Hearing Shows Proprietary School Students are Not Treated Fairly under Current Higher Education Law; Anti-Fraud Laws Must Be Vigorously Enforced as Reforms are Made, Witnesses Tell Congress

WASHINGTON , D.C. – Federal higher education laws unfairly treat proprietary school students as second-class citizens – and those laws must be reformed without weakening laws that protect students and taxpayers against fraud, members of Congress learned today during a public hearing of the House Committee on Education and the Workforce. 

The hearing, the second hearing on proprietary education held by the Committee during the past year, followed a January report by the CBS program “60 Minutes” that raised questions about possible instances of fraud in the for-profit education industry. 

“As Congress reauthorizes the Higher Education Act, our first priority has to be providing access and fairness for low and middle-income students and families struggling with the high price of college,” said Committee Chairman John Boehner (R-OH).  “This means holding ‘nonprofit’ schools accountable for the role they’re playing in the hyperinflation of college costs.  It means providing fairness for students at proprietary schools.  And it means ensuring that federal anti-fraud laws to protect students are both adequate and fully enforced.”

House Republicans have introduced legislation (the College Access & Opportunity Act, H.R. 609) that would provide fairness for students at proprietary schools under the Higher Education Act without weakening laws that protect students and taxpayers against fraud.  Any illegal activity alleged in the “60 Minutes” report would still be illegal under the Republican bill, committee leaders noted.

At the hearing, committee members and witnesses generally agreed proprietary schools are playing an important role in providing college access for some of America ’s most vulnerable students, while disagreeing on whether some existing laws, such as the so-called “90-10” rule that restricts proprietary schools, are hurting or helping such students.

FEDERAL ANTI-FRAUD LAWS ARE BEING VIGOROUSLY ENFORCED – BUT MANY ONLY APPLY TO FOR-PROFIT SECTOR

Numerous provisions that strengthen institutional eligibility and participation in the Higher Education Act’s student aid programs have been added to federal law and regulations since the late 1980s in order to protect against fraud and abuse, protect the integrity of the financial aid programs, and most importantly, protect students, members learned at today’s hearing.  These provisions include:

• Incentive compensation limitations on student recruitment,

• Caps on excessive default rates,

• Federal financial responsibility standards and letters of credit,

• Annual reporting of audited financial statements and financial aid audits,

• Provisional certification by the U.S. Department of Education to limit an institution’s participation in the Higher Education Act’s Title IV programs,

• Reimbursement and heightened cash monitoring requirements that the Education Department may impose to limit an institution’s access to federal funds to ensure that they are being properly administered,

• Pre-certification training regulations,

• Periodic recertification requirements, 

• Student satisfactory academic progress requirements,

• Federal requirements for ability-to-benefit tests,

• Return to title IV requirements,

• Completion and placement rate requirements for short-term programs,

• Definition of an “academic year,” and,

• Limitations on branch campuses. 

Many of the above listed requirements apply only to the for-profit sector, committee members learned.  These important safeguards are maintained in the Republican college access bill.

Above and beyond what is required under the Higher Education Act, proprietary institutions must further comply with requirements promulgated by the Securities Exchange Commission (SEC) to ensure public disclosure and transparency for investors.  Additional corporate responsibility measures have also been established under the Sarbanes-Oxley Act of 2002 (P.L. 107-204).

PROPRIETARY SCHOOLS SEEK FAIRNESS FROM FEDERAL GOVERNMENT

As members of the Education and the Workforce Committee learned in a hearing last year, proprietary school students and the institutions they attend are essentially treated like second-class citizens under outdated current law.  The state of New York has taken action to address this inequity at the state level, Chairman Boehner noted in his opening statement.  The president of one New York proprietary institution, David Rhodes of the School of Visual Arts (SVA), told committee members federal law should be revised to ensure fairness for proprietary schools and the students who attend them. 

“What we seek today is the same recognition from the Federal Government that we already receive from our own State Government,” Rhodes said.  “What we seek today is simply the recognition of reality – the reality of the changes in higher education in the last 30 years and the reality that an institution’s corporate structure does not determine its status as an institution of higher education.”

Rhodes said federal higher education law can be changed without exposing students and taxpayers to the types of abuses uncovered during the 1980s that led to the adoption of tougher federal laws against fraud.

“There is a notion sometimes expressed that for-profit institutions are somehow less worthy of governmental support than public or not-for-profit institutions.  This is a deeply ingrained prejudice, but one that I hope you would agree, upon reflection, is wrong,” Rhodes said.  “As long as state approving agencies, accreditors and the Education Department use the tools already at hand, the public and students can be assured that they will be protected from those abuses that occurred well over a decade ago.”

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