Testimony of Dr. Alice Letteney, Director, University of New Mexico — Valencia
Good morning, Mr. Chairman and Members of the Committee. My name is Dr. Alice Letteney and I am Executive Director of the University of New Mexico – Valencia. My college is an Hispanic Serving Institution (HSI) and a rural community college, serving about 2,000 students. I am pleased to be here on behalf of the American Association of Community Colleges (AACC). AACC is the national voice for community colleges and represents 1,173 community, junior and technical colleges. Included in that figure are a number of high-quality, for-profit colleges that carry regional accreditation status, a prerequisite for AACC membership. We are pleased to present our views on some of the integrity and proprietary school provisions in H.R. 4283, the “College Access and Opportunity Act of 2004.”
Before I begin my testimony, let me provide a few statistics. Community colleges enroll more than 11 million credit and non-credit students each year. This includes 45.9% of all undergraduate African American students in American higher education, and 56% of all Hispanic-American students. They also enroll 48.6% of all first generation college students. Hence, we proudly think of ourselves as being the “Ellis Island” of higher education. At the same time, our colleges are undergoing a difficult period of sharp budget cuts coupled with dramatic enrollment increases. In the last budget cycle, state funding, which represents 41% of total revenues, decreased overall by 2.1%. And, over the last 3 years, our credit enrollments have exploded, by about 20%.
AACC¡s overwhelming focus on the Higher Education Act (HEA) always has been and always will be on student aid. The HEA is essential for needy students to finance their education. More than two million community college students receive Pell Grants each year, which is almost one- third of fall credit enrollments. The “integrity” issues discussed below were not part of AACC¡s initial reauthorization position submitted to this committee. Essentially, they were thrust at community colleges by provisions in H.R. 3039 and, now, H.R. 4283. Our basic positions on these issues are shared by the American Council on Education, the umbrella higher education association, and the 44 other signatories to its May 26 letter on H.R. 4283.
HEA “integrity” issues inevitably raise the topic of proprietary schools. AACC commends proprietary schools, who in many ways are partners in providing technical training and other essential programs to millions of Americans. The continued expansion of proprietary schools testifies to the fact that they are meeting many needs.
However, proprietary schools are businesses. They have a central and necessary goal of earning profits. Alternatively, community colleges are, by law and custom, dedicated to the public good. While community colleges are complex institutions, with multi-million dollar budgets, any excess of revenues over expenses is redirected to educational programs and other student services. They do not enrich owners and stockholders. This is reflected in the different tuition levels. The average community college tuition this fall was $1,905. As of this fall, the average two-year, degree granting proprietary school charged $10,619¢more than five times as much.
AACC strongly opposes the inclusion in H.R. 4283 of the “single definition” of institution of higher education. The AACC Board has indicated that AACC must oppose reauthorization legislation that includes the single definition. This is largely because the inevitable and immediate result of the single definition is to reduce funding for community colleges, and make it even more challenging to provide necessary services to students. Our colleges can perhaps accept HEA reauthorization legislation in which “no new money” is the guiding principle, but they cannot accept “less old money.”
The single definition does much more than make proprietary schools eligible for non-Title IV HEA programs. Even more significantly, it makes all those institutions eligible for scores of programs outside the HEA that use its definitions for program eligibility. This dramatic change to these non-HEA programs will occur without other committees of jurisdiction taking any affirmative steps to extend them to proprietary schools.
These additional for-profit institutions amount to about 4,000 institutions, more than all of the non-profit colleges combined. Degree-granting proprietary schools currently number about 800. This is more than two-thirds the number of community colleges. For the record, AACC has never questioned proprietary school participation in the student aid programs. These programs represent more than 95% of total HEA expenditures.
The single definition would affect two HEA grant programs that are of particular concern to our association. One is the Title III-A of the HEA, the Strengthening Institutions program. On average, community colleges receive about 70% of these funds, with the remainder awarded to four-year colleges, public and private. The funds are awarded to institutions that serve high percentages of needy students and that have relatively few resources. Competition for these grants is fierce, and only about 15% of applications are funded in a given year, for average annual grants of about $350,000. Roughly 120 grants are funded at any one time. Unfortunately, appropriations for this extremely valuable program have stagnated. The program was funded at $80 million in FY 1995; nine years later the FY 2004 appropriation is $81.0 million. Our colleges are understandably dismayed about the prospect of an immediate and radical expansion of the pool competing for these limited funds.
