billion to $14.6 billion between 1986-87 and 1992-93, but dollars going to proprietary schools fell from $3.2 billion to $1.7 billion.

Figure 1: Declining Share of Title IV Dollars Going to Proprietary Schools

The proportion of proprietary school students receiving Title IV aid has been declining as well, although these students remain more likely than others to receive aid. The proportion receiving

"These figures include subsidized Stafford loans, Parent Loans for Undergraduate Students, and Supplemental Loans for Students, but not unsubsidized Stafford loans.

aid fell from nearly 80 percent in 1986-87 to about 67 percent in 1992-93, while the proportion of students receiving aid at the public and private nonprofit schools remained steady.

Furthermore, for proprietary school students who receive aid, the average dollar amount has risen more slowly than for students in other sectors. Average aid received by proprietary school students went up by 20 percent between 1986-87 and 1992-93; in contrast, the increase was 34 percent for public school students and 47 percent for private nonprofit school students.

Default Rates

Loan default rates for proprietary school students have been declining in recent years, from 36.2 percent in 1991 to 23.9 percent in 1993 (see fig. 2), while default rates in other sectors have not changed. However, students at proprietary schools are still more likely than others to default on student loans. The most recent rates for 2- and 4-year nonprofit schools were 14 and 7 percent, respectively.

Figure 2: Default Rates for Students at Proprietary Schools Have Declined but Are Still Higher Than Those at Nonprofit Schools

The 85-15 Rule

One new measure adopted in the 1992 HEA amendments to help tighten eligibility for Title IV student financial aid programs was the so-called 85-15 rule. This provision prohibits proprietary schools from participating in Title IV programs if more than 85 percent of their revenues come from these programs. The presumption under the rule is that if proprietary schools are providing good services, they should be able to attract a reasonable percentage of their revenues from sources other than Title IV programs. In other words, the 85-15 rule is based on the notion that proprietary schools which rely overwhelmingly on Title IV funds may be poorly performing institutions that do not serve their students well and may be misusing student aid programs, and therefore should not be subsidized with federal student aid dollars.

Since the 85-15 rule went into effect last July, proprietary schools that fail to meet the standard must report this to the Department within 90 days following the end of their fiscal year. Schools that meet the standard must include a statement attesting to that fact in their audited financial statements due to the Department within 120 days following the end of their fiscal year. The period has now elapsed for the vast majority of schools. far, however, only four proprietary schools have notified the Department of their failure to meet the 85-15 standard.

Thus

For

This finding may have a variety of possible explanations. example, it may be that very few schools actually had more than 85 percent of their revenues coming from Title IV when the rule became law or that most such schools adjusted their operations to meet the standard when it took effect. Conversely, the actual number of schools that failed to meet the 85-15 standard could be substantially higher. 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 85-15 standard. These schools may have met the 85-15 standard but misunderstood the reporting rules, or they may have failed to meet the 85-15 standard and intentionally not reported this fact in an attempt to avoid or postpone losing their Title IV eligibility.

At the Chairman's request, we recently initiated a study to address the core of this issue: Is there a clear relationship between reliance on Title IV revenues and school performance? Using data from national accrediting associations, state oversight agencies, and the Department, we will attempt to determine whether greater reliance on Title IV funds is associated with poorer outcomes, such as lower graduation and placement rates.

Title IV-Funded Training and Labor-Market Conditions

Annually, students receive over $3 billion from Title IV programs to attend postsecondary institutions that offer Occupational training without regard to labor market circumstances. While Department regulations stipulate that proprietary schools-the principal vendors of occupational education and training under Title IV--provide instruction to prepare students for gainful employment in a recognized occupation, schools are not required to consider students' likelihood of securing such employment. Students who enroll in occupational education programs, obtain grants, and incur significant debt often risk being unable to find work because they have been trained for fields in which no job demand exists. Proprietary school students are particularly vulnerable in this situation because, according to current research, unlike university graduates, they are less likely to relocate outside of their surrounding geographic region."

The Department's Inspector General (IG) recently estimated that about $725 million in Title IV funds are spent annually to train cosmetology students at proprietary schools, yet the supply of cosmetologists routinely exceeds demand. For example, in 1990, 96,000 cosmetologists were trained nationwide, adding to a labor market already supplied with 1.8 million licensed cosmetologists. For that year, according to the Bureau of Labor Statistics, only 597,000 people found employment as cosmetologists, about one-third of all licensed cosmetologists. In Texas, the IG also found that, not surprisingly, the default rate for cosmetology students exceeded 40 percent in 1990.

At the Chairman's request, we have also initiated a study to address this issue. States have information readily available to project future employment opportunity trends by occupation. We are analyzing its usefulness in identifying occupations that, in the short term, have an over- or undersupply of trained workers. Using this data in conjunction with databases from the Department, we hope to determine the pervasiveness of this problem and the Title IV costs associated with it. We expect to report our results on this matter to you early next year.

"Axel Borsch-Supan, "Education and its Double-Edged Impact on Mobility," Economics of Education Review, Vol. 9, No. 1 (1990), pp. 39-53.

Mr Chairman, this concludes my prepared remarks, and, as I mentioned, we will be reporting to you in the near future on the results of our ongoing work for the Subcommittee. answer any questions you may have at this time.

I am happy to

For more information about this testimony, please call Wayne B. Upshaw at (202) 512-7006 or C. Jeff Appel at (617) 565-7513. Other major contributors to this testimony included Ben Jordan, Nancy Kinter-Meyer, Gene Kuehneman, Carol Patey, Jill Schamberger, Tim Silva, and Jim Spaulding.

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