Higher Ed Watch

If you’ve followed the Senate Health, Education, Labor and Pensions (HELP) Committee investigation into the for-profit higher education industry closely, you have probably heard of Yasmine Issa, the single mother of twins who completed a training program in ultrasound technology at Career Education Corporation’s Sanford Brown University in 2008 only to find out later that the program was not accredited. Recruiters, who had stressed the school’s accreditation to Issa, apparently neglected to mention that the ultrasound program lacked the necessary specialized accreditation. As a result, Issa, who paid $32,000 for the program (including $15,000 in federal loans), wasn’t eligible to sit for the licensing exam or to find work as a sonographer.

Issa is not alone. The Senate investigation, the news media, and lawsuits against for-profit college companies suggest that her situation is more common than you would think. Recognizing the seriousness of the problem, the Department of Education took an important step last fall when it finalized regulations that aim to crack down on such abuses. Under the rules, which go into effect on Friday, schools that mislead students into signing up for programs that lack the specialized accreditation needed to get jobs could face severe penalties, including being barred from participating in the federal student aid programs.

This is a major change that, if well enforced, should go a long way in safeguarding students in the future. But this regulation is of little solace to those who have already fallen victim to such deception. These students have been left worse off than before they enrolled -- graduating with significant debt but without the credentials they need to become gainfully employed in the field for which they sought training.

Is there anything that the U.S. Department of Education can do to help these students? The answer is yes, but unfortunately the Education Department continues to act as if it was powerless to provide relief to those who have been harmed.

[Editor’s Note: In this guest post, student aid expert Sandy Baum explains why greater regulation of the for-profit college sector is warranted. The post is mostly adapted from a piece she wrote for The Chronicle of Higher Education's Innovations blog, with other parts coming from testimony she delivered earlier this month at a Senate Health, Education, Labor and Pensions Committee hearing on student indebtedness at for-profit colleges.]

By Sandy Baum

The debate about for-profit institutions and student debt is too often framed in ideological terms. Free-market conservatives tend to be on the side of the for-profits. They complain that critics are trying to prevent market forces from working and are apologists for the inefficient nonprofit sector of higher education. Politically liberal voices tend to weigh in on the other side, sometimes arguing that the intrusion of the profit motive into the education arena is incompatible with the interests of students.

The problem of student debt among students at for-profit postsecondary institutions is not a matter of free markets versus government intervention. The market for higher education does and should rely heavily on market forces. However, it is not and never will be a textbook example of competitive markets. The for-profit sector, which has the potential to make important contributions to educational opportunity in the United States, relies on the federal government for most of its revenues. In fact, very few students are actually paying with their own money to enroll in these institutions.

Non-profit colleges may soon have a major recruiting scandal of their own involving the use of commissioned salespeople.

As regular readers of Higher Ed Watch know, federal law prohibits colleges from compensating recruiters from providing “any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments” to admissions officers. Some of the largest for-profit college chains have come under fire in recent years for circumventing the law, and the Department of Education rewrote its student aid regulations last year to stop them.

Congress put the incentive compensation ban in place in 1992 as part of a broader effort to crack down on unscrupulous for-profit schools that were enrolling unqualified, low-income individuals to get access to federal student aid funds. But in doing so, lawmakers created a double standard that many traditional colleges are now taking full advantage of: the prohibition does not apply to foreign students because they are ineligible for federal student aid. In other words, it is perfectly legal for colleges to make commissioned payments to recruiters for each international student they enroll.

This has become a big issue now as public universities, facing declining state revenues, are increasingly seeking to attract foreign students who are able to pay full-freight. The State University of New York, for example, announced earlier this month that it plans to nearly double its enrollment of foreign students over the next five years, to 32,000.

In finalizing the “Gainful Employment” rule last Thursday, Obama administration officials did what federal policymakers often do when dealing with highly polarizing issues: they attempted to split the difference between the opposing sides. But as is often the case in such situations, the compromises they made didn’t satisfy anybody (with the exception of the for-profit higher education sector’s friends on Wall Street who were delighted to see career-college companies' long-beleaguered stocks soar on the news).

As we reported at Higher Ed Watch last week, the biggest concession that the administration made to the industry was that it significantly delayed the point at which even the most irredeemable for-profit college programs would be in jeopardy of losing access to federal financial aid. Under the proposed rule, which the Department of Education released a little less than a year ago, career college programs that leave low-income and working-class students buried in debt but without the training they have been promised could have been kicked out of the federal student aid programs right away.

The final rule, however, takes a “three strikes” approach to disciplining the worst programs (those at which fewer than 35 percent of former students are repaying their loans, and where graduates have a debt-to-income ratio greater than 12 percent of their total income and 30 percent of their discretionary income). Instead of immediately losing access to federal financial aid, these programs would have to fail each of these tests at the same time three out of four years in a row before they could become ineligible.