proximity to their home.”

Mitchem also said that, in too many instances, students who enroll in for-profits leave them considerably worse off than when they entered. These institutions make false promises of high paying jobs that don’t exist or require education or experience beyond what the school has offered; enroll students in programs for which they aren’t academically prepared, leading them to drop out; or tell students that the institution’s credits are transferable when they’re not.

Sometimes students are lured into these programs hoping that additional credentials will lead to a significant earnings boost but instead end up in so much debt that they must defer other financial decisions, such as saving for a home or retirement, according to Mitchem.

Low-income and minority students are particularly vulnerable, testified Lauren Asher, president of the Institute for College Access & Success; hence, they are heavily recruited by for-profits. According to statistics she provided, African-American and Hispanic students make up 28 percent of all college undergraduates but represent 46 percent of undergraduates in the for-profit sector. Low-income students also are overrepresented at these institutions at 64 percent.

“Low-income students and students from underrepresented minorities are much more likely to borrow and borrow more at a for-profit college,” she said. “Low-income Black and Hispanic students are approximately three times more likely to borrow federal student loans and four times more likely to borrow risky private loans than their counterparts at other colleges.”

The panel did not include any representatives from the for-profit sector. The committee’s ranking member, Sen. Mike Enzi of Wyoming, said that they “received hostile treatment” at the previous two hearings and that he did not want to put them through that again.

Enzi accused Harkin of wanting to make news rather than a difference and said that the hearings have been designed to suggest that all for-profits are inherently bad. He also suggested that Harkin has been working in cahoots with the Department of Education so that the proposed gainful employment rule can be pushed forward.

“I came here to make a difference, not to make headlines,” Enzi said. “Instead of working to find solutions to improve these schools, the two previous hearings have focused entirely on tearing these schools down. After reviewing [Harkin’s] report and reading the testimony of the witnesses, it appears that this hearing will simply be more of the same.”

Enzi left the hearing room at the end of his statement.

Sen. John McCain joined the hearing late and left early, after saying that the debate “exemplifies the really sharp divisions between our two parties and our philosophies of government. Perhaps in January we will have a different agenda for this committee and the United States Senate.”

Harkin seemed astounded by both McCain’s comments and action.

“Is [McCain] implying that, if the Republicans take over the Senate, they won’t do anything about the for-profit sector?” Sen. Harkin asked. He also said that the committee will hold a hearing in December and would draft some legislative fixes during the next session of Congress.

Later in the same day, three for-profit representatives conducted a conference call with reporters to have their say.

Henry Herzing, chancellor of the eponymous Herzing University, said that for-profits change people’s lives, giving them new self-confidence and hope.

“This ruling by anecdote that we’ve been going through that’s vilifying our industry is just wrong-headed, wrong-hearted and completely unfair,” he said.

Barney Bishop, president and CEO of Associated Industries of Florida, also believes that the committee is treating the for-profit sector unfairly.

“I’m very disappointed in the Senate hearings that have been conducted to date. It appears to me to be a witch hunt, designed to try and demonize the educational private enterprise system,” he said. “This is an infernal educational food fight with traditional, government-supported schools fighting 21st century educational institutions that in my opinion are more properly focused on skills and jobs.”

 To view the hearing, click here.

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