The Department of Education proposed new rules last week which, under the guise of "avoiding wasteful spending" on higher education loans, will close the door to a better life for hundreds of thousands of needy students. The rule mainly applies to proprietary colleges, also known as for-profit schools, and will bar or limit many programs based on a complex formula that compares a student’s debt to his or her prospects in the current job market. According to the Department’s own estimates, this proposed rule would eliminate or put at risk 307,000 students who are currently enrolled in these programs.
As a former legislator and governor dedicated to education, and now as Chairman of Education Management Corporation (EDMC), one of America’s leading higher education companies, I fully endorse President Obama’s stated objective for America to have, by 2020, the highest proportion of college graduates in the world, which translates into over 8 million additional graduates. I am also keenly aware of the need to avoid waste of public resources. The proposed rule, however, is counterproductive.
The purpose of the Federal financial aid system is to help disadvantaged students achieve their highest potential, including with a subsidized loan program. The proposed rule, however, hurts the very students the system was created to assist by creating a formula that few non-profit private colleges could meet. For example, it would reduce access to 4-year bachelor’s degree programs because, under the proposed formula the initial earnings will not justify the extra years beyond a two year degree, even though lifetime earnings will be dramatically more. The hard times of the current economy are precisely when the country needs to invest in education, not shut down access for needy students to bachelor’s degree programs that will substantially enhance their long-term career potential.
The premise of the new rule is that proprietary colleges have higher loan default rates than public and nonprofit institutions. This sounds reasonable until another fact is added—proprietary schools educate a high proportion of at-risk students, precisely the group of graduates which President Obama wishes to expand. In the pool of at risk students, proprietary schools have comparable graduation and default rates when compared to public and non-profit colleges.
In addition to discriminating against colleges that have a high proportion of needy students, the Department’s proposal flies in the face of congressional policy. Congress intended Title IV grants and loans as a subsidy to those most in need, not as a break-even proposition. The intended beneficiaries of these subsidized programs are minorities, single mothers and others who would otherwise be unable to improve their position in life without higher education. Most take advantage of the opportunity and repay their loans in full. Unfortunately, as anticipated in the program, some do not. The net annual cost of defaults is more than worth the benefit to these students—about $1 billion out of $605.6 billion in outstanding loans.
The bias against proprietary education, explicit in the proposal, also misunderstands the differences in education services being offered. Proprietary schools are innovators in adult education—offering rolling enrollment calendars, flexible course schedules and focused course studies that enable a working adult to improve his or her skills within an individualized schedule. Over the past two decades, proprietary colleges have grown from serving just one percent to now serving nine percent of the more than 19.5 million students in higher education. There are literally millions of student success stories, of nurses, healthcare technicians, computer programmers, graphic artists, chefs, and others who have bettered their lives and the lives of their families.
Finally, the desired outcome of the rule appears to be for students to migrate from proprietary programs to public colleges which have with lower tuitions and lower student debt. However, instead of avoiding “wasteful spending,” this would dramatically increase taxpayer costs. There is a reason why public colleges have lower tuition, at least for the time being,—they are heavily subsidized by taxpayers. The taxpayer subsidy of public colleges to provide education is approximately double the total cost of grants and loans to students at proprietary colleges. Each student compelled to transfer from a proprietary institution to a public college will cost taxpayers approximately an extra $4,000 per student per year.
As a former congressman and governor, I strongly believe that all public programs should be reviewed periodically to make sure that they are meeting our public goals. If there are wasteful programs in higher education, there are much better ways of providing oversight than a broad, formulaic approach that will impact immediately over 300,000 students. What the department has proposed is a dramatic change in policy. As a former lawmaker, I know that a major policy change like this should be handled on the floors of Congress through the legislative process, including hearings, fact-finding analysis and open debate—not a regulatory rewriting of an important pillar of higher education for needy students.
John R. McKernan, Jr., is the former U.S. Congressman and former Governor of Maine and current Chairman of Education Management Corporation. The Education Management Corporation is a leading private operator of post-secondary educational institutions, primarily in the United States. The company’s institutions provide primarily career-focused educational programs. The schools that they operate include Argosy University, The Art Institutes, Brown Mackie Colleges, South University, Western State University College of Law.