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December 14, 2012 3:27 PM Senators Call for Investigation of For-profit Colleges and Student Loan Repayments

By Daniel Luzer

Some senators are now calling for an investigation of the tactics for-profit colleges use to avoid sanctions under the Department of Education’s new gainful employment rule, which specifies that in order to continue to receive federal funding America’s vocational schools must make sure that at least 35 percent of former students are paying down their loans, former students must not have to pay more than 30 percent of their discretionary income on loan payments, and former students must not spend more than 12 percent of their total income on loan payments.

A crucial point here is that first part, the repayment rate. How many students are defaulting on their student loans?

According to an article by Michael Stratford in the Chronicle of Higher Education:

Eight… senators are urging the U.S. Department of Education to investigate the tactics they say some for-profit colleges use to artificially lower the rate at which their former students default on federal student loans.
In a letter sent on Wednesday to the education secretary, Arne Duncan, the senators identify two practices on default rates that they describe as manipulations “harmful to students and taxpayers.” First is “encouraging or even harassing borrowers” into using forbearances and deferments to delay default until after the period on which a college’s default rate is based. In addition, the senators say, there is evidence that some for-profit higher-education companies manipulate how they categorize their campuses and programs in order to keep their default rates low.

Read the letter here.

It is, of course, perfectly legal to avoid default punishments under those tactics described above, but it’s probably not a great way to ensure program quality or protect the students who enrolled in these programs.

The senators signing the letter, all Democrats, are Richard Blumenthal (CT), Barbara Boxer (CA), Dick Durbin (IL), Al Franken (MN), Tom Harkin (IA), Frank Lautenberg (NJ), Jack Reed (RI), and Jay Rockefeller (WV).

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer