on that same type of consistency from State to State. I think you would see a dramatic difference. Mr. SHAYS. So what I should have asked the previous panels is what States have better default rates; in other words, lower default rates. Ms. BARNES. I think it's clearly a relevant issue, Mr. Chairman, that you find out, and find out what those States are doing that make their rates so much better than the other States. Having personal experience from multiple guarantors in multiple States, it definitely makes a difference. As far as the accrediting agency role in the triad, we agree that it is an essential component. However, I feel that the role of the accrediting agency should be returned to what it was initially intended. And that is, to determine educational standards and quality of instruction in the institutions. That role has evolved over the years to become more as a gatekeeper-not only a gatekeeper, but they have standards within their recognition process that require them to do almost identical reviews as the Department of Edu cation. Two of the elements that an accrediting agency must evaluate schools under are default rates and compliance with all title IV regulations. So now the accreditor, who used to be able to focus on quality of education, evaluates the institution also in terms of their compliance with all of these other regulations. So there is a redundancy and an overlap which seems to have, I think, weakened what that particular role of that leg of the triad should be. And at the same time, perhaps the Department-and it sounds like from Dr. Longanecker's testimony that they have already made great strides toward this. But perhaps the Department should establish more regular and comprehensive program reviews of institutions. I know of institutions who have had from 7 to 17 years between program reviews. It's pretty difficult to determine where there is fraud and abuse or where there are problems with the system if they're not being reviewed any more timely than that. If reviews occurred for all institutions on a much shorter cycle, even the annual compliance audits that institutions have to undergo could perhaps be eliminated. If you think about a school being reviewed every 2 years, for example, the Department is going to discover where there are problems and be able to take action much, much sooner and save hundreds of thousands of perhaps misspent title IV dollars, rather than if it's 7 or 8 years between reviews of institutions. I expect they will all be at my school next week now that I've made that point. But I think it's relevant. We're spending-our schools do invest title IV dollars in our students. And those of us who are quality institutions do not have anything to fear from close regulatory scrutiny. And we are the ones that are being hurt by the institutions that are mendacious, that don't intend or never will be affected by even higher regulations and more regulations because they won't comply anyway. Mr. SHAYS. Please explain that to me; they won't comply anyway because? Ms. BARNES. Well, if they are a bad institution, if they are an institution that's already practicing fraud and abuse, if you are to pass more regulations for schools to comply with, the only ones that hurt from that are those of us who are trying to do a good job and make Mr. SHAYS. All right. I accept that. Ms. BARNES [continuing]. A conscious effort about quality. Mr. SHAYS. OK. If you could bring your testimony to a conclusion here then. Ms. BARNES. I think that the triad, as it exists, has some very good qualities. Certainly the States have a role in terms of eligibility for licensure protection of the consumer and enforcement of State statutes. I agree that the accrediting agencies should remain as a leg of the triad with a more focused role on educational standards. And those standards-I think if I can make one point today, that it's the standards that measure a quality institution are quality-qualitative outcomes measures that are applicable to the institution and the population that we serve; and the educational experience of the student at our institutions. One piece of the triad-or, I guess it wouldn't be a triad if we add a leg. But there is a partner in all of this that, at least in our industry, in the cosmetology industry, is very, very important and is not considered in. And that is, the employer. The employer of our graduates. That is who really regulates us. If we can't place our graduates in those jobs and in those salons down the street; and when you survey applicants to your institution and ask how they found out about you and they say, because they've asked every five salons in town which institution they would hire a graduate from and they say it was this one; those are the kinds of things that make a difference. And our accrediting agencies have done a lot to encourage, through advisory counsels and outcomes measures and so forth, to increase that relationship to ensure that we are providing these students with an education to put them into taxpaying rolls. [The prepared statement of Ms. Barnes follows:] STATEMENT BY THE AMERICAN ASSOCIATION OF COSMETOLOGY SCHOOLS BEFORE THE SUBCOMMITTEE ON HUMAN RESOURCES AND COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT The American Association of Cosmetology Schools (AACS) is a trade association representing approximately 600 proprietary cosmetology schools and the nearly 50,000 students attending those institutions. The premise of these hearings as outlined in the letter sent to AACS from Chairman Shays is: "The HEA is supposed to provide the framework for a shared responsibility among accrediting agencies, states and the federal government to ensure only quality institutions are allowed to participate. However, evidence suggests that the system is not keeping out schools that fail to provide quality education or training". AACS does not feel that the triad is working. The primary problem with the triad is that it is forcing quality schools to close, or at least leave the Title IV program. Quality institutions are being forced out of the Title IV program because the triad does not distinguish between quality and non-quality institutions. The current triad is designed to ensure that institutions participating in Title IV meet various administrative, financial, and educational standards. Yet, these are only three elements of quality. The triad is intended to be a partnership between the state licensing authority, accrediting agencies, and the U.S. Department of Education. Each leg of the triad was to have its own areas of responsibilities and standards. Those institutions that were capable of meeting all of the standards posed by each leg of the triad, were considered to have passed through the gateway to Title IV programs. The state licensing authority gives a school the privilege to operate in that state. The accrediting agencies were to ensure the institution is offering “quality” educational