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Higher Ed Watch

A Blog from New America's Higher Education Initiative

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Easing Restrictions on Trade Schools is a Mistake

Published:  November 14, 2007

Last month, federal agents raided the campuses of three for-profit colleges around Fort Lauderdale, including one owned by Corinthian Colleges, which is among the largest trade school chains in the country. The U.S. Department of Education's Office of Inspector General, which led the raids with the help of the FBI and local officials, would not comment on the investigation, but according to news reports, the agents carted away boxes of documents, including ones labeled "financial aid" and "student records."

The raids were hardly an isolated incident. Over the last several years, some of the largest publicly-traded for-profit higher education companies -- such as the Apollo Group, which owns the University of Phoenix, Career Education Corporation, and Corinthian -- have come under intense scrutiny from federal and state regulators and have faced numerous lawsuits by former employees, shareholders, and students over allegations that they have engaged in aggressive and misleading recruiting and admissions tactics to inflate their enrollment numbers, while providing academic offerings of dubious value.

In July, for example, Corinthian reached a $6.5 million settlement with the State of California to end a three year investigation by the state's Attorney General over allegations that the company had lied to students about the job placement rates and the starting salaries of its graduates.[While agreeing to the settlement, the company did not admit any guilt.]

This spring, the U.S. Supreme Court allowed a major False Claims lawsuit to proceed against the University of Phoenix. In the case, two former admissions officers for the university charge that the institution defrauded the government of billions of dollars by knowingly violating federal rules prohibiting colleges from providing incentive payments to recruiters to enroll students. The university has denied the charges.

With all of the allegations swirling around the for-profit college industry, it is baffling that leaders in Congress would weaken a key provision in the Higher Education Act that aims to protect students from unscrupulous for-profit institutions. The provision, which is known as the "90-10 rule," requires for-profit colleges to receive at least 10 percent of their revenue from sources other than federal student aid in order to participate in the aid programs.

Congress introduced the requirement in 1992 as part of a broader effort to crack down on trade schools set up to reap profits from the federal student aid programs. At the time, lawmakers felt that the provision was important because it required proprietary institutions to prove that the training they offer is valuable. If the training is worthwhile, they said, for-profit colleges should be able to derive at least a small portion of their revenue from students willing to spend their own money on it. Trade school lobbyists have spent years and lots of campaign cash trying to get Congress to eliminate the requirement or at least weaken it so much that their institutions could easily evade it.

The Higher Education Act reauthorization legislation that the House Committee on Education and Labor is planning to vote on today would go a long way in meeting the trade school lobbyists' demands. The bill would substantially increase the sources of funds that the colleges could count as revenue, including institutional need-based and merit-based scholarships and repayments the schools receive in a given year on institutional loans. In addition, the measure would not make colleges that violate the rule automatically ineligible to participate in federal student aid programs, as is currently true. Instead, those institutions would at first face lesser penalties, such as increased monitoring and reporting requirements. [The legislation would also make all colleges, not just for-profit institutions, subject to the restrictions. However, committee aides said that this was not their intention and that they plan to rewrite the provision to apply it only to trade schools.]

While we are unhappy with the 90-10 provision in the House bill, it's preferable to the Senate's version, which would weaken the protection further. Under that bill, which was approved by the Senate in July, trade schools would be able to count in the required 10 percent pool funds that the institution must use as a match for certain federal student aid programs. The House bill rejects that approach, and expressly bars colleges from counting matching funds for federal aid as revenue.

In addition, under the Senate bill, a school would lose its eligibility to participate in the federal student aid programs if it violates the rule two years in a row, (current law is one year) but could reestablish its eligibility if it demonstrates to the satisfaction of the Education Secretary that it has come into compliance. Under the House bill, a school that becomes ineligible to participate in federal programs, because it has been out of compliance for two years in a row, would not be able to regain its eligibility for at least three years.

Still, these are relatively minor manners. The larger point is that the proposals in both the House and Senate bills would undermine the purpose of the 90-10 rule, which is to ensure that the schools offer a worthwhile enough education that at least a small portion of students are willing to reach into their own pockets and pay for it. With all of the serious charges that have been leveled against some of the largest for-profit higher education companies, now is the exact wrong time to reduce oversight over the for-profit sector.

During the last two sessions of Congress, Republican Congressional leaders consistently put the interests of these giant corporations ahead of protecting vulnerable students, and were richly rewarded for doing so. Soon after Congress changed hands, we expressed hope that the new Democratic leadership would resist efforts to reduce the government's oversight over the trade school industry. Unfortunately, that's not occuring. We hope that before they finalize the relevant legislation, the Congressional education committees will reconsider their position on this important consumer protection provision. Higher education quality shouldn't suffer in the name of higher education access.

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