Higher Ed | Daily Report

Flickr photo by Ryan J. ReillyU.S. Sen. Tom Harkin, D-Iowa

In the first of several planned Senate hearings investigating the for-profit education industry last week, a former supervising deputy attorney general testified that, based on her experience in California, consumer abuses in proprietary schools are among the most egregious in any industry and will require "stronger, tougher regulations than the Department of Education has yet proposed."

Witnesses at last week's three-hour hearing by the Senate Committee on Health, Education, Labor and Pensions were overwhelmingly critical of the for-profit education sector.

Committee chairman Sen. Tom Harkin, D-Iowa, led the charge, issuing a report saying the industry begs for oversight because taxpayers are investing billions of dollars in the colleges while student debt and default rates at these schools are disproportionally higher than at nonprofit and public universities. 

For-profit schools enrolled more than 1.8 million students in 2008, less than 10 percent of all higher education students, but receive 23 percent of all federal student financial aid dollars – approximately $23.9 billion in the 2008-09 school year. The hearing comes as the Obama administration has been ramping up its scrutiny of the sector as well, proposing several changes to regulations that govern the schools.

During the June 24 hearing, Margaret Reiter, who retired from the consumer law section of the attorney general's office in 2008, was one of five witnesses to provide testimony. She focused mainly on an 18-month investigation she led into Santa Ana-based Corinthian Colleges, Inc. That probe resulted in the for-profit chain paying $6.5 million to settle allegations that the company engaged in unlawful business practices by exaggerating its record of placing students in well-paying jobs.

Reiter said that during her 20-year term with the attorney general's office, cases against proprietary colleges were among the first and the last she prosecuted. While abuses remain "strikingly similar" to those she saw two decades ago, for-profit schools now are "more likely to be publicly traded, be larger and richer, and have much greater political clout, and the students wind up with much larger debts, including high-cost private loans."

Key provisions established at the federal and state level designed to rein in bad actors in the for-profit sector have since been weakened, she said. An independent California agency to oversee proprietary schools put 159 schools out of business by 1995, but was later eliminated, for example.

Reiter described the Corinthian case as one with much larger implications:

The kinds of conduct described are the natural outcome of a system that allows a 90 percent federal subsidy for private sector, for-profit schools, but doesn't measure employment success or require any minimal level of success. Consequently, the schools are measured by Wall Street on their 'starts,' not their finishes.

Based on my knowledge of other investigations and cases against proprietary schools over the years and my experience in investigating and prosecuting all types of consumer fraud cases, in my opinion, the consumer abuses in the proprietary school industry are among the most persistent, egregious and widespread of any industry.

The head of a lobbying group for the for-profit education industry held a press event the day before the Senate committee hearing to counteract the statements of the sector's critics.

Harris N. Miller, CEO of Career College Association, focused mainly on one witness, a short-seller who Miller said has personal financial interest in seeing the sector suffer. But Miller also took aim at some of the general criticisms against his industry, according to coverage in the Chronicle of Higher Education.

"Career-college education is a word-of-mouth business, especially when those words flash across the Internet within milliseconds," Miller said. "Shoddy schools will quickly find themselves with diminished returns."