Attorneys General Take Aim at For-Profit Colleges' Institutional Loan Programs

March 20, 2012

A group of state attorneys general investigating for-profit colleges is turning its attention to institutional loan programs, the leader of the group said on Tuesday at a Senate Judiciary Committee hearing on student debt.

During a question-and-answer period, Attorney General Jack Conway of Kentucky said that the group was also collaborating with the Consumer Financial Protection Bureau, which announced this month that it would begin collecting complaints on private student loans.

Mr. Conway said a growing number of for-profit colleges were using institutional loans as a tool to stay in compliance with the federal 90/10 rule, which requires colleges and universities to receive at least 10 percent of their revenue from nonfederal sources to qualify for federal student aid. A number of for-profit colleges are bumping up against the 90-percent limit.

Twenty-three state attorneys general have joined the group, which formed last spring as a way for states scrutinizing for-profit colleges to share their findings. So far, only a few of the members have taken action against the institutions, including Mr. Conway and Illinois's attorney general, Lisa Madigan, who also testified on Tuesday. Ms. Madigan recently sued Westwood College, accusing the institution of making "a variety of misrepresentations and false promises" to students enrolled in its criminal-justice program.

At the hearing, Mr. Conway acknowledged that the group had struggled to "find common targets."

"This effort is distinct from the tobacco and mortgage settlements," in which attorneys general united against the nation's largest cigarette manufacturers and banks, he said. "Here we have such a diffuse group of schools, with some operating only in certain states.

"We're sharing information," he continued. "But we're having some difficulty finding common targets."

Tuesday's hearing focused on rising student-debt burdens and a bill, introduced by Sen. Richard J. Durbin of Illinois, that would restore bankruptcy protections to private loans. Senator Durbin, the chairman of the committee that held the hearing, has offered the bill several times, but it has never cleared both chambers of Congress, and is unlikely to do so in an election year.