AFT Urges Stronger Regulation of For-Profits

June 23, 2016

The American Federation of Teachers released a report Wednesday examining ways the Education Department can handle failing for-profit institutions.

"Students routinely leave for-profit institutions worse off than when they enrolled," said Randi Weingarten, president of the AFT. "They're ripped off financially and academically, which is a toxic combination. This report addresses how the department could develop stronger regulations for for-profit colleges, facilitating early intervention the moment it discovers financial trouble and limiting liabilities faced by students and taxpayers."

The report, "Regulating Too-Big-to-Fail Education," describes six ways the department can better regulate these institutions. The department should limit provisional certification and close a loophole that allows the agency to extend that status beyond three years. So if an institution hasn't become financially responsible after those three years, the department should eliminate the provisional certification and mandate an additional 50 percent letter of credit.

The report also advised that the department should create enforcement mandates that would automatically trigger a 10 percent letter of credit requirement. A group of federal agencies would also help the department to decide what type of event qualifies as a trigger.

A third recommendation in the report is for the department to restrict institutional spending for those colleges that fail to show financial responsibility and prohibit the institutions from creating new programs or opening new campuses.

AFT also recommended that institutions post letters of credit from their owners instead of being allowed to pay banks to post on their behalf. Finally, the report recommends calculating the letters of credit on actual risk. These letters of credit are calculated based on an institution's most recent year of revenue. AFT recommends that the department require letters of credit that accurately reflect the expense of closed school discharges and borrower defense claims over multiple years.

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