In a continuing effort to crack down on unscrupulous colleges that collect federal student-aid dollars but provide little useful education in return, the U.S. Department of Education plans to develop a program to assess whether institutions are complying with existing laws and regulations.
The department announced the program in a letter it sent on Friday to Sen. Tom Harkin, the Iowa Democrat who is chairman of the Senate education committee. Department officials also thanked Senator Harkin for holding hearings on accountability and oversight for for-profit colleges, which educate a growing share of students and are highly dependent on federal student aid.
News of the program came on the same day the department released data showing the effects that its proposed “gainful employment” rule would have on institutions of higher education. The department used the data to develop a model for estimating the effects of the rule on different sectors of higher education.
The proposed rule would cut off federal aid to programs whose students have the highest debt burdens and lowest loan-repayment rates, and could limit enrollment growth at hundreds of other programs.
The department did not offer any analysis or comparison of repayment rates by sector when it released its data on Friday. However, the Institute for College Access and Success did analyze the data and found that 54 percent of borrowers who attended public colleges and 56 percent who attended private nonprofit institutions were paying down the principal on their loans, compared with only 36 percent of those who attended for-profit colleges.
That means that at for-profit colleges, nearly two-thirds of borrowers couldn’t pay back their student loans, said Deborah Frankle Cochrane, the institute’s program director.
At the University of Phoenix alone, that amounts to $2.8-billion in federal student loan debt that isn’t being paid down, she said.
Following Up on GAO Findings
The department’s announcement of a new enforcement plan comes after a recent U.S. Government Accountability Office investigation found apparently fraudulent or deceptive recruiting and marketing practices at several for-profit colleges.
Videotapes from the GAO inquiry, in which investigators posed as potential students, were shown at a Senate hearing this month, the second of two held by Senator Harkin’s committee.
The GAO found false or misleading statements about accreditation, the requirements for repaying student loans, graduation rates, job placement, and students’ likely earnings. In four cases, college officials encouraged the “students” to submit apparently fraudulent financial information in order to qualify for federal student aid, the department’s letter to Senator Harkin said.
The Education Department plans to follow up on the GAO’s findings and “take appropriate action, including referring for criminal prosecution all individuals who are determined to have been involved in fraudulent or criminal activities,” Arne Duncan, the secretary of education, said in the letter.
The department also plans to review the undercover methods used by the GAO and other federal agencies and will consider using them in its own enforcement program, the letter says. The department is especially concerned about the accuracy and appropriateness of information institutions provide to prospective students through recruiters and financial-aid advisers.
“Given the important and growing role that for-profit colleges play in delivering higher-education programs, it is essential that we do all we can to identify and eliminate exploitive practices when they occur,” Secretary Duncan wrote.
In its letter, the department also laid out several other initiatives to strengthen the federal government’s oversight of its student-aid programs such as hiring more than 60 additional staff members to conduct 50 percent more program reviews of postsecondary institutions each year.
‘Gainful Employment’ Data
For determining whether institutions that receive federal student aid are meeting the requirement that they prepare students for “gainful employment in a recognized occupation,” the department has proposed a two-part test that would take into account the share of borrowers repaying their federal student loans and the relationship between total student-loan debt and average earnings.
On Friday, the department released a description of the model it used to estimate the effects of the gainful-employment rule on various programs. The model is based on a data set of 4,962 institutions that includes repayment rates and financial, enrollment, and institutional characteristics.
Of those institutions, 1,729 were for-profit colleges, 1,635 were nonprofit private colleges, and 1,598 were public colleges.
The proposed gainful-employment rule, released last month, is one of 14 proposed regulatory changes that the department and college stakeholders negotiated this year. The other proposals, which include one that would tighten a ban on incentive compensation for college recruiters, were published in mid-June.
After a period allowed for public comment, the final rules will be issued in November and take effect in July 2011.