Another Round

Although the long-awaited "gainful employment" rule has now been released, latest Senate hearing on for-profit colleges follows a familiar path.
June 8, 2011

WASHINGTON -- The latest -- and perhaps the last, at least for now -- of a series of hearings on for-profit colleges in the Senate Committee on Health, Education, Labor and Pensions opened in a changed atmosphere. Just last week, the Obama administration issued a final decision on regulating career colleges to ensure that their graduates are able to find “gainful employment."

But from a practical perspective, the long-awaited rules made little difference inside the hearing room. This hearing, “Drowning in Debt: Financial Outcomes of Students at For-Profit Colleges,” the fifth from Senator Tom Harkin’s committee, focused on the debt that students at for-profit colleges accumulate and how frequently they default on loans. In a nod to the federal regulations attempting to deal with the same issue, Martha Kanter, the undersecretary of education, engaged in a back-and-forth with Harkin over whether the department’s gainful employment rule goes far enough.

Harkin did not say whether more hearings were planned, but he continued to emphasize the need for legislation, not just departmental regulation, to govern for-profit colleges. “I believe it’s clear that more needs to be done to ensure that taxpayer dollars are being used wisely,” Harkin said, referring to Pell Grants and federally subsidized student loans, both major sources of revenue for the for-profit sector.

Much of the hearing focused on widespread critiques of the for-profit sector: that its students accumulate a disproportionate amount of debt and default at higher rates than their counterparts at public and private nonprofit colleges.

Borrowers from for-profit colleges make up almost half of all student loan defaults, although their share of the overall market is much smaller. While those testifying asserted that there are some high quality for-profit colleges, they said that the higher default rates -- and colleges’ strategies for making them appear lower, such as having students enter loan forbearance -- prove that more regulation is necessary.

“If there’s evidence that these programs are bad, we should not be subsidizing” them, said Pauline Abernathy, vice president of the Institute for College Access and Success. The disclosure of more information, as the “gainful employment” regulations would require in intermediate stages before cutting off access to federal funding, is not enough, she said. The government does more than issue warnings about salmonella in eggs and lead in children’s toys, and bad providers of education should be treated the same way.

Taxpayers have a right to say “there is a minimum level of quality we expect,” Abernathy said.

No for-profit college officials testified during the hearing.

For-profit colleges often argue that their higher loan volumes are caused in part by students who borrow far more than the cost of the attendance in order to pay expenses while they are enrolled. On Tuesday, the Education Department announced a pilot program that would allow some institutions to limit how much groups of students can borrow. The department is also introducing other pilot programs that would provide waivers for requirements in the Title IV program. Though few details on the programs were available, one would allow institutions to award federal student loans for in amounts less than students' total borrowing eligibility.

Conspicuously absent from the hearing were Education Secretary Arne Duncan and the committee’s Republican members.

The Republican senators, led by Sen. Mike Enzi of Wyoming, the senior Republican on the panel, had made clear when the hearing was announced that they would not be attending, reiterating their view that the hearings focused unfairly on for-profit colleges. But after the gainful employment rule was released and Duncan said that he would attend the second half of the hearing to discuss it, the Republicans did an about-face and pledged to attend that portion.

But in the end, none of them showed up. Duncan canceled his appearance (as well as testimony scheduled for later in the week before the Senate Appropriations Committee), due to trouble from a back injury, the Education Department said. The Senate Republicans followed suit, leaving Harkin and Kanter in a one-on-one session for part of the second half of the hearing.

Harkin pressed Kanter on whether the gainful employment goes far enough, suggesting that sharp increases in the stock prices of publicly traded for-profit colleges after the rule was announced showed that the final rule was welcomed by the industry.

“We want the sector to succeed,” Kanter responded. “That was one of the fundamental tenets of the rule.”

“You’re saying it’s fine for them to make even more profits than what they’re making?” Harkin shot back.

“I can’t judge how much profit an institute or a corporation wants to build,” she answered. “But I do think their business models ought to be based on consumer protection and what’s best for students.”

At the close of the hearing, Harkin indicated that he didn’t think that was enough. Although legislation directed at for-profits has a slim chance, at best, of passing a divided Congress, he said that such legislation was the ultimate remedy to abuses in the industry. “I’m not certain that regulations can do it all,” he said.


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