NAICU Washington Update

Debt of Proprietary School Students Concerns Sen. Harkin

June 14, 2011

Likening it to the sub-prime mortgage crisis, Senate Health, Education, Labor and Pensions Committee Chair Tom Harkin (D-Iowa), recently held a hearing in which he grilled witnesses on the disproportionate student loan debt proprietary school students face.  Those feeling the heat included Department of Education Under Secretary Martha Kantor.

Harkin, along with witnesses and the other Democratic members of the committee, acknowledged the role of the for-profit sector in American higher education.  However, the data presented in the course of the June 7 hearing documented the for-profits as the most costly sector for tax-payers and students alike.  (Republican members of the committee boycotted the hearing to protest its focus on just the for-profit sector.)

Of all students at for-profit degree-granting schools, 96 percent  borrow.  This compares to 13 percent at community colleges, 48 percent at four-year publics, and 57 percent at four-year private colleges.  Close to 25 percent of students at proprietary schools default on their loans within the first three years of repayment.

Even more attention grabbing were the costs of some institutional loans, which Harkin asserted are funded through the federal student loans and Pell Grants received by their students.  As an example, he noted that, in 2009 and 2010, Corinthian Colleges lent $240 million to its students at an average interest rate of 13 to 15 percent, with some students paying as much as 18 percent - interest rates at or above those on credit card balances.  (Corinthian recently lowered its rate to 6.8 percent, the rate of unsubsidized federal student loans.)

Sandy Baum, senior fellow at George Washington University School of Education and Human Development and independent policy analyst for the College Board, provided data comparing the debt and default rates of the various sectors.  She and, later, Pauline Aberthany of The Institute for College Access and Success indicated that the default rates of comparable students demographically are much lower at public and nonprofit institutions.  The recent rapid growth of the for-profit sector, Baum explained has come about as "[a] combination of aggressive recruiting and the growing funding and space constraints in the public sector..."

Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, challenged the argument that regulating the for-profit sector could harm the poor and minority students it serves.  He voiced his support for the efforts of the committee and the Department of Education, including the gainful employment regulations. 

In his written statement, Henderson, who also is a law professor at the University of the District of Columbia, listed the types of students targeted in the training manual of one for-profit (identified as Corinthian by Harkin):  welfare moms, pregnant ladies, the recently divorced, those with low self-esteem, the physically/mentally abused, those seeking vocational rehabilitation, those that had recently experienced a death, those associated with drug rehabilitation, or those who had been fired or laid off.

Eric Schmitt, an alumnus of Kaplan University, provided a student-based criticism of the lack of counseling, information, and course work that led him into $45,000 of debt in an unsuccessful attempt to become a para-legal and go on to law school.

Department of Education Under Secretary Martha Kantor spoke about the recently finalized gainful employment regulations.  Harkin pressed her on how the final regulations, which were substantially weakened from the ones initially proposed, would address the sector's underlying problems.  She responded that accreditation must do a better job, and that the Department had a committee considering a "high impact action" package of reforms.  She also expressed the belief that the disclosure provisions of the gainful employment regulations would further enable "comparisons so that students and families have the information they need to vote with their feet."

Harkin concluded by saying that more action needed to be taken against these "sub-prime" schools.

MORE News from NAICU