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For-Profit Regulations Protect Students and Taxpayers

With bipartisan debt commissions unfurling proposals, newly-elected Tea Partiers headed for the Capitol, and Congress moving to keep Bush-era tax breaks, it’s clear that Washington needs to find cuts in the federal budget. With dollars more scarce, our country must rededicate itself to spending as wisely as possible.

One area that politicians frequently pledge to attack is the unholy trinity of “waste, fraud, and abuse.” Identifying such wasteful spending is easier said than donebut not always.

The Obama administration proposed to act on two higher education programs where it was crystal clear that government money was not being spent prudently. Two industries, student loan companies and for-profit colleges, had become wealthy through federal largesse—and, to a large degree, at the expense of student and taxpayer interests.

In the case of student loans, large loan companies were getting paid handsomely as if they were lenders, when in fact they bore little risk: When students defaulted, taxpayers paid the bill. A few years ago, congressional staffers told us this windfall could not be undone, because lenders could use their abundant profits to hire armies of lobbyists and provide campaign contributions to keep Congress on their side. Yet the president and Secretary of Education Arne Duncan took on these special interests by pushing legislation to reform student loans and free up more money to help students pay for college. The administration faced down a fierce lobbying campaign and prevailed in Congress last spring.

Unfortunately, the battle over for-profit colleges has made the fight over loan reform look like a cakewalk. Secretary Duncan has proposed regulations enforcing an existing mandate from Congress that certain short-term education programs receive financial aid only if they prepare students for “gainful employment.” Administration officials tell us the pressure from industry to kill the rule is ten times more intense than in the lender dispute.

The for-profits have spent millions hiring lobbyists, lawyers, and consultants, including former Clinton and Obama administration officials and former members of Congress. They have increased their campaign contributions to both parties, and they are bombarding the airwaves with slick TV ads claiming that government is threatening college “choice.” One for-profit filed a lawsuit naming advocacy groups who support the regulation as "co-conspirators" in an effort to derail for-profits through misinformation. For-profit lobbyists have made vague accusations about Education Department officials having “secret meetings” with a speculator who bet against for-profit stocks.

Despite what opponents claim, the new rule does not represent the government expanding its regulatory reach; the government is already involved with for-profit schools because it provides financial aid to their students. The question is whether government policy should direct students to programs that fail them, or if it should help students succeed in programs that work.

What is the current system that for-profit schools defend with such ferocity? One marked by extremely disturbing behavior by some for-profits, including deceptive recruiting practices, false reporting to authorities, skyrocketing tuition, high dropout rates, and dismal job placement. These practices have left many struggling low-income Americans, especially people of color, buried in debt, while diverting scarce federal money away from programs that actually help students and our economy.

For-profit schools use federal resources at a disproportionate rate: They serve 10 percent of U.S. students, but receive 25 percent of federal student aid and have 44 percent of student loan defaults. Kaplan Higher Education, for example, receives more than 90 percent of its revenue from federal grants and student loans, and 72 percent of its students are not paying back those loans.

There are quality programs in the for-profit sector. Those will be able to thrive under the regulations, which ask the right questions: (1) Is a program leaving students with overwhelming debt? (2) Is it training students to earn a living? Programs that don’t meet these minimal standards should not receive financial aid.

The expensive lobbying by for-profit schools underscores how the industry has thrived under the current system, and why it wants to preserve the status quo. But the Obama administration is right to stand up for a system that will better serve taxpayers and students. It would be a travesty if pressure by moneyed interests prevailed over fiscal sanity, educational quality, and economic opportunity for those who need it most.

This article originally appeared in The Hill's Congress Blog.

David is the founder and former director of Campus Progress.

Angela is the policy and advocacy manager for Campus Progress. She graduated from Western Michigan University.

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