Mr. LONGANECKER. Yes.

Mr. SHAYS [continuing]. Two to one loan to grant?

Mr. LONGANECKER. Yes. Now, there's nothing wrong with borrowing for an education, because it's the best investment you'll ever make in your life. But there is something wrong with forcing people to borrow too much for that investment.

Mr. SHAYS. I thank the panel very much. Mr. Bloom, it's nice to have you here and I look forward to you returning. And, Mr. Longanecker, I didn't say your name correctly; Longanecker.

Mr. LONGANECKER. There it is; that's right.

Mr. SHAYS. And, Mr. Howard, do you have a closing comment? If any of the three of you have a comment, I'm happy to hear it. You were very animated; you were about to speak many different times. If there is any comment, any observation you'd like to make.

Mr. HOWARD. I think there's one observation I'd like to make with the chart over here. I would say that the Department in its accrediting agency recognition process has tried to send a stern message to the accrediting agencies that they are required to develop the standards. In our audit report that we issued last year we reported that, even if they are developing those standards, we don't see where the accrediting agencies are going to use them to actually withdraw accreditation from schools.

Mr. SHAYS. I think I am least impressed with the whole accrediting process as I'm hearing it. I am curious what the third panel will share with us. I mean, it would seem to me, if they're really doing their job, they're weeding out more than 45 organizations nationally. I would agree that there has to be some significant standards. I also understand that when you take away an accreditation, you basically shut them down.

Mr. HOWARD. Yes.

Mr. SHAYS. But another comment on the process is that even the very best schools become not addicted, but totally dependent on this long process in order to function. It's pretty incredible actually. Mr. HOWARD. Yes.

Mr. SHAYS. I thank all of you for coming and I really appreciate your testimony.

Mr. LONGANECKER. Thank you.

Mr. SHAYS. We'll conclude this hearing by having come before us Letha Barnes, chairman of the American Association of Cosmetology Schools, not an accrediting organization, but I'm very grateful that you're here to testify. Thomas Kube, executive director of the Accrediting Commission of Career Schools and Colleges of Technology; and P. Alistair MacKinnon, coordinator of Federal education legislation for the New York State Department of Education. And thank you. Please remain standing. If I could swear you all in.

Are you all together? In case you have to respond to questions, if you'd all raise your right hands.

[Witnesses sworn.]

Mr. SHAYS. For the record, all of our participants have responded in the affirmative. We will start with Letha Barnes, then go with Thomas Kube, and then we'll go to Mr. MacKinnon. I appreciate your patience and willingness to stay until 4:30 to testify. Thank you.

STATEMENTS OF LETHA BARNES, CHAIRMAN OF THE AMERICAN ASSOCIATION OF COSMETOLOGY SCHOOLS; THOMAS KUBE, EXECUTIVE DIRECTOR OF THE ACCREDITING COMMISSION OF CAREER SCHOOLS AND COLLEGES OF TECHNOLOGY [ACCSCT]; AND P. ALISTAIR MacKINNON, COORDINATOR OF FEDERAL EDUCATION LÉGISLATION FOR THE NEW YORK STATE DEPARTMENT OF EDUCATION, ACCOMPANIED BY THOMAS MCCORD, COORDINATOR, OFFICE OF RESEARCH AND INFORMATION SYSTEMS FOR HIGHER AND PROFESSIONAL EDUCATION, AND NANCY WILLIE-SCHIFF, ASSOCIATE IN HIGHER EDUCATION

Ms. BARNES. Mr. Chairman, members of the committee, good afternoon. As you said, my name is Letha Barnes. I'm chairman of the American Association of Cosmetology Schools. And as you stated, we are not an accrediting agency, but the schools that are affected by all of these regulations. It is a privilege to be here. Thank you for having us.

I also shall depart from my prepared comments, in the interest of time, and in an effort to hopefully to respond to many of the comments that we've heard earlier today.

Mr. SHAYS. Let me say to you, that one of the values of having you come later is that you can respond to the questions we've already asked. If you do so, you really will be hitting some of our main interests.

Ms. BARNES. I'll do my best to do so and be happy to answer any questions later. And I do refer you also to our detailed written testimony, because it does contain a lot more specific information about our particular types of institutions and how they are affected by the regulations.

I think one of the problems that we currently see with the triad is the fact that there is no valid definition of a quality institution. And, second, sometimes there seems to be an apparent effort to simply eliminate all proprietary institutions from participation in the programs.

There are currently extensive regulations that measure administrative capability, financial responsibility, educational effectiveness, and so forth. But the requirements have not seemed to work necessarily to remove the poor schools or the bad schools. But, more importantly, the requirements haven't seemed to work to keep the quality schools in the program.

And I think, contrary to maybe a misconception or in light of a misconception about job opportunities in our field, we are not currently meeting the supply and demand needs of our industry. There are far more job openings than we can provide graduates for. So the data that are sometimes available at the Federal level are not consistent with what's really happening. So it's very important in light of that, that we do keep the quality schools in the programs.

