Taxpayer dollars funding deceptive practices of for-profit colleges

It’s no secret that college tuition is rising at blinding speeds and that students are amassing exorbitant loan debt that may take their lifetimes to pay off – even if they earn degrees that will lead to promising careers. In fact student loan debt is reaching one trillion dollars and surpassing credit card debt. More than 70 percent of students leave school in debt, and one in every seven borrowers falls behind within three years of graduating or dropping out. Taxpayers end up picking up the tab from unpaid federally subsidized loans and grants that were wasted on incomplete degrees.

What is not as well known is that one sector of the higher education system is devouring a disproportionate percentage of taxpayer education dollars and not returning well-educated citizens. That sector is the for-profit education industry, which received nearly 80 percent of title IV Federal financial aid programs in 2010. According to the GAO, $9 billion in education benefits went to service-members and vets in fiscal 2010. For-profit institutions derive much of their revenue from the federal government in the form of financial aid grants and subsidized student loans. Although students attending for-profit colleges account for only 13 percent of the student body nationally, they take in one-quarter of all Pell Grants and subsidized Stafford Loans and, what do they give American taxpayers? Half of America's student loan defaults are from people who attended for-profit colleges.

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One of their most shocking sources of income is the tuition for active duty military and various veterans’ education funds, including the Montgomery Bill, the Post 9/11 GI Bill and the Military Spouse Career Advancement Accounts. For-profit colleges often see veterans returning from the front lines as revenue sources, since each one represents tens of thousands of dollars in federal benefits and student loans. In fiscal 2012, the Department of Defense spent $660 million on tuition assistance; half of it went to for-profits. 

All taxpayers should be concerned. You would think that investing in the education of America’s heroes would be a good deal. Unfortunately, many for-profits leave vets with substandard educations, heavy student loan debt, non-transferable credits, worthless degrees or no degrees at all. And more than half of for-profit schools’ students dropped out within a median of four months, while state universities have significantly lower dropout rates. Meanwhile, taxpayers are charged twice as much to send a veteran to a for-profit college as to a community college or state university.

What is most outrageous is that the government allows precious student aid dollars to be spent on programs where the graduates are not even eligible to try to get licensed as plumbers, electricians, lawyers, and most jobs in the health field.  So, these students were set up to fail from the minute they enrolled.

What can we do to stop this while still helping our veterans get an education? First give them the information they need to select good, properly accredited schools, and the ability to take action if they have been deceived. The Department of Defense and the Veterans Administration recently launched new web sites that allow veterans to compare information about colleges and programs, and file formal complaints if they’ve been deceived.

The Obama Administration recently proposed new rules to limit how much debt students can accumulate while attending career-training programs, one sector of the for-profit industry.  The proposed rules say that estimated loan payments of typical graduates could not exceed 20 percent of discretionary income or 8 percent of total annual income. Loan default rates of former students could not surpass 30 percent. Exceeding any of these limits would put colleges in jeopardy of losing federal aid.

But more action needs to be taken. The Department of Education should guard taxpayer dollars by closing the loophole in federal law that is designed to prohibit for-profit education companies from receiving more than 90 percent of their revenues from federal education aid. The loophole is that the GI Bill and Department of Defense tuition assistance are exempt from this limitation.

Benjamin Franklin once said, “ An investment in knowledge pays the best interest.” But when American taxpayers invest in a for-profit college education, they are left with unpaid loans, poorly educated students and a shameful debt to our veterans. 

Boulay, an Iraq War veteran, is the director of the Veterans Student Loan Fund, a non-profit organization that provides loan relief to veterans who may have been deceived by for-profit colleges. He can be reached at matthew_boulay@hotmail.com