UPDATE: Sen Harkin To Propose Legislative Changes To For-Profit Colleges
September 30 2010 - 3:26PM
Dow Jones News
Sen. Tom Harkin (D., Iowa) said he will propose legislative
changes to curb abuses at for-profit colleges, though he won't
introduce anything to the Senate Committee on Health, Education,
Labor and Pensions until after the mid-term election.
That timeline, along with vocal Republican opposition to the
tenor of the committee's hearings on the industry, eased worries
among for-profit school backers that harsh legislation is a sure
thing. Though Harkin said he will propose legislation next year,
any shift in the party makeup of Congress could hurt his chances of
pushing it through.
Schools' stocks rallied as a HELP committee hearing entitled,
"The Federal Investment in For-Profit Education: Are Students
Succeeding?" came to a close Thursday.
Shares of ITT Educational Services Inc. (ESI) recently were up
7% to $70.41 and Corinthian Colleges Inc. (COCO) gained 8.4% to
$7.09, while Education Management Corp. (EDMC) was up 13.8% to
$13.42. Those three companies are considered among the most
vulnerable in case of legislative change, with high student debt
loads and loan default rates.
"There was more evidence that there was greater Republican
pushback," said Stifel, Nicolaus & Co. analyst Jerry Herman,
adding that the elections will help determine where the discussion
can go. Sen. Mike Enzi (R., Wy.) walked out in protest after
issuing his opening statement, saying the hearings should include
criticism of student outcomes at non-profit and public schools,
too. Sen. John McCain (R,. Ariz.) only appeared in order to read
his prepared remarks and said he hoped the hearings would have a
different tenor in January. The only other Republican present, Sen.
Richard Burr (R., N.C.), asked why an Education Management
employee, who alleged at the hearing the company encouraged staff
to over-report job placement figures, wouldn't help the company
with an internal investigation.
Still, Sen. Harkin said he doesn't intend to stop investigating
for-profit colleges. "There is irrefutable evidence that something
has gone wrong with this industry," Harkin said, outlining a system
in which schools take money from taxpayers via federal loans and
grants and funnel it through "poor kids" on which they prey with
aggressive marketing campaigns, ultimately pocketing the
profits.
Harkin released a report Thursday morning showing that
for-profit schools have high dropout rates and their students take
out loans at rates higher than their counterparts in non-profit and
public schools. He had commissioned data from 30 for-profit schools
after the U.S. Government Accountability Office last month released
the results of an undercover investigation showing representatives
at all 15 schools that agency visited had offered misleading or
even fraudulent information to boost enrollment.
Harkin seemed "emboldened" by the numbers in his report, said
William Blair & Co. analyst Brandon Dobell, though he added
that the data points aren't new.
Even if Republicans on the HELP committee do pull support for
further hearings, for-profit colleges aren't yet in the clear. The
U.S. Department of Education this summer proposed a series of new
rules governing a number of topics in higher education, including
recruiter compensation and the definition of a credit hour. The
department is also planning to issue a rule that would penalize
programs for graduating students with high debt loads, an attempt
to measure how well programs prepare students for gainful
employment in a recognized occupation. The department will issue
final rules for 13 of the 14 topics before the November election,
waiting until early 2011 to publish the "gainful employment" rule.
A number of programs could lose access to federal student aid, from
which they derive much of their revenue, if the rule is implemented
as proposed.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
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