December 13, 2012

Senators Demand Probe of For-Profit College Circumvention of Student Loan Default Rules

Eight U.S. Senators today sent a letter to U.S. Secretary of Education Arne Duncan calling on him to investigate tactics used by some major for-profit colleges to circumvent rules aimed at reducing student loan defaults.  A report issued in July by Senator Tom Harkin’s Health, Education, Labor, and Pensions (HELP) committee documented that several big for-profit colleges were misleading and harassing students to convince them to place their loans in “forbearance” or “deferment” status so that the schools would not have to report their student loans as in default. Federal law takes away a school’s eligibility for student financial aid if too many of the school’s students are defaulting on their loans.

The Institute for College Access and Success, a nonprofit group, circulated a memo in August, further detailing this manipulation of the system by major for-profit colleges and arguing that these schools are manipulating loan default data and pushing students into these other loan statuses “regardless of the student’s particular situation or whether it is in the student’s best financial interest.”

The Senators wrote to Duncan, “With student loan debt now exceeding $1 trillion and average student loan debt continuing to rise, an ever-growing number of students and families are saddled with unmanageable debt. An increasing share of borrowers – many of whom did not complete their studies – are unable to repay their loans, suffering significant financial consequences. For-profit schools should not be able to use administrative smoke and mirrors to circumvent regulations that protect students and taxpayers, and the Department should take action to prevent these tactics.”

The Senators noted that despite the apparent  circumvention of the rules, for-profit colleges have a far worse default rate than non-profit and state colleges; for-profit schools have 13 percent of college students and 47 percent of all student loan defaults.  The Senators not only asked Duncan to investigate the alleged abuse, they also called on him to implement reforms to prevent against future manipulation of the rules.

The signers of the letter were all Democrats — in addition to Senator Harkin (IA),  Frank Lautenberg (NJ), who organized the letter, as well as Senators Dick Durbin (IL), Jay Rockefeller IV (WV), Richard Blumenthal (CT), Al Franken (MN), Jack Reed (RI), and Barbara Boxer (CA).

The for-profit college sector is raking in some $32 billion a year in federal student aid money, as lax federal standards have permitted a torrent of waste, fraud, and abuse and a terrible race to the bottom where federal dollars are maximized by shortchanging students. Major for-profit colleges have been caught using deceptive and coercive recruiting practices, offering poor quality programs, and lying to government authorities about job placement successes. Students across the country have had their lives ruined, left with worthless credits and degrees and insurmountable debt.

Rather than joining efforts like this letter to hold for-profit colleges accountable for abuses, GOP leaders like Mitt Romney and John Boehner have worked to protect the worst for-profit schools against reforms. With the fiscal cliff approaching and further tough budget times ahead, it’s time for Republicans — and Democrats — in Congress to stop bowing down to their for-profit college campaign donors and the sector’s ever-present, well-connected Washington lobbyists and start doing the right thing for students and taxpayers.

This piece also appears on Huffington Post.