Testimony: New York Should Restore Student Protections DeVos Axed

On January 28, 2019, TCF fellow Yan Cao appeared before the New York Senate Finance Committee, the New York Assembly Ways and Means Committee, and the Senate and Assembly Higher Education Committees to testify at the Joint Legislative Budget Hearing on Higher Education about the importance of enacting a budget proposal, the For-Profit College Accountability Act, that would protect students from the growth of predatory practices in for-profit higher education.

The Century Foundation has previously called attention to the troubling outcomes of students who attend for-profit colleges in New York and has analyzed the policies within the For-Profit College Accountability Act, which was introduced in Governor Cuomo’s 2020 executive budget.

Thank you for this opportunity to provide testimony. My name is Yan Cao, and I am a fellow at The Century Foundation—a hundred-year old not-for-profit, nonpartisan research center that has brought progressive ideas to lawmakers from President Roosevelt to the present.¹

The task today is to provide funding for higher education in New York. It is a critical task. At a time of rising inequality, economic insecurity for families, and fracturing among civil institutions, prying open the doors to offer high-quality affordable education to all New Yorkers remains the last best chance to improve the lives of individual students, uplift their families and communities, and drive economic growth.

Prying open the doors to offer high-quality affordable education to all New Yorkers remains the last best chance to improve the lives of individual students, uplift their families and communities, and drive economic growth.

But, with each effort to expand access to higher education, there has been an unfortunate record of abuse. From the very first GI Bill to the early days of Higher Education Act, and from state programs seeking to promote higher education for police officers to federal programs seeking to promote education for low-income mothers, well-intended programs meant to augment student financial aid for higher education have led to abuse.

New York Faces Another Cycle of Abuse at For-Profit Colleges

With me today is Zachary Murray Hastie, a former marine who was targeted by a for-profit college for the GI Bill benefits that he earned through his service. Zach’s experience came to my attention through the outreach of organizations like Veterans Education Success, which work hard to mitigate the harm suffered by students who have attended for-profit colleges. I’d like to cede my time so that Zach can share his experience with you, and I’m happy to provide additional context after.²

Zach’s experience is representative of the last major wave of growth in the for-profit college industry—in the wake of the recession, for-profit colleges grew as the rest of the economy contracted. New York’s legislature responded in 2012 by enacting a law to protect students from some of the worst abuses. At the same time, the federal government woke up and improved accountability and oversight. These actions remain commendable and New York’s leadership in that moment was clear.

But the work is not over. We face the potential for another cycle of abuse. Today, Secretary Betsy DeVos and others in the Trump administration actively seek to dismantle nearly every student protection that has been put in place.

• The Gainful Employment Rule required vocational programs that consistently left graduates with high debt and low earning potential to improve student outcomes or risk losing federal aid eligibility. DeVos proposed eliminating this rule, allowing federal tax dollars to fuel rapid growth by for-profit programs, with no accountability required.
• The Borrower Defense Rule offers cancellation of federal student loan debts for thousands of New Yorkers who were deceived and defrauded by for-profit colleges. DeVos has stopped investigating fraud and delayed help for defrauded students. Meanwhile, under her proposed revisions to the Borrower Defense Rule, defrauded students must default on their student loans before they can even apply for relief.
• Federal rules on accreditation and state authorization are meant to promote quality and prevent from abuse. DeVos has reinstated an accreditor notorious for enabling rip-off chains like ITT Tech. Meanwhile, in a new round of changes started this month, DeVos has proposed standards that are so low, even the representatives of for-profit colleges are asking her to reconsider.

With these changes, federal student aid dollars that are meant to increase opportunity for students like Zach will instead fuel the growth of predatory colleges that prioritize profits over student success. History will repeat itself, and another generation of students will see their futures stymied by lifelong debt sentences unless states like New York break the cycle.

New York Can Restore Protections the Federal Government is Eliminating and Prevent Future Abuse

The good news is that we have the tools in place to safeguard students and improve outcomes. We know where the abuses are concentrated; we know the incentives that drive them; we know the common-sense accountability measures that stop them.

We know where the abuses are concentrated; we know the incentives that drive them; we know the common-sense accountability measures that stop them.

Where Is the Abuse Concentrated?

In New York, for-profit colleges enroll 4 percent of students but account for over 41 percent of student loan defaults.³ Moreover, they account for over 98 percent of student complaints of unlawful and deceptive activity by colleges and post-secondary institutions.⁴ Unlike other sectors, for-profit colleges have a mission to generate profit for owners and shareholders. This difference in mission is reflected in vastly different outcomes, as illustrated in the figure below.

Table 1

Why Is Tuition High Instructional Spending Low at For-Profit Colleges?

For-profit colleges enroll vulnerable students, charge these students tuition at rates that are higher than those of public or non-profit colleges, but spend far less on student instruction.⁵ Directing vulnerable students to schools that provide the cheapest product at the highest price leads to predictably bad outcomes for these students, and does not serve the purposes of higher education funding on the whole.

However, this formula does respond to another mission of for-profit colleges: generating profit for the owners and investors who control decisions regarding tuition and instruction. For-profit colleges absorb the majority (57 percent) of federal grant aid as private profit.⁶ A 2012 U.S. Senate investigation found that for-profit colleges allocate 23 percent of revenue dollars to marketing and recruitment and 19 percent of revenue to profit while spending just 17 percent of revenue on instruction.⁷ These spending priorities are in line with the goals of owners and investors, but not with the goals of higher education funding in New York.