Of equal concern is the impact of the single definition on the HSI program. There are currently 165 institutions participating in this program and half of them are community colleges. The single definition would immediately make 110 for-profit colleges eligible for these grants. Adoption of the single definition could therefore strike a serious blow to our colleges.
In earlier correspondence to the Committee, AACC asked for a list of the non-HEA programs that would be affected by the single definition, but none has been made available. We understand that compiling this list presents a research challenge, but this very fact suggests why it must be done before legislative action on the single definition takes place. We do know that a very broad array of non-HEA programs will be affected by the single definition (National Science Foundation, Department of Agriculture, Department of Homeland Security, Department of Health and Human Services), and most likely without the relevant committees of jurisdiction even being aware of its potential impact.
There are further implications for state scholarship and grant programs embedded in the single definition. Many of these programs also use the HEA¡s eligibility definitions. Heretofore, there has been no discussion of this concept. The committee should fully examine this aspect of the single definition before moving ahead with it.
Lastly, proponents of the single definition and the title of this hearing suggest that this issue is about serving students. This is only half true–the services received by students are provided by institutions, and the single definition is about which institutions are allocated funds. Taxpayer funds awarded to colleges for “students” are not separable from the monies that ultimately flow to school owners and shareholders. Recent financial statements from some of these concerns place this into context:
Apollo Group (U. Phoenix): Gross Profits, $860.9 million over 4 quarters ending 2/29/04
Career Education Corp.: Gross Profits, $1.593 billion for 3 years ending 12/31/03
DeVry, Inc.: Gross Profits, $1.098 billion for 4 years ending 6/30/03
Corinthian Colleges, Inc.: Gross Profits, $541.3 million for 3 years ending 6/30/03
Community colleges are “open door” institutions that are accountable to their locally elected and appointed boards, representing the public. Proprietary schools are accountable to their owners and shareholders. These represent fundamental differences and, until now, the HEA has always reflected them by creating a strict statutory demarcation between them. This demarcation should stand.
The so-called “90/10 rule” was enacted in 1992 to prevent institutions from focusing exclusively on recruiting low-income students in order to profit from federal student aid eligibility. The primary rationale for this provision, originally the “85/15 rule” until it was watered down in the 1998 HEA amendments, was to ensure that proprietary schools were subject to a limited amount of free-market testing; that is, that the education was sufficiently high-quality that students were willing to use their own money to cover a limited share of tuition. In addition to preventing the misuse of federal funds, the “90/10 rule” serves as a protection for low-income students, who are the least informed about the range of postsecondary choices open to them. Also, the Committee should be aware that the Departments of Defense and Veterans Affairs use an “85/15 rule” for their education programs because of the vulnerability to abuse of highly subsidized federal programs.
For purposes of comparison, the committee should know that, on average, community colleges receive no more than 7% of their revenues via the federal student aid programs. The notion that a 90% limit on Title IV revenues presents a barrier for for-profit institutions is difficult for our presidents to imagine.
How well has the “90/10 rule” worked in practice? In some ways it is hard to tell, in that the abuses that have been prevented by it cannot, by definition, be documented. Hearings by the Senate Government Affairs Committee in the early 1990s did show that institutions so heavily dependent on student aid revenues were subject to much higher levels of fraud. In addition, recent reports by ED¡s Office of Inspector General (OIG) documented serious abuses, primarily in federal student aid programs. Some of these problems included: schools closing without warning; routine fabrication of financial aid documents; falsification of ability-to-benefit test results; widespread failure to comply with the “90/10” rule; overstating program length; and disbursing funds to ineligible students.
We reject some arguments that have been made to this committee on behalf of repealing the “90/10 rule”. This includes the argument that the “90/10 rule” should be repealed because for-profit colleges provide services to low-income and minority students that non-profit colleges do not. Community colleges are easily accessible in almost all parts of the country, including inner cities as well as very sparsely populated rural areas. The claim that proprietary schools have left inner cities because of the “90/10 rule” is impossible to verify; it does, however, reflect their owners¡ priorities. In addition, we find the assertion by for-profit institutions that they will be “forced to” increase tuitions if the “90/10 rule” is not repealed difficult to accept.
While proprietary schools serve large numbers of low-income students, non-profit institutions do as well. Sixteen percent of dependent students at both public and private four-year institutions are from families earning $25,000 or less, and one-quarter of students at those institutions are minorities. About a third of the students attend part time, and nearly 20 percent have dependents. Twenty-two percent of dependent students at community colleges are from families with incomes less than $25,000.
