College Inc.

October 4, 2010 — by Jason Wu

“Fifteen out of 15— I think we’ve located a place where there are a lot of bad actors,” said Sen. Al Franken of a report by the Government Accountability Office which found evidence of deceptive and aggressive marketing techniques used at all 15 for-profit colleges it investigated.

The report highlighted behavior ranging from lies about the accreditation of the colleges to pressure tactics used by recruiters to make students sign enrollment contracts before speaking to financial aid representatives.

Officials also encouraged students to falsify application data by under-reporting savings and adding fake dependents to their Free Application for Federal Student Aid, or FAFSA, in order to qualify for Pell Grants, which do not require repayment and primarily benefit low-income students.

These and other abuses stem from a payment system used by for-profit colleges that rewards recruiters based on the number of students they bring in, which creates such an aggressive marketing atmosphere that recruiters will do almost anything to get a student into the program.

Although Congress passed legislation in 1992 prohibiting for-profit colleges from compensating recruiters based on how many students they brought in, a series of “safe harbor” provisions added in subsequent years have allowed the practice to continue. One of these loopholes allows commissions for Internet-based recruitment, although the statute clearly makes no distinction between online and offline recruitment activities.

The Obama administration has proposed reforms that will increase oversight of for-profit colleges, which will include making it much more difficult for the colleges to pay recruiters according to number of “sales” they turn.

With the industry mobilizing lobbyists and organizing letter-writing campaigns in an attempt to thwart the passing of more stringent regulations, the administration must hold its ground and protect the interests of students and taxpayers.

The new rules would give the Department of Education greater authority to stop schools from making false or misleading statements about tuition, and schools would not be allowed to pay recruiters based on how many students they brought in.

The regulations would also protect taxpayers, who must foot the bill for the rampant abuse in the $26 billion federal college aid program that funds for-profit colleges.

Most important, the new rules would include a formula that would consider the debt-to income ratio of graduates and the ability of students to repay their loans. The Department of Education would then correspondingly cut off federal aid to programs that burden students with excess debt.

The for-profit sector claims that the reported abuses are rare and says that these rules would hurt the poor and minority students, most of whom are enrolled in for-profit schools. However, the reforms would help prevent these students from being victimized and saddled with debt that burdens them for the rest of their lives.

For-profit colleges have shown that they will not regulate their industry at the expense of their bottom line. Tighter regulations must be put into place, if for no greater reason than to save a generation of students from unwittingly signing over their financial futures to corporate greed.

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