Senators Call for a Tougher ‘Gainful Employment’ Rule

May 16, 2014

Tossing off phrases like "national scandal," "scammed," and "worst of the worst" to describe for-profit colleges that they said take advantage of students, four U.S. senators on Thursday called on the Department of Education to beef up its proposed "gainful employment" rule.

The senators appeared at a news conference here with several students at for-profit colleges and representatives of the group Young Invincibles.

Their fiery rhetoric did not go unanswered by the colleges—a signal that the debate over the draft rule the department released in March, which has been somewhat subdued, is about to get more heated.

The senators, all Democrats, included Brian E. Schatz of Hawaii, who urged the department to move "further and faster, and more aggressively" in toughening the rule, and Chris S. Murphy of Connecticut, who said no college should fear having to comply with the rule. "All we’re asking them is to prove to us that their advertising is actually true," Mr. Murphy said.

The proposed rule would cut off student aid to career-focused programs at for-profit and nonprofit colleges if the program’s student-loan default rate reached 30 percent or if half of its graduates failed two student-loan debt standards. May 27 is the deadline for parties to submit comments to the department before it finalizes the rule.

Flanked by two other lawmakers who have been outspoken critics of some for-profit colleges’ practices—Sen. Tom Harkin of Iowa and Sen. Richard J. Durbin of Illinois—Mr. Murphy took particular aim at Corinthian Colleges Inc., his "worst of the worst" example because of the high rates at which its students default on their student loans.

At 13 of the colleges owned by Corinthian, he said, "almost half" the students default within three years. And the default rate would be higher, he said, were it not for the people Corinthian hires in call centers to barrage students about putting their loans into forbearance, "just to lower the default rate enough" that its colleges’ access to federal student-aid programs isn’t cut off.

"Schools like Corinthian have figured out how to game the system," said Mr. Murphy.

A Corinthian spokesman, Kent Jenkins, said Senator Murphy’s assertions, similar to those he offered at Senate committee hearing in March, were "utterly false."

"We don’t have anything remotely like that," he said of the default rates Mr. Murphy cited. Companywide, Mr. Jenkins said, the default rate within three years is 19 percent. That’s higher than the overall national average of 14.7 percent but below the 20.9-percent rate for community colleges, with which many Corinthian institutions compete. Mr. Jenkins said default rates for the company’s dozens of individual campuses ranged from 8 percent to 24.8 percent.

Mr. Durbin said high student-loan burdens and growing rates of default at all colleges are a concern, but he added, "Don’t ignore the obvious" problem of for-profit colleges, which account for 46 percent of all student-loan defaults.

‘Debt Factories’

Mike DiGiacomo, a former student at two for-profit colleges (a Gibbs College in Massachusetts, owned by the Career Education Corporation, and a campus of the Education Management Corporation’s Art Institutes), also spoke at the news conference, along with another former student, Dymond Blackmon.

"The schools I attended encouraged me to take out high-interest loans," said Mr. DiGiacomo, whose online petition for a tougher gainful-employment rule has garnered more than 100,000 signatures. "These debt factories need to be held accountable."

Mr. Blackmon, who attended a Career Education-owned art-and-design college now operating under the Sanford-Brown brand, said officials at the institution "harassed me until I took out more student loans." He said the courses he needed for his photography degree weren’t offered at the campus he attended.

Mr. Harkin, who brought with him a copy of the Senate education committee’s four-volume report on for-profit colleges, which he spearheaded in 2012, praised the students for speaking out on their own behalf, and for others "who have been scammed." He also praised the younger Senate colleagues standing beside him. "As someone who’s retiring, I’m sure glad these guys are going to be here," he said.

At the news conference, Mr. Harkin said no one from the for-profit-college industry had come forward to refute his report. Within hours, the Association of Private Sector Colleges and Universities took issue with that claim, noting that it had challenged several findings in the report, which at the time it called an example of "ideology over reality." The association, the sector's main trade group, also supplied copies of critiques from Corinthian and Education Management.

The news conference capped several days of high-profile events on the gainful-employment rule organized by Young Invincibles.

Separately on Thursday, another group, the Institute for College Access & Success, or Ticas, posted an analysis on its blog showing that for 114 programs covered by the gainful-employment rule—all of them at for-profit colleges—more students default on their loans than graduate. And 23 of those programs would pass the two-pronged tests created by the rule, says the article, by Ticas’s research director, Debbie Cochrane. Those tests relate to default rates and students’ debt-to-discretionary-income and debt-to-earnings ratios.

"The fact that 20 percent of the programs leaving more students in default than with credentials pass the department’s proposed tests clearly shows that the tests aren’t strong enough," Ms. Cochrane wrote.