BOSTON — Two top Massachusetts elected officials are trying to tighten regulations on for-profit colleges, arguing some of the schools are leaving students with high debt and without the skills needed to land a good job — all while reaping the benefit of federal student loans.
Democratic U.S. Sen. Elizabeth Warren has filed a bill she said will protect student borrowers by requiring colleges to assume some of the risk of student loan default.
Massachusetts Attorney General Martha Coakley, also a Democrat, is proposing new state regulations prohibiting for-profit and occupational schools from using misleading advertising and unfair lending practices.
Coakley has also sued a now-shuttered for-profit school, alleging it falsified student enrollment records, attendance and grades to benefit from government-funded student loans while failing to provide course materials and training.
Coakley said that while many for-profit schools provide an important service, some use a "predatory model" that advertises heavily to those with access to federal loans, including returning veterans or low-income students.
"The students end up either not completing the program or completing it and then not getting a job and so they're behind the eight ball. They've lost the time. They've lost their money. They default on the loan. And now they've got a credit problem," Coakley said in an interview with The Associated Press.
"Meanwhile all that money goes into the bank, into Wall Street. A lot of this is funded by investors who see this as another way to make money without worrying about what the impact is going to be on students."
Warren also argued that for-profit colleges are draining billions in student loans without giving students a meaningful education.
"That (debt) crushes the student and imposes losses on the taxpayers and yet the for-profit college just keeps making money," Warren said in a separate interview.
Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, said for-profit colleges are a critical resource for low-income adults trying to improve their education while balancing work, life and children.
He said some public officials are driven by "ideological opposition" to private investment in education.
"What they're really saying is that if you are poor, you can't go to school," he said.
In Massachusetts, he said, the majority of certificates in the construction trades, culinary arts and mechanic and repair technologies are awarded by private-sector schools. He said there are 70 for-profit colleges in the state. Nationwide, more than 3,000 for-profit schools enroll about 4 million students, he said.
Gunderson conceded, however, that during the recession, private-sector colleges accepted a flood of laid-off workers looking to beef up their skills without sufficient vetting.
"Our schools would be the first to tell you we enrolled students that probably should not have been enrolled because there really wasn't a commitment to complete their education," he said. "That practice has stopped. Schools now are being more careful about who they enroll and are much more focused on retention, graduation and placement."
Warren's bill would require colleges with a student loan default rate of 30 percent or more to pay 20 percent of the total loans made to students who default, including interest and collection fees, into a fund. Colleges with a default rate of 25 to 30 percent would pay 15 percent.
A portion of that fund would help make up for shortfalls in Pell Grants, which are aimed at lower-income college students. Institutions with a student loan management plan, including financial aid counseling, could seek a waiver from the payments or be assessed a lower payment.
The bill, co-sponsored by Democratic U.S. Sens. Dick Durbin of Illinois and Jack Reed of Rhode Island, would also prohibit colleges from denying admission or financial aid based on the perception that a student may be at risk of default.
"It's a skin-in-the-game bill that tries to help align the incentives of the colleges to keep costs down for the students and to make sure the students get a meaningful diploma," said Warren, a former Harvard Law School professor.
Gunderson said his group opposes Warren's bill but supports limiting student loans to cover just the cost of education and instituting an income-based repayment system so students are never asked to spend more than 8 percent of their annual income to repay loans.
Coakley, who last year reached a $425,000 settlement to reimburse former students of another for-profit training center, is proposing state regulations she said would require all for-profit and occupational schools provide accurate information to the public, prohibit misleading advertising and address unfair lending practices.
"You can't do anything that is unfair or deceptive in the course of trade or business," Coakley said. "That's just leveling the playing field."
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