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Senate Committee Puts For-profits Back in Spotlight Following Education Department Ruling

WASHINGTON – The for-profit college sector got a fresh lambasting Tuesday from members of the U.S. Senate committee that has been leading the charge for tighter controls over the proprietary schools they say are preying on minorities and the poor.

Though some new facts and figures got presented at the hearing—titled Drowning in Debt: Financial Outcomes of Students at For-Profit Colleges—in some ways the hearing conducted by the Senate Committee on Health, Education, Labor & Pensions, or the Senate HELP Committee, served as a platform to extol the virtues of community colleges and to lament what leaders of the Democratic-majority committee believed were shortcomings of the U.S. Department of Education’s newly-adopted gainful employment rule.

The controversial set of regulations—meant to deny federal aid to ineffective college programs that consistently leave students saddled with high debt—was released last week but doesn’t take effect until July 2012 and won’t render any programs ineligible until 2015 based on the schools’ performance in fiscal 2012 through 2014.

Some higher education observers fear that the political dynamics of the U.S. Congress, not to mention the White House, could radically shift by then and that a different administration could undo the rule, which requires institutions to have at least 35 percent of former students repaying their loans.

Schools could also meet the minimum threshold for gainful employment if the estimated annual loan payment of a typical graduate does not exceed 30 percent of the student’s discretionary income or if the estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings.

U.S. Senator Tom Harkin (D-Iowa), chairman of the Senate HELP Committee,  which launched the series of hearings into for-profit colleges last summer, said the new rule was a “modest” step in the right direction, but repeatedly alluded to the need for longer lasting measures, such as federal legislation, in order to rein in “bad actors” within the for-profit sector.

“What does it say to you, after this rule was published, that stock prices of these larger for-profit schools soared?” Harkin asked U.S. Department of Education Under Secretary Martha J. Kanter, one of several witnesses who testified at the hearing.

When Kanter essentially declined to inject the Obama administration into the speculation over Wall Street about the for-profit college sector, Harkin answered his own question.

“What it said to me is Wall Street and investors said for the next three or four years, things will be pretty good,” Harkin said, alluding to the fact that the gainful employment rule won’t actually strip any programs of federal aid until 2015.

Much of the hearing was punctuated by facts and figures that show how students at for-profit colleges borrow more money more often than students at other types of colleges and also default at higher rates on loans that typically feature interest rates that are from two to three times as high as the 6.8-percent interest rate charged on federal Stafford loans.

For instance, one chart showed that students at for-profit schools default on their loans at a rate of 22.3 percent, more than twice the 9.7 of students who do so at public colleges, and more than three times as much as the 6.8 percent of students at private, nonprofit schools who default on their loans.

Another chart featured the drastic disparities between the cost of attending for-profit colleges and nearby community colleges that offered comparable degrees. More specifically, the chart showed how associate’s degree business programs at for-profit schools in Colorado, Florida and Indiana cost roughly $35,000, $47,000 and $45,000, respectively, whereas the programs cost approximately $7,000, $6,500 and $9,400 at nearby community colleges, also respectively.

Witnesses included two student loan experts, a civil rights attorney and a former for-profit college student who related being railroaded to an online law school in Iowa that didn’t enable him to take the Iowa Bar Exam.

Visibly absent from the list of witnesses were members of the for-profit sector, and similarly absent from the committee itself were its Republican members.

One witness, Dr. Sandy Baum, a George Washington University education professor and independent policy analyst for the College Board, testified that for-profit colleges are causing a “severe problem for students accumulating unmanageable amounts of debt.”

She presented figures that show, among other things, that the average total loan debt for associate’s degree students at public two-year institutions is $10,100 versus $19,700 for those at for-profit colleges.

“Debt for students at for-profit colleges is off the charts,” testified Pauline Abernathy, vice president of The Institute for College Access & Success, a nonprofit that advocates to make higher education more affordable.

Referring to the high default rates, Abernathy said, “Combine these rates with aggressive recruiting, low completion rates … and you have a truly toxic mix.”

Eric Schmitt, a former student at Kaplan University, one of the larger for-profit college chains, testified that he graduated with both an associate’s degree as well as a bachelor’s degree in paralegal studies but never landed a job as a paralegal.

Despite being assured that “100 percent” of students from the school’s paralegal program got placed, Schmitt says he knows of only about three or four students out of two or three dozen who got placed in paralegal jobs.

Schmitt said he eventually got steered toward Concord University, an online law school affiliated with Kaplan, but the only job where he got placed was an externship at the office of a lawyer whom he says got “suspended indefinitely.”

And it was only toward the tail-end of his law school experience that he found out his Concord education would not enable him to sit for the Iowa bar exam.

“I cannot say that even once my degree has opened any door of employment,” Schmitt said.

However, Kaplan officials were on hand at the hearing to release a statement that dismissed Schmitt’s portrayal of his Kaplan experience as “not an accurate reflection” and said that Schmitt reported to Kaplan that he found his externship “very beneficial.”

The Kaplan statement contends that 13 of 16 students in the associate’s degree paralegal program at the school’s Cedar Falls, Iowa, campus got placed and criticized Schmitt for not applying for the “significant number of paralegal positions within commuting distance of his home.”

The statement did not address his law school experience.

Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, as well as a public interest law professor at the University of the District of Columbia, testified that Schmitt not being informed by Concord that he would not be able to sit for the Iowa Bar Exam was a practice that “borders on criminal.” Like other witnesses, Henderson called for the federal government to ensure better information for student loan borrowers regarding the ramifications of enrolling in various colleges.

Under Secretary Kanter said the Education Department was working on a rule due out July 1 that will require colleges to disclose things such as their actual charges and historical completion and job placement rates.

Harkin said the Education Department’s measures aren’t doing enough to immediately protect for-profit college students and the taxpayers who are subsidizing their education since the students use federal loans to the tune of $30 billion per year to attend the schools.

“That’s why I’m alarmed that we aren’t doing more to look ahead and say we need to do some things now, or else we’re gong to be further in the hole and have more students further in debt, not having diplomas, not having succeeded in these schools, and we’ll be back here three years from now with the same kind of problems,” Harkin said.

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