WASHINGTON (Legal Newsline) - Twenty-one state attorneys general sent a letter on Tuesday to leaders of Congress recommending that it stop for-profit schools from exploiting a benefits loophole in the Higher Education Act.
The letter urges Congress to regulate military education assistance more closely and to prevent the high-pressured recruiting of veterans by for-profit schools. The AGs said that the schools have increasingly used federal dollars from the U.S. Department of Defense Tuition Assistance program and the G.I. Bill as a revenue source.
The letter was sent by attorneys general from Missouri, West Virginia, Tennessee, South Dakota, South Carolina, North Carolina, New York, New Mexico, Nevada, Mississippi, Michigan, Massachusetts, Maryland, Kentucky, Iowa, Idaho, Delaware, Connecticut, California, Arkansas and Arizona, as well as Hawaii's Office of Consumer Protection.
"Military service members, veterans and their families have become rich targets for aggressive for-profit college recruiters seeking to maximize their revenues, as opposed to their students' graduation and employment rates," Illinois Attorney General Lisa Madigan said.
"For-profit colleges are exploiting service members' education benefits and then entrapping them in costly private loans in exchange for questionable degrees that often have very little real-world value."
A U.S. Senate committee study found that military education funding revenue for for-profit colleges rose 683 percent in the past four years. A survey of 20 for-profit colleges found that military education benefits rose to $521.2 million in 2010 from $66.6 million in 2006.
All universities and colleges are subject to the 90/10 rule that prohibits them from getting more than 90 percent of their revenue from the U.S. Department of Education, also known as Title IV, funding sources. Because veterans' education benefits do not qualify as Title IV funding, for-profit colleges have allegedly exploited the exception, letting them take in 100 percent of their revenues through funding from the government. The easy application process for for-profit colleges allows the colleges to receive the education assistance funding quickly and easily, the AGs say.
The attorneys general recommended that Congress extend the definition of Title IV funding to include veterans' education benefits. This would allow the law to require 10 percent of funding to come from private sources as the law intended.
Congress enacted the 90/10 rule in 1998 to allow for more accountability in the for-profit schools industry at a time when veterans' benefits were not a substantial source of potential college income. In 2008, Congress enacted the Post 9/11 G.I. Bill, providing billions of dollars to service members in educational benefits. According to a General Accounting Office report in February 2011, $9 billion in educational benefits were provided to veterans and service members in fiscal year 2010.
The economic downturn caused many private lenders to exit the subprime student loan market as a result of excessive student loan default rates. For-profit colleges depended on such private loans for their 10 percent in non-federal funds, which led to a strong incentive to recruit military members.