Senate Panel Scrutinizes For-Profit Colleges

For-profit educators were under the microscope at a hearing on Capitol Hill Thursday. A Senate report says the industry reaps huge fees, delivers substandard education and profits from federally-backed student loans. The industry says it is ramping up to meet demand that non-profits cannot provide, and is fighting back.

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Colleges that operate for-profit have been growing rapidly, and now some in Congress are calling for stricter regulation. At a hearing yesterday, some senators asked whether these institutions are taking advantage of federal subsidies, because their students borrow at a higher rate than traditional students.

NPR's Larry Abramson reports.

LARRY ABRAMSON: Senate Education Committee Chair Tom Harkin left little doubt about how he feels about for-profit education. Just before the hearing, he released a report lambasting the industry that now enrolls 2.7 million college students. He displayed graphs and charts from that report, showing that these students are more likely to borrow money to pay for their education.

Senator TOM HARKIN (Democrat, Iowa; Chairman, Senate Education Committee): And as you'll see from the chart, for-profit students were also eight times more likely to graduate with a loan larger than $20,000.

ABRAMSON: That figure has inspired a proposal to limit the amount of debt students at these schools can incur. That idea is currently on hold at the Department of Education. Kathleen Tighe, Inspector General for the Department, says right now the industry is bending or breaking the law to help students get federal loans.

Ms. KATHLEEN TIGHE (Inspector General, Department of Education): We have seen a number of instances in which schools have falsified student eligibility -including enrollment, attendance and high school diplomas and GEDs - in order to qualify students to obtain or continue to maintain federal student aid.

ABRAMSON: Twenty-four billion dollars in loans and grants, a large chunk of the fees these schools collect. As members of Congress noted, they have recently boosted federal grant and loan programs in order to accommodate more low income students who want to go to college. Now, a lot of that money is going straight into the pockets of the for-profit industry, since poor students are more likely to attend for-profit schools.

Sharon Thomas Parrott of for-profit DeVry University said her students are part of a growing trend.

Ms. SHARON THOMAS PARROTT (DeVry University): The reality is that nearly 75 percent of students today are defined as nontraditional, but are really the new majority. They are first in their family to go to college, minorities, recent immigrants and career changers.

ABRAMSON: The industry says they should not be punished for taking on the neediest applicants, especially at a time when community and state colleges are turning students away for lack of space.

Harris Miller, head of the Career College Association, says for-profits are accepting students who have nowhere else to go.

Mr. HARRIS MILLER (Career College Association): They are not getting a chance to go on to traditional higher education. Traditional higher education is becoming the province of the social and demographic elite.

ABRAMSON: And critics of for-profits didn't mention that students at your typical state school or at private non-profits schools face some of the same problems. They, too, are facing large amounts of debt, and many have terribly low graduation rates.

Harris Miller and others in the industry were particularly peeved about the hearing's star witness, Steven Eisman, a hedge fund manager and the man who correctly bet the housing bubble would burst, as recounted in a recent best seller. Eisman says he's studied the financials of for-profit education companies, and he's convinced history is about to repeat itself.

Mr. STEVEN EISMAN (Hedge Fund Manager): Rather than having a fundamentally sound industry with a few bad actors, it is my belief you have a fundamentally unsound industry, but with a few good ones. We have every expectation that the industry's default rates are about to explode.

ABRAMSON: The for-profit industry says: Why listen to a guy who admits he has investments in education? He may just be trying to hedge this bet by predicting doom. For-profits say the real disaster would be to choke off the fastest growing segment of higher education.

Larry Abramson, NPR News, Washington.

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