Statement of Representative Gene Green Subcommittee on Human Resources and Intergovernmental Relations June 6, 1996 Thank you, Mr. Chairman, for calling this One problem that the Higher Education Act I look forward to exploring this and other issues involving the Higher Education Act at this afternoon's hearing. Thank you, Mr. Chairman. Mr. SHAYS. It's nice to have that dual role. Before calling our witnesses to come forward, I would get two housekeeping items out of the way. I ask unanimous consent that all members of the subcommittee be permitted to place any opening statements in the record and that the record remain open for 3 days for that purpose. Without objection, so ordered. I also ask unanimous consent that our witnesses be permitted to include their written statements in the record. Without objection, so ordered. First, I'd like to apologize to those who don't seem to have any seats here. At this time, I would like to call our witnesses. Or, actually, only one first: Cornelia Blanchette, Associate Director, Education and Employment Issues, the General Accounting Office, GAO. I will be swearing you in. Will anyone else be making comments, because if they will, I'd like them to be sworn in, as well. Ms. BLANCHETTE. No, sir, just the three of us. Mr. SHAYS. But the three of you will be testifying, so I'll need your names for the record. But first, if I could swear you in. [Witnesses sworn.] Mr. SHAYS. For the record, our three witnesses have responded in the affirmative. Ms. Blanchette, you will be giving a statement, but I am assuming all three are prepared to answer questions; is that correct? Ms. BLANCHETTE. That's right. Mr. SHAYS. If you could, would you just identify yourself for the recorder, just so we have your name and your position. Mr. UPSHAW. Wayne Upshaw, Assistant Director, General Accounting Office. Mr. SHAYS. Thank you. And? Mr. APPEL. I'm Jeff Appel, senior evaluator, General Accounting Office. Mr. SHAYS. Jeff, I'm sorry, what is your last name? Mr. APPEL. Appel, A-p-p-e-1. Mr. SHAYS. Does the recorder have the names? Thank you. STATEMENTS OF CORNELIA M. BLANCHETTE, ASSOCIATE DI- Ms. BLANCHETTE. Thank you, Mr. Chairman. Mr. Chairman and members of the subcommittee, we are pleased to be here today to assist the subcommittee in its oversight of education. As you know, the Department administers an array of student financial aid programs under title IV of the Higher Education Act. In fiscal year 1995, the Federal Government made about $35 billion available to 7 million students in postsecondary institutions, including proprietary schools, which are the focus of our remarks today. Since the late 1980's, the Department's IG, the Congress, and GAO have all found that extensive fraud and abuse exists in student aid programs. Student loan defaults are one of the more visible results of this fraud and abuse. Between fiscal years 1983 and 1993, annual Federal payments to honor default claims increased over 400 percent. Annually, about 1 million students enroll in about 5,000 proprietary schools. These schools account for about half of all postsecondary institutions and make an important contribution by providing skilled training to the non-college-bound. However, the actions of some proprietary schools have been at the core of concerns about the integrity of title IV programs. Today, we will discuss our observations of proprietary schools resulting from ongoing work that we are doing for the subcommittee. Most proprietary schools have fewer than 100 students and offer occupational training of 2 years or less in fields ranging from interior design to computer programming. Compared with nonprofit institutions, proprietary schools enroll higher percentages of women, minorities, and low-income students. Fewer proprietary schools participate in title IV programs now than 5 years ago, a trend that reflects the decreased number of schools accredited by the six primary accrediting agencies. Proprietary schools receive a much smaller share of title IV aid dollars now than in the past. For example, nearly 35 percent of all subsidized Stafford loan dollars went to students attending proprietary schools in the 1986-87 school year. But by the 1992-93 school year, the percentage had declined to 10 percent. The proportion of proprietary school students receiving title IV aid has also been declining. The proportion receiving aid fell from nearly 80 percent in the 1986-87 school year to about 67 percent in the 1992-93 school year. The proportion of students receiving aid in nonprofit schools remain steady. While the default rates for proprietary school students are still far above those associated with nonprofit schools, the rates have declined 12 percentage points over the past few years, whereas default rates for other sectors have remained essentially the same. One of the