What began as a promising crackdown on for-profit schools that leave students saddled with debt and qualified only for low-paying jobs ended in watered-down fashion this month with release of new federal rules. For students, borrower beware remains the best advice.
More than 15 percent of students who attended for-profit colleges defaulted on their college loans within two years, according to new U.S. Department of Education figures. That’s twice the rate of those who attended public colleges and universities and three times the rate for students from private not-for-profit colleges.
A quarter of all federal student aid goes to students at for-profit schools, even though they make up just 12 percent of U.S. higher education enrollment. Almost half of the student loan default cases are tied to for-profit schools.
The Indiana attorney general’s office, fortunately, is monitoring issues in the student loan industry and is prepared to intervene. But oversight at the federal level has taken a disappointing turn.
At a Senate hearing Tuesday, Sen. Tom Harkin pointed out that stocks for the biggest for-profit colleges soared when the Obama administration announced final guidelines for higher education providers last week.
When you have a business model out there that says you’ll make more profit by getting the poorest people in, obviously because they get the most Pell Grants and the most student loans, the Iowa Democrat said, and so you target vulnerable people, and you bring them in because that’s how you increase your profit and if they default after three years, who cares?
Under the new requirements, proprietary colleges must meet one of three criteria:
At least 35 percent of former students must be actively repaying loans to demonstrate they are gainfully employed and capable of meeting financial obligations.
A typical graduate’s loan payment must not exceed 30 percent of discretionary income.
Or a typical graduate’s loan payments must not exceed 12 percent of his or her total income.
If the career college fails to meet the criter- ia three times in a four-year period, it loses its eligibility to participate in federal student aid programs. The original rule would have denied a college student aid eligibility the first time it failed to meet the criteria.
Pauline Abernathy, vice president of the Institute for College Access & Success, emphasized the need for tougher regulations.
Since the draft gainful employment rule was issued, evidence of rampant fraud and abuse in the for-profit career college industry has continued to mount, she said in a statement after the final rule was issued.
Eleven state attorneys general have launched a joint investigation of the industry; the Justice Department and state attorneys general joined a whistleblower lawsuit against one of the largest publicly traded career college corporations; a Government Accountability Office undercover investigation found 15 out of 15 career colleges engaged in deceptive and misleading practices; and a Senate committee investigation has uncovered company documents encouraging unseemly, high-pressure recruiting tactics.
Indiana Attorney General Greg Zoeller’s office was among those participating in the 11-state working group. Bryan Corbin, public information officer, said the group’s information-gathering work is mostly ended, but the attorney general’s office continues to collect information.
Our work on this issue is certainly not concluded as we do take consumer protection seriously in Indiana and review every complaint received for deceptive practices, Corbin said in an email. In the area of for-profit schools, Indiana also has a dedi- cated Commission on Proprietary Education that also interacts with consumers who raise concerns of questionable practices. Additionally, the Indiana attorney general reviews whistleblower allegations.
Among those is one targeting Education Management Corporation, which operates Brown Mackie College and other schools, including the Art Institute of Indianapolis. A lawyer for the plaintiffs told the New York Times that the company’s pay plan is a boiler-room telemarketing scheme, where your (enrollment) numbers are all that counts.
Corbin said the Indiana attorney general’s office is reviewing the lawsuit but could intervene with other states as a plaintiff. Taxpayers should be pleased and students relieved to know help is available if they fall victim to an unscrupulous provider.
But the burden still rests on students to use financial aid to their best advantage. Indiana has made strides in making lower-cost options available through Ivy Tech Community College and Western Governors University. And in the long run, Indiana’s public and independent colleges and universities often are more affordable than the for-profit schools making slick promises to hide their exorbitant price tags.