The plain and simple fact is that we have proprietary institutions which meet all of the requirements imposed by each leg of the triad that are still being suspended from participation in the title IV programs due to one single factor. And that's the one that we've been having so much discussion about, the cohort default rate.

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As an example, one of our member schools that has two schools located in the same State one of the schools is an inner-city, one is in a suburban area. Both of the institutions have the same administrative personnel and procedures. They offer the same courses in curriculum. Their faculty attend similar professional development programs and so forth. And they follow the exact same default management plan.

Both of the institutions have successfully undergone accreditation reviews within the past 6 months. Both have undergone a guarantee student loan agency program review within the last month where there were no file findings at all. They have completed annual compliance audits with no findings. They both have healthy financial statements.

And, finally, they have high outcomes with regard to completion, licensure, and placement of their graduates.

However, the inner-city campus has 3 years over the 25-percent cohort default rate. And the suburban campus has consistently maintained rates of 10 percent or below.

Mr. SHAYS. How much higher than the 25-percent rate?

Ms. BARNES. I believe in the 30's. I mean not over 30's; from 25 to 35 perhaps.

As a result of using the default rates, though, the inner-city campus is going to lose eligibility to participate in both the loan and the grant program later this year. This is an institution that's been in existence for 40 years. And it's no longer going to be able to provide quality education when that occurs.

Mr. SHAYS. Since you're ad-libbing here, let me just ask you this question: Can the two schools combine and use a singular default rate? I mean, it's a good illustration because, obviously, there are some schools that are in inner cities. So you're trying to make a point, and I'm asking another point.

Could these two schools be basically considered one school?

Ms. BARNES. Logistically, absolutely not, and they wouldn't be able to serve the same market if they were to try to do so. And there are specific regulations that address that, and we have people here that can address it better than I from the Department. But, no, that would not be a realistic approach to this problem.

And I think another relevant point: Once the school closes, who is going to serve those needy students? They are needy citizens of this country that need access to education.

One relevant point to this to be added is that, in both cases, all of the years of default rate data available for these institutions are incorrect. And the institutions have made numerous attempts with the State agency and the Department to get the rates corrected. And they have been unable to do that.

So you see, in terms of the measure of quality of an institution shutting their doors when, in fact, the quality exists there and they're being taken out of the programs based on data that are not even accurate. It's a big concern.

Earlier today in one of the testimonies, there was discussion about what was causing the default rate and whether perhaps bankruptcy was a factor. But, frankly, we see it as a proprietary institution, clearly see it in the formula. And I'm sure you're aware that the default rates are based on the number of borrowers enter

ing repayment rather than the amount of dollars at all. So, for an institution that is the size of one of our average institutions of maybe 40 students, it's a whole lot easier to get to a 30-percent default rate if you only have 30 borrowers entering repayment than if you have hundreds or thousands.

So it's a big factor. There is a flaw in the formula.
Mr. SHAYS. Will you state that over again?

Ms. BARNES. Well, the formula for calculating an institutional cohort default rate is based on the number of borrowers entering repayment.

Mr. SHAYS. Right.

Ms. BARNES. For example, the first year that we had-I have a very small school in the Southwest. The first year that student loans were published-fortunately I've been lower than this ever since. But, for the first year that we have I believe it's 1987-my institution had a 31.6 default rate. That was based on-I can't remember, how many-at the time, I can't remember how many borrowers, but I think I had eight defaulters, and it was based on a total of $8,000. But I had a reflected default rate of 31.6. Fortunately, we were able to bring that down.

And another relevant point that I think Mr. Towns was making about Pennsylvania: At that time, my institution was having their loans guaranteed-the institution was new to me. That institution was having its loans guaranteed out-of-State. My school happens to be in the State of New Mexico.

Since that time, the rate has consistently gone down, because New Mexico is clearly one of the best guarantee agencies in this country; they do their job. They litigate. They garnish wages. They garnish tax returns. They do what Dr. Longanecker referenced to, but they do it before the student defaults; big difference, a very big difference.

If the Department can do it after it has gone into a defaultMr. SHAYS. Now, you're talking about the State department or the Federal Department?

Ms. BARNES. I'm talking about the Department of Education. When I said if the Department of Education can collect the loans after they've been in default

Mr. SHAYS. I'm sorry. You're talking with someone who is dealing with a lot of other issues, so I'm not as close to this as you are. Ms. BARNES. OK.

Mr. SHAYS. You were boasting about what New Mexico

Ms. BARNES. The New Mexico Guarantee Student Loan Corp., I apologize.

Mr. SHAYS. Thank you. OK. So you're saying that they go after the loans before they default.

Ms. BARNES. Yes. In fact, they make every attempt to collect the loan, rather than sit back and collect the Federal guarantee. So, therefore, the effort is made. And even though I would like to think we do a good job in my institution in default management, I can't take credit for that, because they do their job so effectively.

Mr. SHAYS. That's very interesting.

Ms. BARNES. So it clearly makes a difference. And I would not disagree with Mr. Towns' recommendation that all the guarantee agencies had similar programs and training, so that we could count

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 Education.

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?