title IV eligibility provisions adopted in the 1992 Higher Education Act amendments, the 85-15 rule, went into effect last July. Proprietary schools that do not receive at least 15 percent of their revenue from sources other than title IV programs must report this to the Department. Or they lose their eligibility for such programs. Schools that meet the 15-percent standard must include a statement attesting to that fact in their audited financial statements. Thus far, only four proprietary schools have notified the Department that they did not meet the standard. Further, according to the Department, about 25 percent of the 830 proprietary schools that submitted financial statements during the past 2 months have not properly documented whether they met the standard. Although we're not sure what underlying conditions nonreporting reflects, there is a bigger issue. At the chairman's request, we recently initiated a study to address the core issue. Is there a clear relationship between reliance on title IV revenues and school performance? One final observation. Students enrolled in occupational training programs, who obtain grants and incur debt, often risk being unable to find work because they have been trained for fields in which insufficient job demand exists. At the chairman's request, we have also initiated a study to address this issue. In summary, to try to resolve longstanding concerns, the Congress sought to strengthen title IV oversight by amending the Higher Education Act in 1992. Recent trend data shows some signs of progress. Fewer proprietary schools are credited. Proprietary schools' share of title IV funding has declined. And the default rate for proprietary school students is falling. The trends, however, do not eliminate concern about the quality of proprietary schools. While proprietary school students' default rates have declined, they remain substantially higher than those for their peers who attend nonprofit schools. Mr. Chairman, this concludes our prepared remarks. We're happy to answer any questions you have. [The prepared statement of Ms. Blanchette follows:] Mr. Chairman and Members of the Subcommittee: We are pleased to be here today to assist the Subcommittee in its oversight responsibilities for the Department of Education. The Department administers an array of student financial aid programs under Title IV of the Higher Education Act (HEA) of 1965, as amended. These programs provide grants, loans, and work-study support to students pursuing postsecondary education. In fiscal year 1995, under Title IV, the federal government made about $35.2 billion available to about 7 million postsecondary students with $5.4 billion (15 percent) for Pell grants and $14.3 billion (41 percent) for subsidized Stafford loans--two of the three largest Title IV programs. A considerable history of concern exists about the integrity of Title IV programs, particularly the federal student loan programs. Since the late 1980s, the Department's Office of Inspector General, the Congress, and GAO have all concluded after completing several investigations that extensive fraud and abuse exist in student aid programs. Between fiscal years 1983 and 1993, annual federal payments to honor default claims increased over 400 percent, from $445 million to $2.4 billion.' Annually, almost 1 million students enroll in about 5,000 proprietary (private for-profit) schools that represent about 50 percent of all postsecondary institutions. As a sector of the postsecondary education community, proprietary institutions make an important contribution to the nation's economic competitiveness by providing occupational training to those who are not college-bound. However, the actions of some proprietary school owners have been at the core of program concerns given past findings. For example, some proprietary school operators have enriched themselves at the expense of economically disadvantaged students while providing little or no education in return. Faced with large debts and no new marketable skills, these students often defaulted on their loans. In fact, default rates for proprietary school students peaked at around 41 percent in 1990 at a time when the student loan default rate for all postsecondary students averaged about 22 percent. Title IV established financial aid programs for students attending institutions of higher education and vocational schools and includes the Federal Family Educational Loan Program and the Federal Direct Student Loan Program. Both offer subsidized and unsubsidized Stafford loans and Parent Loans for Undergraduate Students. Title IV also established the Federal Pell Grant Program and the Federal Perkins Loan Program. 'At the time of our review, the Department of Education did not maintain data disaggregated by type of institution on federal payments for default claims. |