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On For-Profit Colleges, Congress Gets Schooled—Again

The Senate recently held its third in a series of hearings on for-profit schools, many of which stand accused of mismanaging federal dollars and employing sketchy recruitment tactics, only to have less than half of their students graduate. Among those under scrutiny are big-name proprietary schools like the University of Phoenix and Kaplan. When undercover investigators applied at 15 for-profit colleges, they found recruiters misleading applicants and encouraging fraud so the would-be students—and ultimately schools—could collect more federal aid. One admissions officer told an applicant to hide $250,000 in savings because “it was not the government’s business”; a representative from a Florida program told an applicant that no one would “come after” her if she didn’t pay back her student loans; still another recruiter called a $14,000 massage therapy course a “good value,” though a nearby community college offered the same certificate for just $520.

“I continue to be amazed by the questionable, and sometimes outright illegal, practices occurring within the for-profit sector,” said Senator Tom Harkin, who is leading the congressional investigation. “Critics say that it is only a few bad apples, but we need to take a hard look at the entire orchard.”

Harkin’s amazement is understandable. But the really amazing thing about this controversy is that it’s all so familiar. Twenty years ago, Senator Sam Nunn, the conservative Democrat from Georgia, led a series of hearings delving into financial aid fraud at for-profit colleges. High-profile investigations had revealed similar abuses—leading, eventually, to a series of reforms and amendments to the Higher Education Act of 1965.

Among them were three key regulations:

1. The 85/15 Rule
To qualify for federally-funded student aid, colleges and universities could have no more than 85 percent of their revenue come federal aid programs. The other 15 percent had to come from the school itself or student dollars.

2. No financial incentives for recruiters
Congress banned college recruiters from getting bonuses based on the number of students they brought into the program.

3. The 50/50 Rule
Colleges and universities—for-profit and not—were required to have no more than 50 percent of their coursework offered through correspondence, meaning no more than half of their classes could be offered online or through the mail.

So did these reforms fail? No—they were just undone. In 1998, Congress transformed the 85/15 Rule into the 90/10 Rule, increasing the allowable amount of federal funding to schools. (This percentage increases even more with G.I. Bills, which are not included in that 90 percent.) In 2002, following attempts at removing the incentive-ban in Congress, the Department of Education opened the door again to financially rewarding recruiters, when it provided 12 ways, or so-called “safe harbors,” in which schools could provide financial compensation to employees based on performance.

In 2006, the Higher Education Reconciliation Act essentially did away with the 50/50 rule, since it deemed that quota would not include online courses—a move intended to make it easier for distance education institutions to qualify for federal aid. The thought was that the 1992 restriction was outdated since it could not foresee the rise of the Internet or online education. But it brought more opportunities to for-profit schools, since they tend to operate extensively from online courses.

The Bush Administration supported these efforts—and, perhaps not coincidentally, Bush’s assistant secretary for post-secondary education, Sally Stroup, had previously worked as a lobbyist for University of Phoenix.

This isn’t even the first time history has repeated itself. In 1994, Sam Nunn noted that he had already investigated for-profit trade schools in 1975, and that his 1991 inquiry was just more of the same. By the mid-80s, he lamented to The New York Times, “It all reoccurred. It takes constant monitoring.” Of course, this time the stakes are higher: the number of for-profit college students has jumped to 1.4 million, up from just 200,000 in 1998. In 1991, the University of Phoenix enrolled around 7,000 students; today, they have over 458,000 students, which, as a congressional report noted, is more than the entire Big Ten conference.

Not that everybody is alarmed about these developments. Republican Senator Richard Burr called Harkin’s hearings a “witch hunt.” Just before walking out, Senator Michael Enzi suggested the investigation was unfairly targeting for-profit schools, when all of higher education is a mess. It makes you wonder what will happen to this issue next year, if Republicans control one or both houses of Congress.