students who wish to participate in the program must first meet a needs test. The federal government guarantees the loans, pays the student's interest until six months after leaving school and pays to the lender a differential between the student's interest and market interest rates thereafter.

Unlike Pell Grants and the other student aid programs, the level of GSL benefits does not depend on annual appropriations; it is an an entitlement to those who meet the eligibility criteria.

The GSL program was originally intended to serve middle-class students at high-cost private colleges. That is how the program typically worked until the tight budgetary constraints of the 1980s, when eligibility for Pell Grants was restricted and Pell Grant purchasing power declined. GSL, however, remained a reliable source of $2,500 in loans to those who qualified.

As a result, low-income students at proprietary and low-cost colleges began turning to loans to finance a greater portion of their education. For example, while 31.5 percent of students relied on Pell Grants in 1978, only 19.9 percent received them in 1985. At the same time, the percentage of students receiving GSLs rose from 10.4 percent to 23.4 percent by 1985.

GSL loan volume in FY 79 was less than $3 billion; nearly a decade later, GSL loan volume was over $9 billion. At the same time, the proportion of Stafford Loans going to proprietary school students rose precipitously: between FY 1985 and FY 1987, the proportion jumped from 27 percent to 35 percent.

Supplemental Loans for Students: Created in 1986 when the Stafford Loan program became need based, the Supplemental Loans for Students (SLS) program provides loans of up to $4,000 to any student regardless of financial need. SLS loans are guaranteed by the federal government, although, unlike Stafford loans, the student interest rate is not subsidized. As soon as SLS was implemented, the program became a major source of revenue for proprietary schools. More than half of the $2 billion in new loans made each year went to students at proprietary schools, which produced over 80 percent of the program's fast-growing default rate.

PROBLEMS AT PROPRIETARY
SCHOOLS

Starting in the mid-1980's, proprietary schools increasingly began to be cited as a major "problem" by federal and state agencies. This was precipitated in large part by a dramatic rise in federal loan defaults, especially at proprietary schools, and a drumbeat

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of bad press about sharp financial dealings and poor educational quality in the trade school industry.

THE GUARANTEED LOAN DEFAULT SITUATION

Between 1981 and 1989, Stafford Loan default costs skyrocketed from $235 million to $1.8 billion. Almost 37 percent of the money spent on the student loan program in 1989 went to cover defaulted loans. So great were default costs that then Education Secretary Bennett contended that, in 1987, paying off defaulted loans was the thirdlargest expenditure in the entire U.S. Education Department budget.

The default rate for proprietary schools, according to the Education Department, has been about 40 percent. This compares to about 20 percent for two-year colleges and about 9 percent for four-year colleges. Although proprietary schools maintain that their default rates are merely a reflection of their low-income, minority clientele, default rates at proprietary schools have been higher even when income is held constant. Looking at default rates based on family income:

In 1987, Education Secretary Bennett received great national publicity by recommending sanctions against all institutions with default rates above 20 percent, singling out proprietary schools for special criticism. He even went so far as to say that 40 percent of the nation's private proprietary schools "cheat" their students. Proposing modified regulations in 1989, Education Secretary Cavasos noted that 164 of the 188 schools with the highest default rates were proprietary schools, including all of the top-ten defaulters. And a recent study in California found that almost three out of four of the schools with default rates of 20 percent or more were private proprietary schools.

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THE PRACTICES BEHIND THE PROBLEMS

As loan defaults began to hit the front page, it became clear that, in general, defaults were not a problem for satisfied graduates of reputable schools earning a decent living. But defaults were most assuredly a problem for people who did not complete school (especially those who left very early), for those who did not find good jobs and for those who were not satisfied with their education. A disproportionate number of these students seemed to come from proprietary schools.

More and more observers came to believe that the for-profit nature of proprietary education led too many schools to recruit unqualified students, to charge them too much and to give them far less than they needed to succeed in their chosen occupations. Horror stories began to appear in the press about proprietary school practices and about inadequate supervision by the agencies charged with regulating proprietary school behavior. The schools came under particular criticism for their recruitment practices, their educational practices and their financial practices.

RECRUITMENT PRACTICES

Driven by the need to maximize profits, proprietary schools have been criticised for using shady advertising techniques and employing commissioned recruiters to lure unqualified students with false promises.

In 1984, a General Accounting Office study found that 66 percent of the proprietary schools in its sample misrepresented themselves to varying degrees, with 34 percent using misleading advertising. In 1988, a report prepared for the U.S. Education Department by Pelavin Associates found that many problems were "common," including recruiting students from unemployment lines, improperly guaranteeing financial aid and employment, and deceptive advertising practices such as presenting the school's training program in the employment section of the newspaper giving the appearance of offering a job.

