Senate Hears Testimony On For-Profit College Rules

The Senate held a hearing on the impact of student borrowing. It was the Education Department's first chance to defend the new rules on for-profit schools that were released last week.

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The Senate today kept up pressure on for-profit colleges. It held a hearing highlighting abuses by some schools. The Education Department defended new rules aimed at cracking down on the for-profit industry.

As NPR's Larry Abramson reports, some lawmakers questioned whether or not those rules go far enough.

LARRY ABRAMSON: The Senate Health and Education Committee provided more red meat to critics of for-profit colleges today, like Eric Schmidt of Hampton, Iowa. A few years ago, Schmidt signed up for a costly law degree at for-profit Kaplan University. Initially, no one told Schmidt the program would not allow him to take the bar in Iowa. That stunned Minnesota Senator Al Franken. [POST-BROADCAST CORRECTION: Schmidt was enrolled in a B.A. program in paralegal studies, not in a law degree program.]

Senator AL FRANKEN (Democrat, Minnesota): No one tells you that you can't take the bar at the school?

Mr. ERIC SCHMIDT: Not until the adjunct instructor told me in the third term when we were just talking about it.

Sen. FRANKEN: It just, as a happenstance, happened?

Mr. SCHMIDT: Mm-hmm.

Sen. FRANKEN: Boy, that is just awful.

ABRAMSON: Tales like this one helped lay the groundwork for a new Department of Education rules released last week. Now, schools that mislead students into worthless but expensive degree programs could lose their access to federally backed loans.

But committee chair Tom Harkin of Iowa, the lead critic of this industry, seemed pretty underwhelmed by the rules. He asked Education Undersecretary Martha Kanter why stocks for for-profit education companies rose after the regulations came out last week.

Senator TOM HARKIN (Democrat, Iowa): They saw the gainful employment rule and the stocks boomed.

Dr. MARTHA KANTER (Undersecretary of Education): Well, we want the sector to succeed. We've got 11 percent of students in these programs. We've got to create a model that is going to help them improve or eliminate their eligibility for federal aid.

ABRAMSON: Kanter emphasized that the Department of Education only wants to punish bad schools, not hurt the entire sector. After a bruising rulemaking process, the department is trying to extend the olive branch and stem efforts to block the rules.

Congressional supporters and the for-profit industry are threatening a legislative or a legal challenge. But Jarrel Price, an analyst with Height Analytics, says investors are happy because they expected worse.

Mr. JARREL PRICE (Height Analytics): The rule was softened beyond most expectations on Wall Street.

ABRAMSON: Softened, says Price, because the final regulation does not place enrollment caps on programs that graduate students who then have problems getting good jobs. And it will be years before those programs face the ultimate penalty: a cutoff of federal loans.

Price says for-profit companies with the biggest problems saw their stock prices bounce the highest. But he says...

Mr. PRICE: This is not a long-term all-clear to the entire sector. Schools with low retainment rates, high default rates, and high tuition must remain focused on attracting less risky students.

ABRAMSON: Some schools are trying to distinguish themselves from bad actors by offering students a risk-free trial period and other reforms. Schools that don't move in this direction could risk sanctions, or they could risk the wrath of Harkin.

After hearing more tales of abuse, the senator threatened...

Sen. HARKIN: This hearing, I think, has made the case that we need to take additional action. These schools need to be held responsible for their students being unable to repay the loans.

ABRAMSON: Republican say they won't participate in many more hearings on for-profits until Harkin makes a more balanced presentation. So, if the chairman wants tougher rules on for-profit, he'll have a tough time in a divided Congress.

Larry Abramson, NPR News, Washington.

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Correction June 9, 2011

We reported that a student at the for-profit Kaplan University had been seeking a law degree and had not been told that participation in the program would not allow him to take the bar exam in Iowa. We should have made clear that the student was enrolled in a B.A. program in paralegal studies, not in a law degree program.

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