Transcript: Pauline Abernathy’s Testimony on “Drowning in Debt: Financial Outcomes of Students at For-Profit Colleges”

Senate Committee on Health, Education, Labor & Pensions

Hearing on “Drowning in Debt: Financial Outcomes of Students at For-Profit Colleges”(June 7, 2011)

Transcript of Testimony by Pauline Abernathy, Vice President at the Institute for College Access & Success

“Chairman Harkin and members of the committee, thank you for the opportunity to testify today. The Institute for College Access and Success is a non-profit research and policy organization that works to improve college opportunity and outcomes for all Americans so more Americans can complete meaningful credentials without burdensome debt.

Pauline Abernathy testifying at the Senate Committee on Health, Education, Labor & Pensions. PHOTO SOURCE:

“As you’ve noted student debt is increasingly common in all sectors of higher education. Compared to other types of colleges, debt at for-profit colleges is off the charts.

“This sector has the highest share of students with debt, the highest debt loads for degrees, and the highest student loan default rate. Combined these facts with aggressive recruiting, low completion rates, heavy reliance on federal funds, and increasing investigations of widespread fraud, and you have a truly toxic mix.

“As others have noted, for-profit career colleges are not inherently problematic. Indeed, they have the potential to spur needed technological innovations. What matters to students and taxpayers in whether a school provide quality career education and training that at a reasonable cost, not its structure or ownership.

“But current laws and regulations have created incentives for career colleges – many owned by large publicly-traded corporations – to reap hefty profits at great expense to taxpayers and students.

“As Chairman Harkin stated, virtually all students attending career colleges borrow. At both two-year and four-year career colleges, at least 95% of students take out loans. By contrast, less than half of students at public colleges borrow and only 13% of community college students borrow.

“Moreover, a majority of career college graduates graduate with both federal and private student loans. Private loans are one of the riskiest ways to pay for college. Like federal loans they are not dischargeable in bankruptcy, but unlike federal loans, they typically have variable interest rates with no cap, and they lack the affordable repayment options and consumer protections that can help federal student loan borrowers stay out of default.

“Low-income African-American and Hispanic undergraduates at career colleges are about three times more likely to borrow federal student loans than their counterparts at other colleges and four times more likely to take out private loans. Adults who attend career colleges while working full-time are almost five times more likely to take out federal loans and over six times more likely to borrow private loans.

“Students at career colleges are not only more likely to borrow, they also borrow more – much more. High borrowing rates combined with large debt loads significantly increase the risks of going to college. There is clear evidence that student debt loads at many for-profit schools are unmanageable.

“As the chairman said, career college students account for nearly half of all federal student loan defaults even though the sector enrolls only about 10% of all college students. More than one in five borrowers who attend a career college defaults within three years, which is more than double the rate at public colleges and more than triple the rate at non-profit colleges.

“The impact of these defaults, as Mr. Schmitt just testified, is severe and long-lasting both for the borrowers and for our economy. Student demographics alone do not explain these default rates. The Career College Association’s own study concludes that even accounting for differences in demographics and completion rates, students at for-profit colleges are at least twice as likely to default as students at other types of schools.

“Indeed, some career colleges do much better than others at educating similar students. For instance, there are two for-profit colleges in San Bernardino, California; they’re one mile apart from each other. They offer similar programs, charge similar amounts, and enroll similar shares of low-income students. Yet one has a default rate more than twice the other, and the one with the lower default rate enrolls a higher share of low-income students.

“Our analysis of federal data reveals that even students who complete an associate’s degree or certificate at a career college are at much greater risk – four times greater – than students at other types of schools. In fact, career college graduates are much more likely to default than public or non-profit college drop-outs, and they’re almost twice as likely to experience unemployment as graduates of other types of schools.

“In sum, these data suggest that Mr. Schmitt’s experience is not uncommon with tens of thousands of students taking huge debts for degrees that have little, if any, value in the job market. This has grave consequences for individuals and their families, for our economy, and for taxpayers who are subsidizing for-profit colleges to the tune of $32 billion last year alone.

“The 14 student financial aid regulations that were recently finalized by the Department of Education are a step in the right direction. But they will not solve all the serious problems these hearings have uncovered. For instance, they won’t stop federal funding for worthless, unaccredited programs like the one Yasmine Issa testified about last year. They won’t provide relief to the students and taxpayers who have been victimized by such programs. They don’t address the problem of schools that have literally purchased their regional accreditation. They don’t put a stop to the subprime loans that some career colleges are making to their own students. They don’t prevent for-profit corporations from being funded entirely by taxpayer dollars. Thank you for the opportunity to testify today.”



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