For-Profit Colleges Balk at New Rules

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Uncle Sam’s new rules are putting a stop to for-profit college abuses, but the schools won’t go down without a fight.

The federal government has been shoving “for-profit” colleges around pretty forcefully in 2010. But some private schools are saying "enough is enough." Could heavier lobbying by such institutions change the student lending landscape, and what will that mean to college-bound Americans?

The issue stems from recent stipulations from the White House dictating what for-profit higher educational institutions can and cannot do when financing student educations. Loosely defined, for-profit colleges are educational institutions run by private, profit-seeking companies or organizations.

The industry has been in hot water due to charges brought on by the U.S. Department of Education. In August, a federal government investigation of 15 for-profit schools uncovered four cases of school officials misrepresenting the programs offered by the schools.

The probe found abuses at schools in California, Florida, Pennsylvania and Texas, including the following, as disclosed by USA Today on Aug. 4:

  • An applicant to a certificate program in California was encouraged to add more dependents in the Free Application for Federal Student Aid, or FAFSA, in order to qualify for Pell Grants.
  • College representatives in Florida, Pennsylvania and Texas suggested undercover applicants not report $250,000 in savings on the FAFSA.
  • One investigator received more than 180 phone calls in a month after registering on a website linking students to for-profit colleges.
  • A representative at a college in Florida told an applicant the school was accredited by the same organization that accredits Harvard and the University of Florida — not true.
  • Representatives from 13 colleges provided inaccurate or incomplete information about graduation rates, guaranteed applicants jobs upon graduation or exaggerated likely earnings.
  • Fourteen colleges had programs that cost more than comparable offerings at the nearest public college.
  • Six colleges told applicants they could not get information on financial aid eligibility until they completed enrollment forms in which they agreed to become a student and paid a small application fee.

For-profit schools could see their federal funding slashed as a result. Last year, the U.S. government shelled out $24 billion in loans and grants to for-private schools.

And Uncle Sam is starting to get strict with them, too. In June 2010, the federal government issued a new rule restricting student loans and grants handed out by for-profit schools.

Now, such schools must be able to prove that students who receive a loan must prove they’ll be able to pay it back. In essence, that rule targets the weaker track record for-profit schools have in placing their graduates in good-paying jobs — at least compared to graduates of traditional colleges and universities.

For-profit schools are fighting back with a lobbying campaign backed by students. The Education Department reports receiving 26,000 letters from students speaking out against the new lending statutes, according to a Sept. 7 report from Bloomberg. Most new Education Department rules generate about 400-600 letters in response, the department says.

For-profit colleges are also reportedly pouring huge resources into a lobbying campaign in Washington to convince key congressional leaders like Sen. Tom Harkin (D-Iowa) to rescind those regulations.

The stakes are certainly high. Bloomberg reports for-profit schools are a high-growth industry, with 2.6 million students in 2007-2008 — a 53% increase from the previous year. They also take out a lot more money; 92% of students take out loans at such schools, compared to 60% at traditional colleges.

But if those students can’t get a loan, they can’t attend for-profit colleges. The for-profit college market certainly won’t stand for that, but whether they can rescind the rule or not is up in the air. Even if they lose, for-profits are going to go down swinging.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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