Table 2

Are For-Profit Colleges Charging Inflated Prices?

While states like New York provide funding in the hopes of making college more affordable, colleges that seek to deliver profits to owners see additional funding as a reason to raise tuition. Researchers with the Federal Reserve Bank of New York found that for-profit colleges raised tuition at nearly four times the rate of not-for-profit colleges.⁸ For-profit schools that are eligible for federal financial aid programs charged 75 percent more than comparable programs where students pay out of pocket.⁹ Following one expansion of student aid, executives at the University of Phoenix told investors that they would be raising tuition to match the expansion of available aid—with no connection to any increase in educational value.¹⁰

Today’s hearing is focused on funding higher education because the conventional wisdom holds that better funding improves students’ outcomes. But the experience at for-profit colleges is that a large share of student aid is absorbed as private profit, increased tuition aid can make colleges less affordable, and greater spending does not translate to better education or outcomes for students.

Taking this into account, New York must pair the funding policy that the legislature will establish in the coming months with an accountability policy to ensure that private, for-profit colleges—particularly those that rely on state and federal aid for their revenue—provide higher-quality, and more-affordable, education to students.

Passage of the “For-Profit College Accountability Act,” Part E of the Education, Labor and Family Assistance (ELFA) Bill, is a key step that will allow New York to offer a high-quality alternative to the predatory growth that federal education policy will unleash.

Thank you for your consideration. Please direct any further inquiries to [email protected].

Sincerely,

Yan Cao, Fellow

Several former for-profit college students and allies also testified and submitted written testimony for the Joint Legislative Budget Hearing on Higher Education:

Testimony of Zachary Murray Hastie (on submission)
Testimony of Center for Responsible Lending
Testimony of Legal Services NYC
Testimony of New York Legal Assistance Group
Testimony of Veterans Education Success
Testimony of Western New York Law Center
Testimony of Danielle Adorno (on submission)
Testimony of Edris Javier Lopez (on submission)
Testimony of Johnathan Adorno (on submission)
Testimony of Harvard Law School, Legal Services Center, Project on Predatory Student Lending (on submission)
Testimony of Brookings Institution and related report (on submission)

1. Archives of the Century, The Century Foundation, available at https://archivesofthecentury.org/.
   See also, New York Public Library Archives & Manuscripts, The Century Foundation Records 1906-2010 [bulk 1960-1006], http://archives.nypl.org/mss/188
2. Hastie’s testimony is available here.
3. Joint hearing of the New York State Assembly Standing Committee on Banks, Standing Committee on Consumer Affairs, and Protection Examining Practices of the Student Loan Industry, November 27, 2018; written testimony of Kirsten Keefe, on behalf of the Empire Justice Center, and Yan Cao, on behalf of The Century Foundation, available at https://empirejustice.org/wp-content/uploads/2018/11/P_TEST-Student_Debt_November_2018.pdf.
4. Yan Cao and Tariq Habash, “College Complaints Unmasked,” The Century Foundation, November 8, 2017, available at https://tcf.org/content/report/college-complaints-unmasked/ (finding 99 percent of student fraud claims concern for-profit colleges); Yan Cao and Tariq Habash, “College Fraud Claims Up 29 Percent Since August 2017,” The Century Foundation, May 30, 2018, available at https://tcf.org/content/commentary/college-fraud-claims-29-percent-since-august-2017/.
5. ee Louise Seamster and Raphaël Charron-Chénier, “Predatory Inclusion and Education Debt: Rethinking the Racial Wealth Gap,” Sage Publications, January 3, 2017 available at https://journals.sagepub.com/doi/abs/10.1177/2329496516686620?journalCode=scua (“actors offer needed services to black households but on exploitative terms that limit or eliminate their long-term benefits”).
6. Christopher V. Lau, “The Incidence of Federal Subsidies in For-Profit Higher Education,” Northwestern University, 2014 working paper, available at https://drive.google.com/file/d/0BxCDXfeTJUvWSU9pemdXdlZrOTg/view (finding that at for-profit colleges, 57 percent of federal grant aid and 50 percent of federal loan aid is absorbed as profit).
7. “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success,” United States Senate Health, Education, Labor and Pensions (HELP) Committee, July 30, 2012, available at https://www.govinfo.gov/content/pkg/CPRT-112SPRT74931/pdf/CPRT-112SPRT74931.pdf.
8. David O. Lucca, Taylor Nadauld, Karen Shen, “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs,” Federal Reserve Bank of New York, February, 2017, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf.
9. Stephanie Riegg Cellini and Claudia Goldin, “Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges,” American Economic Journal: Economic Policy, volume 6, number 4, November, 2014, 174–206, http://dx.doi.org/10.1257/pol.6.4.174.
10. David O. Lucca, Taylor Nadauld, and Karen Shen, “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs,” Federal Reserve Bank of New York, staff report 733, July, 2015, revised February, 2017, available at https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf (“The rationale for the price increase . . . had to do with Title IV loan limit increases” (quoting Apollo Education Group, 2007:Q2 Earnings Call)).

Tags: higher education, college tuition, new york schools, testimony, for profit college