Opening Statement at For-Profit College Forum
Good morning. I am pleased to convene this forum to examine the role of the for-profit college industry in educating students in Illinois and to discuss the additional federal oversight needed to end abusive practices and improve student outcomes.
I am pleased to be joined by my colleague from the House, Congressman Danny Davis. Thank you all for being here.
As a beneficiary of federal investment in higher education, I have always voted to support Pell grants and federal student loans.
We must give our young people the education and training they need to create new jobs, new companies and whole new industries, right here in America.
But I have become deeply troubled by what I see happening in higher education today. The federal financial aid system is in serious peril – not just because of budget cuts in Washington – but because of the actions of many for-profit colleges.
Student Loans and Subprime
There are good for-profit schools that deserve a place in America’s options for higher education. They offer flexible schedules, and many provide high-quality education.
But as is often the case, many of these better schools fear oversight and accountability. They close ranks to protect the bottom-feeders in their industry and suffer for the sins of their unscrupulous colleagues.
But I won’t be shedding any tears for their bad press. My concern is for the taxpayers who are generously subsidizing poor-performing for-profit schools and the obscene compensation paid to their owners.
Even more to the point, I am concerned for the students burdened with unreasonable student loan debts and worthless diplomas.
One of the claims you see most often in the ads for for-profit colleges is that they offer a passport to the middle class for low-income students who for too long have been shut out of college.
Sound familiar? It’s the same pitch that was used to sell risky, overpriced, subprime mortgages to people who for too long had been locked out of homeownership.
We know how that story ended. We can’t afford to repeat that mistake with student loans.
Unlike a mortgage, student loans are not dischargeable in bankruptcy, so those loans will be with students for the rest of their lives. We can’t afford to saddle a generation of young people with mountains of debt and worthless diplomas.
Pell Grant Investment
And we can’t afford to see taxpayer dollars wasted by sending billions of dollars of Pell Grants to for-profit schools that aren’t providing a good return on that investment.
We have been working to cut federal spending in Washington. And I can tell you that some of my colleagues have questioned the value of federal funding for Pell Grants.
I believe that if we want our economy to grow, we must provide grants to low-income students to attend colleges that put them on a path to success. But the question is there: are the taxpayers getting their money’s worth at for-profit colleges?
Taxpayers deserve to know that a Pell Grant invested in a student is leading to a good result—a better career, a higher salary, and a greater potential to contribute to the economy.
Industry Statistics
I’d like to take a moment to take stock of a few basic facts and trends in the for-profit college industry.
Growth
For-profit colleges are the fastest-growing segment of higher education. Over the past 10 years, enrollment has increased 236%.
Industry growth has been fed by increasing federal revenue. For-profit colleges educate less than 10 percent of all college students – but they consume 25 percent of all Pell grant dollars and student loans.
In 2009, that amounted to more than $20 billion in federal student loans and more than $4 billion in Pell grants.
In the 2008-2009 school year, the top three recipients of federal student aid were all for-profit colleges: the University of Phoenix, DeVry, and Kaplan.
Cost
For-profit colleges can be a very expensive choice for students.
Students take out student loans at much higher rates to attend for profit colleges. At 2-year schools, 97% of students at for-profit colleges borrow loans, compared to just 14% at public community colleges.
And the amount of debt they take out is also far higher.
For-profit college students who earn bachelor’s degrees graduate with an average of $31,000 in debt, compared to $17,000 at non-profit colleges and $7,900 at public universities.
Outcomes for students
Now, that might be a good investment – if students were receiving education and job training to take the next step up the economic ladder. There are certainly many for-profit colleges that do just that.
But there are also for-profit schools that are leaving students poorly trained and over their heads in debt.
Within the first three years of starting repayment, one quarter of students who attended for-profit colleges will default on their loans.
Compare that to 11% at public colleges and 8% at private non-profit colleges.
If students default on their student loans because they can’t find work, the consequences are terrible. Their credit is ruined. They can’t get more loans to get a degree that could really help them. And they can’t get rid of the debt in bankruptcy court.
Federal Dollars and Profits
The federal government has a unique interest in this situation because for-profit colleges are operating almost entirely on taxpayer funding.
The Senate HELP Committee surveyed 30 for-profit education companies and found that nearly 85% of their revenue came from federal student aid.
We’ve put a cap on how much revenue can come from student loans and Pell grants: 90%. And that doesn’t include Department of Defense, GI Bill, or Department of Labor funding.
When we break this down to see how for-profit colleges are spending their revenue, 22% is going to marketing and 19% is going to profits.
Total profits for those companies exceeded $2 billion last year.
Conclusion
I no longer question whether the federal government needs to intervene—we must.
It is clear to me that the regulatory structure that governs how federal dollars flow to for-profit colleges has broken down.
For decades, we have controlled the federal investment in higher education through a triad of regulators: the federal government, state agencies, and accreditation agencies.
This system is no longer adequately functioning to protect students from exploitation and taxpayers from waste.
I hope that this will be a constructive conversation about how the industry, its regulators, and the federal government can move forward to stop abuses and achieve better results for students.
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