Written testimonyfrom organizations not testifying Jane Azia, Bureau Chief Consumer Frauds & Protection Bureau New York Attorney General’s Office Donna Stelling-Gurnett, President The Association of Proprietary Colleges Robert Shireman, Senior Fellow The Century Foundation Scott Shaw, Chief Executive Officer Lincoln Educational Service Corporation (Lincoln Tech) Michael Petersen, Chief Financial and Operating Officer Institute of Culinary Education Leah Brink, Corporate Recruiter & Student/Intern Program Manager Daktronics, South Dakota Anthony A. Stanziani, Group President, Northeast DeVry College Katarina Rdultovskaia Consumer Written Testimony of Jane Azia Bureau Chief Consumer Frauds & Protection Bureau New York Attorney General’s Office New York State Senate Standing Committee on Higher Education Hearing on Oversight over For-Profit Schools April 10, 2019 Thank you for this opportunity to submit testimony to the New York State Senate Committee on Higher Education concerning oversight of for-profit colleges. Each year, thousands of New York students attend for-profit colleges. Unfortunately, many for-profit colleges lure student with false promises of economic success and leave students with few job prospects and insurmountable debt. In the past several years, our office’s investigations of for-profit colleges have revealed widespread abuses by for-profit schools. Despite the proliferation of such abuses, and of poor student outcomes in the for-profit sector, the current federal administration has substantially weakened federal oversight of for-profit colleges and dismantled many protections for for-profit college students. In the absence of adequate federal oversight of for-profit colleges, state-level action is critically needed to protect New York students and to safeguard New York taxpayers’ investment in higher education. A. State-level oversight over for-profit colleges is critically needed. Our office’s investigations of for-profit colleges have revealed widespread abuses in the sector, including deceptive claims about graduates’ employment and salary outcomes; misrepresentations of graduates’ eligibility for professional licensure; misrepresentations about students’ ability to transfer credits; and placement of students in loans that the schools knew their graduates would not be able to pay back. Our office’s investigations have led to multiple settlements with for-profit college operators and millions of dollars in restitution and debt relief to New York students.’ While our office’s enforcement actions ended abuses at a number of schools, enforcement actions alone cannot rectify the proliferation of low-quality, high-cost programs that leave students with enormous debt and bleak job prospects. To combat such poor outcomes, for- profit schools must be held to minimal accountability standards. The Obama Administration’s Department of Education created such standards in the form of the Gainful Employment Rule, 1 Our investigations have led to settlements with Career Education Corporation ($9.25 in restitution for students); EDMC ($2.3 million in restitution for students); DeVry University ($2.25 in restitution for students); a company that provided student loans to Corinthian Colleges, Inc. students ($2.4 million in restitution for students); and Flatiron Computer Coding School ($375,000 in restitution for students). 1 which linked for-profit college’s eligibility for federal funding to measures of graduates’ ability to repay their loans. Programs that failed to meet the benchmarks over several years would lose access to federal Title IV funds. This protected both students and taxpayers by ensuring that federal aid was not spent to fund programs that fail to prepare students for employment. The Gainful Employment Rule also required schools to disclose key information about student outcomes such as graduation rate, student debt, and student earnings, to prospective students. Unfortunately. after the change in administration, the U.S. Department of Education delayed the implementation of the Gainful Employment Rule and then announced a plan to rescind the Rule.2 In addition to scrapping the federal accountability standards and disclosure requirements of the Gainful Employment Rule, the Department of Education gutted a number of other federal protections for students. For example, the Department delayed the implementation of a rule that protected victims of for-profit school abuses, the Borrower Defense Rule. The Borrower Defense Rule established a process for students to apply for a discharge of their federal loans when their schools commit misconduct. The Rule also prohibited schools from forcing students to waive their right to bring court challenges against schools that defraud them. Our office, along with 18 other state attorneys general, brought a successful legal action to challenge the Department’s delay of the Borrower Defense Rule. In September 2018, the federal court hearing the states’ lawsuit ruled that the Department’s delay was unlawful.3 As a result, the Borrower Defense Rule is now in effect. However, the Department has started the process of replacing the rule with a much weaker rule. The Department of Education has also launched an effort to further weaken federal oversight of for-profit colleges by weakening accreditation standards and by easing restrictions on schools’ ability to outsource entire programs to non-regulated third-party entities. This will open the door to more abuses by unscrupulous for-profit schools. In the wake of these extensive rollbacks of federal regulation of for-profit colleges, stale-level action is critically needed to protect students in New York. B. State-level accountability standards would provide a meaningful check on for- profit schools. In light of the absence of adequate federal oversight of for-profit schools, state-level action is needed to protect students in New York. In particular, state-level accountability standards for for-profit colleges are needed to fill the void in federal accountability standards. Such standards would provide a meaningful check on for-profit schools by weeding out programs that fail to deliver value to students. One approach to state-level accountability’ standards would be to link such standards to eligibility for state financial aid. The accountability standards could include benchmarks for loan default rates, graduation rates, job placement rates, and/or graduate debt-to-income 2 Our office has joined other slates in a lawsuit challenging the Department’s delay of the Rule. That lawsuit is still pending. Baner v. De Vos, 325 F. Supp. 3d 74 (D.D.C. 201 8). 2 ratios. Programs that fail to meet the benchmarks over a period of several years would risk losing eligibility for state financial aid funds. Other states have successfully enacted for-profit accountability standards linked to eligibility for state financial aid. For example, in 2012, California enacted state laws that barred schools with extremely low graduation rates or high loan default rates from receiving state aid.4 This approach makes sense in New York, as well. New York provides more state funds to for- profit schools than any other state --$72 million in 2015 alone.5 Linking state funding to accountability standards would help to protect both New York students and taxpayers from investing in low-quality programs. However, not all for-profit colleges participate in state financial aid programs, and even those that do participate rely on state financial aid for only a part of their funding. Loss of state financial aid funding may not serve as a strong enough deterrent to ensure that for-profit schools do not offer high-cost, low-quality programs in New York. Lawmakers should consider linking accountability standards to schools’ continued eligibility to enroll new students in failing programs. For example, legislation could establish minimum graduation rates, job placement rates, loan default rates, and/or loan repayment rate standards and provide that programs that fail to meet these benchmarks over an extended period of time must cease enrolling new students. This would go a long ways towards protecting students and taxpayers from wasting funds on valueless programs. In addition to accountability standards, state lawmakers could consider imposing state- level consumer disclosure requirements on for-profit schools. Disclosures could potentially help prospective students compare programs and perhaps help some students avoid choosing low- quality programs. However, disclosures, by themselves, are insufficient to address the serious problems in the for-profit sector. Deciphering disclosures can be difficult for students, and many do not read all disclosures. Accordingly, increasing disclosure requirements would have a limited impact and would not adequately address the serious and widespread problems in the for- profit sector. As detailed above, the New York Attorney General’s Office has extensive experience investigating and bringing enforcement actions against predatory for-profit colleges. We have also participated in multiple lawsuits challenging the federal government’s efforts to dismantle regulations protecting for-profit college students and have participated in the process of developing federal rules related to for-profit colleges. These varied experiences have provided our office with considerable expertise and unique insight into the need for strong state regulation of for-profit colleges. See Sitb-parfor-profit colleges soak us all, Tom Hilliard and Matt