programming. Certainly, outcome assessments for completion and placement rates are a essential element of accreditation process. The Department of Education assures the school is complying with all regulations in implementing and administering Title IV funds. Schools which are complying with the rules of their state licensing board, their accrediting agency, and the Department of Education are considered to be quality schools and students attending the schools are eligible for Title IV financial assistance. There are two major problems which contribute most significantly to the failure of the triad. The first problem is the extreme over-reliance on default rates as a measure of quality, and the second is the deterioration of accrediting commissions' ability to measure educational (as opposed to administrative or financial) quality. DEFAULT RATES DO NOT MEASURE QUALITY Today a quality school is defined by the triad as a school with a low default rate. Under the current statute, any institution with a cohort default rate equal to, or greater than 25%, for three consecutive fiscal years loses its eligibility to participate in Title IV loans and Pell Grants.' The net effect being that institutions with high default rates are forced to discontinue Title IV participation - regardless of the institution's ability to meet all of the other gate keeping standards. AACS is not aware of a single study that has found any connection between cohort default rates and educational quality. Neither is AACS aware of any study linking high cohort default rates with abuse of Pell Grant funds, or of Title IV loans. The reasons such studies do not exist is obvious: cohort default rates simply do not measure academic quality. The threshold of 25% for three consecutive years is capricious. It is a number chosen without rational thought or study as to its appropriateness. Setting the threshold at 25% does not reflect the numerous variables among institutions. In establishing a meaningful threshold, Congress ought to consider the student population's demographics, the cost of tuition, the length of time involved to graduate, the nature of the courses offered, i.e. vocational or academic, and guaranty agency's record relative to defaulted loans. AACS would strongly urge the Subcommittee to review proposals to index these factors into the default rates apropos to properly taking into account the variables of each institution. The legislative history of the Higher Education Act illustrates Congress' incongruous awareness that cohort default rates are not indicators of quality, but of student bodies. Congress has previously exempted historically black colleges and universities from loss of loan eligibility due to high default rates. The rationale for this exemption was that HBCU's served a high percentage of disadvantaged or “at risk” students. The same is true for many trade schools -- particularly those in the inner cities. If the Congress truly believes that default rates are an indicator of quality -- then why are historically black colleges and universities exempted? Certainly Congress does not mean to imply that HBCU's are of low-quality, or that if they are of low-quality, they should be allowed nevertheless to participate in Title IV programs. Are the students attending HBCU's any less deserving of protection from low-quality institutions than other students? Even the Department of Education has recognized that default rates are not a true indicator of quality. In the December 1, 1995 Federal Register, the Secretary stated "...previous appeals show that postsecondary institutions most likely to have high FFEL 1 Section 512 of P.L. 104-134, the omnibus continuing resolution providing funding for the Department of Education for FY96, eliminates Pell Grant eligibility for institutions that lose their loan eligibility due to high default rates. This provision will go into effect July 1, 1996. Program2 cohort default rates are institutions that have higher percentages of low-income students than those institutions with low default rates". As the Secretary admits, defaults reflect the nature of the student body -- not the institution's educational quality. The most significant problem with default rates is that they are not used as one of several indicators of an institution's quality-but are used as if they were the only indicator. It is as if cohort default rates are the quintessence of an institution's quality. Many quality schools have been certified by the Department of Education, accredited, and licensed by their states. As part of the certification process, the Department has in place a complex set of regulatory tools that it uses to determine which institutions should be eligible for Title IV programs. For example, 34 CFR section 668.16 contains a variety of factors by which the Department determines an institution's administrative capability, including the institution's internal controls in administering Title IV programs, its maintenance of reasonable standards for assessing a student's progress at the institution, and its compliance with statutory and regulatory reporting requirements. Likewise, 34 CFR section 666.15 sets forth numerous standards of financial responsibility, such as whether the institution is current in its debt payments, its net assets or net worth, and its past performance with respect to Title IV obligations. Additionally, substantive requirements are enforced through the program participation agreement every institution must enter into with the Department under 34 CFR section 668.14 as a prerequisite to Title IV eligibility. However, if an institution has a “high” default rate--none of this matters. A high default rate trumps all of the other regulatory reviews an institution must undergo and pass to participate in Title IV. It is as though default rates alone are the sole indicator of quality. Congress cannot expect the triad to work when so much weight and importance is placed on default rates. The purpose of the triad is not to ensure that students repay their loans, it is to ensure that only those institutions that have a minimum level of administrative, financial, and educational standards participate in Title IV programs. There is simply no rational basis for draconian actions such as the loss of Pell Grant eligibility against an institution that satisfies the aforementioned entities carefully devised standards for program integrity. ACCREDITING COMMISSIONS ARE NOT PERFORMING THEIR INTENDED FUNCTIONS If the triad is to work properly, it should have three equal partners, each with distinct responsibilities. As Chairman Shays indicated in his letter inviting AACS to testify before the Subcommittee, a redundancy in responsibility leads to confusion of responsibility, and ultimately, no responsibility. The Higher Education Act requires accrediting agencies or commissions to have 2 Federal Family Educational Loans Program 3 Section 496(a)(5) |