At the same time, newspapers began to print exposes of commissioned recruiters accosting people as they headed into welfare offices and bussing them to proprietary offices, making inflated promises about the nature and value of their training, signing them up for government loans without the students properly understanding their obligations, and receiving a commission as much as $500 for each person they sign up.

Most of all, proprietary schools have been criticized for recruiting students who are not really prepared for training. The schools are accused of giving students inadequate tests and counselling before admission and then providing them with little or no remediation after admission.

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At the Memphis School of Commerce, for example, the Education Department Inspector General found that more than half of the 2,370 students reviewed had not properly passed the required entrance test and that school staff helped students on the test and counted incorrect answers as correct. While the audit found that the school had a job-placement rate of only 13 percent, admissions staff members were instructed to tell students that 90 percent of their graduates were placed in jobs.

At a New York State Assembly hearing last year, Angelo Aponte, Commissioner of New York City's Consumer Affairs Department, told of Spanish-speaking students recruited for computer courses taught in English. A vocational counselor at a shelter for mentally retarded adults reported that trade schools were luring her impaired clients with promises of good jobs. People with IQs of 64 and 65 were told they had passed qualifying tests for business schools and travel agent courses. "None of our mentally retarded clients ever reported that they'd failed the admissions test," the counselor said.

In a report on trade school practices toward New York City welfare recipients prepared by INTERFACE, most of the schools studied were found to admit students on the basis of their ability to secure financial aid rather than their ability to complete the course of study. The report also found that fewer than one in four of the students found work in the field for which they had enrolled, and nearly all regretted having attended the schools.

Particular attention has been focused on the practice of recruiting non-high school graduates. Proprietary school data indicate that 9.38 percent of their students had not completed any kind of high school certification at the time of admission; a 1984 GAO report found that 18 percent of its sample of proprietary school students receiving Pell Grants were “ability-to-benefit” students. The 1984 GAO study found that about 10 percent of the schools administering an ability-to-benefit test allowed students to retake entrance exams until they received passing scores, sometimes repeatedly on the same day. The study also found evidence that such students were more likely to drop out than students who passed the test the first time.

EDUCATIONAL PRACTICES

Because proprietary schools need to maximize revenues and minimize expenses, they are often accused of not providing the physical plant, equipment or staff needed for a quality trade education. Newspaper reports document incidents in which students use outdated equipment, wait in line for a turn at the computers or rely on a fellow student's car breaking down in automotive class to have something to work on.

A Missouri newspaper report in 1988 showed wide variation in quality of proprietary school instruction. Many schools have large staff turnover, and, as a result, quality can

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improve or worsen rapidly, according to the assistant commissioner of the Missouri Department of Higher Education. At schools in the St. Louis area, teachers were mainly part-timers paid hourly wages that ranged between $5 and $7. The degrees held by proprietary school teachers also vary widely. The business school accrediting agency reported that it "generally" requires teachers at its schools to have either a college degree or two years of work experience in their teaching field, but standards are far from uniform.

The 1984 GAO study found that 11 percent of the proprietary schools in its sample had no written standards for academic progress, and 14 percent had inadequate standards. Of those schools with written standards, fully 83 percent did not consistently enforce them. This allowed many students to graduate without the proper skills to seek employment in their “field.”

Two practices have come under particular attack: "rolling admissions" and "course stretching." Under the rolling admissions system there are no semesters - students can be admitted virtually at any time during a course; therefore, beginning and advanced students are mixed in the same class.

Course stretching is artificially making courses longer than they need to be in order to qualify for federal aid. Under the Pell Grant program, programs must be at least 600 hours long; under Stafford Loans, only 300 hours are required. For example, the Inspector General of the Education Department found that proprietary schools were requiring 300 to 700 hours in class for security guard programs although no state requires more than 60 hours of instruction to get a license. A 30-hour course that met Texas requirements was found to cost $100 at a local community college, while longer proprietary school programs cost between $2,500 and $3,800. Overall, the report found that profit-making schools are "more vulnerable to waste, fraud and abuse" than others.

A 1989 report by the Texas Guaranteed Student Loan Corporation targeted borrowing by students in 300 to 600 clock-hour programs as a special concern. In FY 87, the Texas corporation guaranteed $8.6 million in loans to students in short-term programs. In FY 88, the corporation guaranteed $92.2 million, an increase of more than 1,000 percent. Students attending these programs were found to have default rates of 48 percent, compared to 36 percent for all proprietary schools and 19 percent overall. And the debt burden incurred by these students "will often be too great for their low-paying jobs to finance," the report said.

POOR RETENTION AND PLACEMENT

The inevitable result of practices such as these, critics of the proprietary school industry maintain, is that too many people will drop out of school and that too few of those who do graduate will find employment in their chosen field. The litany of concerns is replete with examples such as this.