Duncan said ED's proposed rules would increase colleges' accountability to students.
Some of the nation’s largest online colleges could be barred from tying recruiters’ pay to the number of students they enroll if the Obama administration’s new list of rules for for-profit institutions becomes federal policy.
The administration’s set of 14 proposed guidelines for for-profit colleges—announced June 16—was created in response to widespread student complaints of deceitful recruiting practices at some of the most profitable institutions.
Many of the proposals aim to ensure that federal aid is distributed only to students who are qualified to take college classes.
With the proliferation of high school “diploma mills,” for instance, the administration would require colleges to verify an applicant’s diploma if the school “has reason to believe that the diploma is not valid or was not obtained from an entity that provides secondary-school education.”
The federal guidelines also would end loopholes that allow colleges to link recruiter pay to their “success in securing student enrollment,” according to the U.S. Department of Education (ED) announcement—a practice known as incentive compensation.
ED officials heard numerous complaints from current and former students who were encouraged to take out loans they could not afford and enroll in courses they were not qualified for, according to the department.
Public hearings during the formulation of the new federal proposals included “students enrolled in programs where they felt misled on what was and was not being offered, the way programs could be paid for, and their job prospects upon completion,” according to ED.
Education Secretary Arne Duncan has stressed the need for more stringent regulations in for-profit college recruiting during his 18 months in office. Federal aid to for-profit schools has skyrocketed in recent years, going from $4.6 billion in 2000 to $26.5 billion in 2009, according to ED statistics.
“This is about accountability and protecting students,” Duncan said in a prepared statement.
Other proposals introduced by the administration include clarifying when a student has withdrawn from a college and how much “federal funding must be paid back if a student drops out of a program.” Another proposal would, “in many cases, reduce the amount of information students would have to provide to institutions” when filling out the Free Application for Federal Student Aid (FAFSA). Many students currently are required to confirm information on their FAFSA forms every year.
ED announced a 45-day comment period so that final rules could be announced Nov. 1. The rules would go into effect July 1, 2011.
For-profit college industry leaders said some of the Obama administration’s proposed rules were “extreme” and promised participation in the upcoming comment period.
Harris Miller, president of the Career College Association, said in a statement that the organization would “send robust comments on those elements of the proposed rules that harm students, including the department’s decision to end all incentive compensation safe harbors without offering alternative guidance.
Miller continued: “Incentive compensation as it stands is an extreme proposal that needs to be thought through carefully to protect students and to make sure that it does not become a lawyers’ relief act.”
Regulating for-profit colleges requires ‘care’
Higher-education officials said the federal government has a balancing act to maintain during its crackdown on student aid and recruiting rules.
John Ebersole, president of New York-based Excelsior College, a nonprofit online school, said the Obama administration needs for-profit institutions run by companies like Apollo Group Inc. and Career Education Corp. if the government is going to meet its lofty goal of leading the world in college graduates by 2020.
“While not-for-profits such as Excelsior … are doing their best to serve this community, we do not have the marketing budgets” of for-profit colleges that have caught investors’ attention in recent years, Ebersole said.
Projections show that for-profit colleges will serve 42 percent of the undergraduate market by 2019, according to a report published in June by Edventures, a research and consulting firm based in Boston.
The Obama administration should avoid painting the entire higher-education industry with a broad brush while creating the new student aid and recruiting policies, Ebersole said.
“While everyone is on board with the idea of stopping any real abuse, whether in recruiting or financial aid distribution, this needs to be done with some care,” he said.
“Rather than target an entire sector, which includes a number of ethical institutions, I think enforcement should focus on those few who are really violating the spirit, if not the letter, of current rules.”
Ebersole continued: “Coming down on the for-profits in an excessive and non-discriminatory manner will not serve the president or the country well.”
For-profit colleges fight negative perception, research
Criticism of the for-profit industry intensified last year when research suggested for-profit colleges are gaining market share among online learners as the recession drives more people back to school.
Students who took out loans to pay for education at commercial institutions such as the University of Phoenix and DeVry University had a 21-percent default rate within three years, according to the Dec. 14 ED report, which used data from students who began loan repayment in fiscal year 2007.
For-profit schools’ default rate in fiscal 2006 was 18 percent.
Overall, American college students defaulted at a 12-percent rate, up from 9 percent the year before.
The rising default rates could affect commercial universities’ government funding. Starting in 2012, schools that have a 30-percent loan default rate won’t be eligible for federal student aid programs. About 5 percent of colleges and universities evaluated in the ED report had loan default rates of 30 percent or more; 80 percent of those schools were commercial colleges.
The data do not account for private student loans, just government-backed loans.
For-profit institutions hovering close to or beyond that 30-percent default mark include seven Kaplan University schools and 22 Everest College campuses, according to the government analysis.
Among the nation’s largest institutions, the government data indicate a three-year default rate of 15.9 percent at the University of Phoenix and 17.1 percent at DeVry University.
A former University of Phoenix instructor based in Michigan, interviewed by eCampus News last December, said he witnessed a gradual erosion of acceptance standards from 2000-06, when he taught online finance courses for undergraduate and graduate students. He spoke on the condition of anonymity so he could detail his experience at the university without being identified by Phoenix officials.
By 2004, the instructor said, the university’s change in admission requirements made his class sizes balloon—and many students were recent high school graduates who needed remedial courses or adults whose first language was not English.
The instructor said lesson plans had to be halted or delayed while he explained basic concepts and requirements to a handful of unprepared students.
“The quality of students declined precipitously when that happened … and the educational experience really suffered,” he said. “I had to deal with an unbelievably bad situation.”
He added: “I had to spend a highly disproportionate amount of time with those students compared with other students. And that was detrimental for the really good students in my classes.”