Curbing Fraud and Abuse

The AFT is committed to ensuring taxpayer dollars intended to help students gain access to a high quality, affordable higher education through federal student aid programs are spent appropriately. Working with a broad coalition of student, consumer advocacy, civil rights, and other progressive policy groups, the AFT has pushed for sensible legislation and regulation to curb fraud and abuse of federal student aid programs. We communicate with Congress, the Department of Education, and other agencies regularly about these issues.

Education with a profit motive

A two year investigation by the Senate Health, Education, Labor and Pensions (HELP) Committee of the for-profit college industry raised significant concerns about the quality of the education provided by this sector. Cases of fraud an abuse in the recruitment and retention of students continue to be regularly reported. Though only enrolling 13 percent of the postsecondary student population 25 percent of federal student aid dollars flow to these schools, a price tag of about $32 billion per year. The for-profit sector also accounts for about half of all student loan defaults. 

Ensuring program integrity

Following the HELP Committee investigation the US Department of Education engaged in a lengthy negotiated rulemaking process throughout 2009 and 2010 intending to guard program integrity and protect students from fraud and abuse. These regulations apply to all schools receiving federal aid funding for their students. Some of the issues addressed during this negotiated rulemaking were incentive pay of college recruiters based on the number of students they enroll, state authorization of online higher education institutions, and misrepresentation. Misleading and deceptive sales and advertisement practices are tragically common in the for-profit sector. The AFT supports both regulatory and statutory remedies to end misrepresentation and ensure program integrity.

Proper stewardship of public funds

Federal regulations state that no institution of higher education can receive more than 90% of their funds from federal student aid dollars. Most colleges come nowhere near this threshold but for-profit institutions receive an average of 76% of their revenue from federal aid sources. The fifteen largest publically traded for profit colleges receive an average of 86%.

Those figures do not include military or veteran’s benefits though for-profit colleges now take one-third of all GI Bill funds and half of all Department of Defense tuition assistance. As the Consumer Financial Protection Bureau’s Holly Petraeus has said, “This gives for-profit colleges an incentive to see service members as nothing more than dollar signs in uniform.”

Just like Title IV financial aid funds, GI Bill benefits and tuition assistance are publically funded programs intended to provide a quality higher education. The AFT and a growing coalition of veterans groups, civil rights groups, and higher education policy organizations has advocated for a strong 90/10 rule that ensures federal student aid goes to education as intended. The military and veteran’s benefits loophole should be closed. The AFT also supports regulations that would require non-education related expenses such as advertising be paid for non-federal dollars, as in from the 10% and not from the 90%.

Cohort default manipulation

Students who enroll at for-profit colleges are more likely to drop out, more likely to be in debt, and more likely to default. Forty-seven percent of student loan defaulters attended for-profit colleges. More than one in five default on their loans within three years of entering repayment, compared with 7.5% of students at private nonprofits and 11% of students at publics. Reporting this “cohort default rate” is required by the federal government, and if the rate exceeds 30 percent that school is in danger of losing the student aid funding for-profit colleges so heavily rely on.

In examining shareholder statements and reports made to the Department of Education advocacy groups have found evidence that suggests manipulation of cohort default rates by for-profit colleges. Some for-profit companies appear to be using illegal tactics such as alleging improper loan servicing, combining campuses for reporting purposes, and abusing forbearances. The AFT joins with several other organizations in calling for an investigation into these practices.

Gainful employment

The Higher Education Act (HEA) requires that all for-profit programs as well as career education programs at not-for-profit institutions of higher education that receive Title IV funds “prepare student for gainful employment in a recognized occupation.” The Senate HELP Committee’s two year investigation shows that for-profit colleges have an especially poor record in this area. Examples of fraudulent conducts, sky high tuitions leading to devastating debt loads, and poor student outcomes reinforce the urgent need for a strong gainful employment rule.

In response to the abuses list above and other abuses, the Department of Education issued a rule defining gainful employment as part of the Program Integrity rulemaking that began in 2009. The rule generated intense opposition and lobbying by the for-profit industry. Last year a federal district judge vacated the 2011 gainful employment regulation. However, the judge upheld the Department’s authority to issue regulations to enforce the statutory gainful employment requirement.

In April 2013 gainful employment was included in a list of topics to be considered by a Department of Education negotiated rulemaking committee to prepare proposed regulations for the Federal Student Aid programs authorized under title IV of the HEA. The AFT has submitted comments calling for stronger gainful employment regulations and looks forward to working with members and partners to advocate for students and taxpayers.