Cohen, Durbin, Harkin: Congress Should End Loophole that Encourages For-Profit Colleges To Target Veterans & Servicemembers

[WASHINGTON, D.C.] – Congressman Steve Cohen (TN-09) today introduced legislation in the U.S. House of Representatives that would help put an end to the for-profit college industry’s predatory marketing campaigns and aggressive recruiting of veterans, servicemembers and their families. The Protecting Our Students and Taxpayers (POST) Act, which U.S. Senators Dick Durbin (D-IL) and Tom Harkin (D-IA) have also introduced in the Senate, would eliminate the loophole that allows these proprietary companies to receive more than 90% of their revenue from the federal government.

“For-profit colleges can receive overwhelming majorities of their revenue —up to 90%—from federal sources such as student loans,” said Congressman Cohen. “Too often, these schools fail in their duty to adequately prepare graduates for jobs that will allow them to repay those loans, leaving taxpayers to foot the bill. Even worse, a loophole in current law allows unscrupulous colleges to receive even more federal funds by enrolling veterans and servicemembers. This loophole encourages bad behavior that weighs down our nation’s heroes with mountains of debt and few career prospects while lining the pockets of wealthy for-profit investors with taxpayer money. Simply put, this is unacceptable. We are entrusted with spending our monies efficiently and wisely, but too many for-profit colleges do not meet that test. I am glad to be working with Senators Durbin and Harkin to close this loophole, encourage for-profit colleges to provide better educations, and protect American taxpayers.”

“In the United States, for-profit colleges account for a disproportionate share of the students who have trouble paying back their loans (a measure of value in education),” said Senator Durbin. “They enroll only about 12% of all college students yet account for almost half of all student loan defaults. By law, for-profit college companies are allowed to receive no more than 90% of their revenue from federal financial aid programs. This high threshold allows far too much federal money to funnel to an industry that often provides a greater return on taxpayer investment to its administrators and investors than it does to its students. But there’s another catch. Money from the new Post 9/11 GI Bill and from Department of Defense tuition assistance programs isn’t counted which leaves hundreds of millions of taxpayers’ dollars virtually unregulated. Consequently, these schools aggressively target veterans and servicemembers who too often don’t receive the quality of education they deserve. We can’t let this continue.”

“The Department of Defense’s Tuition Assistance program and the Post-9/11 GI Bill are intended to help servicemembers and veterans—who have sacrificed so much for our country—obtain a quality education,” Senator Harkin said. “Instead, because of a loophole in the law, some for-profit colleges use predatory and deceptive tactics to target servicemembers and veterans for enrollment in order to tap into the benefits they and their families receive. Our servicemembers and veterans deserve better, and this common-sense bill will help protect taxpayer dollars and put the focus back on giving these men and women the degree and skills they need to build a brighter future.”

The current federal 90/10 rule is a provision in the law that bars for-profit colleges and universities from deriving more than 90% of their revenue from the U.S. Department of Education’s federal student aid programs. The other 10% needs to come from sources other than the federal government. The purpose of this rule is to ensure that schools are not counting on taxpayer dollars to be their sole source of revenue.

Because of the way the legislation was written, veterans’ and active duty service members’ federal student aid – such as G.I. bill benefits and the Department of Defense’s tuition assistance funds – does not currently count toward the 90%. As a result, for-profit educational institutions have been aggressively recruiting and enrolling veterans, service members and their families to their programs as a way to comply with the 90/10 rule.

The POST Act would re-instate the original ratio of 85/15—which was only loosened to 90/10 in 1998—and change the definition of what counts as federal revenue so that it includes all federal funds. This new definition would eliminate the powerful incentive for-profit schools to aggressively recruit service members and veterans and ensure that all schools are complying with the law as it was intended.

Additionally, the Cohen-Durbin-Harkin POST Act would:

• Increase penalties for noncompliance with the new 85/15 rule – Under the legislation, for-profit colleges would lose eligibility to participate in federal student aid programs after one year of noncompliance with the new rule (currently, for-profit colleges must be noncompliant for two years before they lose eligibility).

• Eliminate accounting tricks that inflate non-federal funding sources – Currently, for-profit colleges that issue private loans directly to students are allowed to calculate a large portion as revenue for the purposes of 90/10 rule compliance before any of the loan is paid back. This accounting trick has led to for-profit colleges issuing private loans to students with little expectation of that loan being paid back. Today’s legislation would only allow actual payments that students make to be counted as revenue.

Organizations that have endorsed the POST Act include: The Education Trust, the National Association of College Admission Counseling, the Military Officers Association of America and the Young Invincibles.

For-profit institutions of higher education enroll about 12% of all college students, but take in 25% of the Department of Education’s federal student aid funds and account for 47% of student loan defaults. For-profit colleges have much a higher three year student loan cohort default rate of 22.7%, compared with 11% at public schools and 7.5% at private, non-profit schools.

Similarly, while for-profit schools are a minority of the institutions involved in the Tuition Assistance program, they take in a disproportionate share of Tuition Assistance funding. A Senate Health, Education, Labor and Pensions Committee investigation found that 41% of Tuition Assistance in FY2011 went to just six for-profit colleges: American Public Education, Inc. which includes American Military University; Bridgepoint Education, Inc.; TUI Learning LLC; Apollo Group Inc.; Columbia Southern University; and Grantham University.

The Tuition Assistance program has been growing rapidly with more than 286,000 servicemembers enrolled in over 874,000 courses. In FY2012, the Defense Department spent $660 million on Tuition Assistance – half of which went to for-profit schools. More than 36,000 military spouses access courses through the MyCAA program and, in FY2012, the Defense Department spent $66 million on MyCAA – 60% of which went to for-profit schools.