Profit Marginal

How Congress is screwing students—again.

By Tim Fernholz, Georgetown University
Friday March 31, 2006

During last fall’s “raid on student aid,” students and their allies were outraged when Congress cut student aid to trim the budget. But Congress isn’t finished yet. Today, when the House of Representatives passed the remainder of the cheerfully-misnamed College Access and Opportunity Act, corporations were set up once again to get subsidized at the expense of students and their families.

In the fall, under the chairmanship of now-majority leader John Boehner (R-Oh.), the Committee on Education and the Workforce reported portions of the higher education bill to Congress during budget reconciliation. It cut government subsidies for the loans by $13 billion over the next five years, raised loan interest rates—causing students and parents to pay hundreds more yearly—and terminated a program allowing universities to lend money to their students.

In today’s Washington as in Nixon’s, it is wise to follow the money. And take a look at Boehner’s fundraising: Since the 2004 election cycle, he has received $236,000 from educational lenders (who reap tremendous benefit from higher interest rates on student loans). The new chairman of the Education committee, Howard “Buck” McKeon (R-Ca.), received $262,000. With both men moving up a notch on the political power ladder, no one expects their support of lenders to end.

But both men are also taking money from another source: for-profit or proprietary schools. These are corporations who provide educational services in exchange for profits, often targeting communities that are underserved by state or community colleges It is an industry worth at least $26 billion. And a cursory glance at FEC records reveals that they have donated tens of thousands of dollars to both McKeon and Boehner’s campaign and political action committees. And Boehner and McKeon have consistently supported the legislative goals of these corporations.

What does their largesse get them? Access to federal financial aid. These companies receive almost all of their funding from the government, even though many are publicly traded on the stock market, unlike most higher education institutions. And many aren’t even providing a real education to their students.

In fact, journalists are beginning to find that the pressure of the bottom line leads to a situation where everyone loses: proprietary schools make their money off the tax-payer dollar, leaving their students uneducated and students at other schools with less financial aid to go around.

For those who like to picture higher education filled with well-stocked libraries and ivy-covered campuses, the for-profit school, publicly traded on the stock market, is a strikingly different model. For profit schools, like the University of Phoenix, cater to working people, and offer online classes as well as other options that make getting an education seem more convenient. Increasingly, it is an industry with little credibility. Proprietary schools are not inherently bad, like all corporations, they are just amoral, following only their bottom line. According to a recent investigative article in The Chronicle of Higher Education, as corporations replaced families as the owners of many proprietary schools, they switched their emphasis from teaching to recruiting: The goal is to get as many students as possible to get as much aid as possible. Some schools make grandly inflated claims of potential post-degree earnings or use other aggressive and misleading sales techniques to get bodies into the classroom. When the focus is the bottom-line, concern with the quality of the student body (and the teaching) falls away.

But instead of regulating to create incentives for proprietary schools to favor students, Congress has done the exact opposite: they’re using regulations to make it easier and more profitable for schools to focus on profiteering.

“What this bill will do … [is] set up a classic race to the bottom. Not only would it not encourage higher quality, it would punish those institutions who seek it,” Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, said. "This is orchestrated mischief. There is a vested interest here with deep pockets pushing for it.”

According to Nassirian, the proprietary schools and their congressional allies had two main priorities: increasing the amount of financial aid that a proprietary school can receive and eliminating distinctions between for-profit and not-for-profit colleges.

The first priority was the elimination the “90-10” rule. This regulation previously said that proprietary schools could receive only 90 percent of their funding from federal financial aid. Although the provision was not eliminated, an amendment was passed that is essentially an end-run around the rule: if the rule is violated, offenders are no longer kicked out of the federal financial aid program.

Instead, the Secretary of Education (who enforces all federal financial aid law) now has the discretion to respond to violations with warnings, a three-strike rule, fines or by doing, well, nothing, according to a Democratic staffer on the Education committee, who spoke on background due to involvement with committee negotiations.

"These schools should have some skin in the game,” the staffer said. “They should be able to prove that students want to come and get their education."

The second priority comes about in a provision that changes what it means to be qualified as a higher education institution. Currently, to qualify for federal financial aid, a school must be accredited through either a national accreditation agency, like most for-profit schools, or a generally more rigorous regional one, like most non-profit colleges and universities.

Previously, there was a minimum standard of quality that schools would meet to receive financial aid. The current bill creates a maximum standard saying that “no school can be more demanding than the least rigorous of the accreditors the secretary recognizes,” according to Nassirian. By equating the more rigorous standards of regional accreditors with national ones, the bill would make it easier for students at proprietary schools to transfer credits to not-for-profit schools. But in so doing, the legislation equates an English class at a trade school with one at a university, lowering standards across the board.

The motivation behind this, Nassirian says, is to put an end to lawsuits against propriety schools by disgruntled students, who sue when they are unable to transfer credits into a non-profit school despite proprietary schools’ promises to the contrary.

“They don’t care whether or not [students] do or don’t transfer,” he says. “This is helping this industry that is making billions out of student aid and wants to expand by muddying the water in the consumers’ mind.”

With the bill’s passage, observers expect it will become more difficult for students to access financial aid as more of it is funneled to these corporations. The regulations will create further incentive for students at proprietary schools to be mistreated. Perhaps even worse, those proprietary schools who do attempt to provide a good education are being hurt by association with the larger, publicly-traded corporations as they come under increasing scrutiny from state and federal oversight agencies and numerous lawsuits alleging everything from false claims to failure to provide a sound education.

With less and less money available for equal access to education, where will student aid reform come from? The congressional staffer I spoke to, was frustrated by partisanship in the committee, and grew wistful when talking about legislation in favor of Direct Federal Aid, which would save $17 billion over ten years, all of which could be given as grant aid without additional cost to tax payers.

Even though Representative George Miller (CA), the ranking Democrat on the Education committee, urged students to support the plan, which he called a “common sense, win-win idea,” and Republican Thomas Petri (WI), the Republican ranking member has co-sponsored that bill, it has yet to gather enough support in committee to move forward. Though he is the senior Republican on the committee, Petri was passed over by Republican leadership in their search for a new chair, in part, my sources said, because of his support for direct lending. In the end, students and their families may have to wait for a new committee to see real student loan reform.

“I do think the committee has abandoned the national priority of access in favor of addressing the lobbyists’ priorities,” Nassirian said. Apparently, for this Congress, education is all about learning who has the largest wallet.

Tim Fernholz is the Senior Writer at the Georgetown Voice and an intern at The New Republic. He can be reached at tfernholz@gmail.com.

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