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Senate Holds Hearings on Oversight for For-Profit Colleges

U.S. senators today got an earful about the flood of taxpayer money going into for-profit colleges, questionable practices of the institutions, and problems many students face finishing school, paying back loans, and getting jobs.

The Senate Committee on Health, Education, Labor and Pensions held a hearing entitled: Emerging Risk? An Overview of the Federal Investment in For-Profit Education. (See complete testimony here.)

This was the first in a series of hearings led by Sen. Tom Harkin, D-Iowa, to examine federal education spending at the for-profit institutions. "We have a responsibility to ensure that taxpayer dollars are being spent wisely and that for-profit colleges are serving students, not just shareholders," said Harkin. This is critical in light of the increase in the resources that Congress has provided to help students access and finance a college education in the past two years, he said.

"For some students, the for-profit higher education system has worked well. The flexible schedules, convenient locations, and online offerings allow working adults to finish their degree while also meeting family and job responsibilities," Harkin said. "But, unfortunately, many students have had a very different experience at for-profit schools. They have left without a certificate or degree, but saddled with very large debts. Many students were misled about the value of the education they would receive."

According to a report released at the hearing today, while enrollment at institutions of higher education increased by 31 percent from 1998 to 2008, the number of students entering for-profit schools soared 225 percent over the same period.

Steven Eisman, portfolio manager of the FrontPoint Financial Services Fund who has studied how the for-profit education industry operates and derives its revenue, did not mince words in his testimony. "Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive as the subprime- mortgage industry. I was wrong. The for-profit education industry has proven equal to the task," he said. "It is my hope that this administration sees the nature of the problem and begins to act now. But if nothing is done, then we are on the cusp of a new social disaster."

Eisman testified that the for-profit industry has grown at an extreme and unusual rate, driven by easy access to government-sponsored debt in the form of Title IV student loans, where the credit is guaranteed by the government. Thus, the government, the students, and the taxpayer bear all the risk and the for-profit industry reaps all the rewards, he said. When the Bush administration took over the reigns of government, the Department of Education gutted many of the rules that governed the conduct of this industry, he said. Once the floodgates were opened, the industry embarked on 10 years of unrestricted massive growth. Federal dollars flowing to the industry exploded to over $21 billion, a 450 percent increase.

Public-sector schools alone do not have the capacity to meet President Obama's goal to educate 8.2 million additional postsecondary graduates by 2020, said Sharon Thomas Parrott, senior vice president of government and regulatory affairs and chief compliance officer for DeVry Education, a group of postsecondary institutions including Apollo College, Chamberlain College of Nursing, DeVry University, and Western Career College. "Achieving the president's 2020 goal will not and cannot happen without the private sector. The president's goal requires adding capacity—quickly, with quality and integrity," she testified.

Thomas said the industry welcomes Congress' revisiting regulations around higher education. "Issues including institutional quality, student indebtedness, time-to-degree, persistence, and graduation rates are a serious concern for all sectors of higher education. We are ill-served by drawing false distinctions between what motivates a private-sector school," she said."All institutions must serve students well, or they will not survive.

Also testifying at the hearing was Kathleen Tighe, inspector general for the U.S. Department of Education, who spoke about the need for the new proposed rules that address the program integrity issues of proprietary institutions (see post) and Margaret Reiter, former supervising deputy attorney general of California, who spoke about her work prosecuting proprietary schools for unfair, unlawful, and fraudulent business practices.

At the hearing, one student told her story. Yasmine Issa, who is from Yonkers, N.Y., explained that she was $20,000 in debt and without a job after attending Sanford-Brown Institute in White Plains, N.Y., where she studied to be an ultrasound technician. She told of aggressive recruiting practices and of getting a degree but only later finding out that the school was not accredited in her area of study. "I felt like I wasted my time and money on a phony school and fell for their false promises," Issa testified.


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