Community colleges may have lower completion rates than other types of institutions. In these cases, it is often due to the fact that they are mandated to maintain an “open door,” serving all students who can potentially benefit from further education, not just those the institution would like to admit. This includes remedial education and ESL students. Lower completion rates are also due to the fact that more than 80% of our students work, more than 30% of them full-time. These heavy work responsibilities tend to stand in the way of program completion.
The package of integrity provisions put in place by the 1992 HEA reauthorization, including the “90/10 rule,” resulted in an immediate, precipitous, and sustained drop in the student loan default rate. Students who received an inadequate education, and are unable to find employment, are at high risk of defaulting on their loans. In 1992, the proprietary school sector¡s default rate was 30.2%. Today, after more than a thousand proprietary institutions have been removed from the federal student aid programs, the proprietary default rate is 9%, significantly higher than the 3.5% rate for private institutions, and the 5.3% rate for public four-year institutions. It is and has been higher than that for community colleges, which are mandated by law and policy to maintain an “open door” to all students.
Congress will be making a serious mistake if it allows the fraud and abuse of a decade ago to return to harm students, institutions, and taxpayers. The “90/10 rule” needs to be kept in place to assure that students receive the quality education they have been promised.
AACC supports elimination of the 50% rule, under the conditions as outlined below.
Community colleges are more heavily involved in distance education than any other sector of higher education. According to the National Center for Education Statistics, 90 percent of all community colleges offered at least one distance education course during the 2001-2002 academic year. 56% of all two- and four-year non-profit institutions of higher education offered courses.
In general, AACC supports the elimination of the current statutory provisions that create a lack of parity between courses delivered on campus and those provided through Web-based or other types of distance education vehicles. However, it should be understood up front that this will add significant cost to the student aid programs. Given the fiscal state of the Pell Grant program, significant program expansion must always be carefully considered.
H.R. 4283 effectively eliminates any telecommunications course from being considered a correspondence course. This makes students at schools that offer programs solely through telecommunications eligible for student aid. This educational delivery format makes it harder to assess institutional structures, educational resources and student learning, and to ensure the integrity of student aid funds. We believe that this same pattern of fraud and abuse could emerge if this change is enacted without additional safeguards.
In virtually every case, the 50 percent rule has not prevented the expansion of distance education at schools that also offer classroom programs. This is because telecommunications courses (primarily those offered by television, audio, or computer) are not considered correspondence courses for degree programs if the number of telecommunications and correspondence courses do not equal at least 50 percent of the courses offered by the institution.
The 50 percent rule is not currently a barrier to institutional provision of distance education. Only a few schools are approaching the current limit. Some that are, and some that are interested in pursuing a 100 percent distance education program, are included in the Department of Education¡s Distance Education Demonstration Program. We think this a good approach that should serve as the model for a permanent program to allow interested schools to receive waivers of the “50 percent rule” on a case-by-case basis. This approach recognizes the importance of and increasing interest in distance education, but protects students and student aid programs from being taken advantage of by easily accessed and highly advertised programs that do not provide quality education.
We recognize that the Committee may be reluctant to cede to the Secretary of Education blanket authority to grant waivers for institutions wanting to exceed the 50% threshold. Therefore, we are ready to work with the Committee to design specific criteria that the Secretary should employ when granting waivers. These would involve at least some of the standards used under the Distance Education Demonstration Program that H.R. 4283 extends.
We firmly support the role of accreditation in assuring quality education. But for institutions that offer most or all of their programs by distance, the need for additional oversight extends beyond accreditation. Ensuring program integrity is clearly a responsibility of the federal government, on behalf of American taxpayers, not accreditors. Opening distance education with no limitations, or without additional oversight by the ED, is an invitation for increased fraud and program abuse. The General Accounting Office stated in a February 2004 report that “the lack of consistently applied procedures for matters such as comparing distance education and campus-based programs or deciding when to incorporate reviews of new distance education programs could potentially increase the chances that some schools are being held to higher standards than others.”
Asking the Department to play a role as a backstop in ensuring that the wrong institutions are not given access to federal student aid funds is good, prudent government, with no harm to institutions and potential great benefit to the public interest.
We thank you for this opportunity to present our views. I would be happy to answer any questions that you may have.
