Bills
| 3.23.22

Should For-Profit Colleges be Ineligible for Federal Student Aid Funds? (H.R. 4724)

Do you support or oppose this bill?

What is H.R. 4724?

(Updated December 17, 2019)

This bill — the Students Not Profits Act of 2019 — would end taxpayer subsidies to for-profit colleges by making them ineligible to receive Title IV federal student aid funds, including Pell Grants, Perkins loans, and TEACH grants. 

Existing federal aid for profit and public institutions of higher education, including postsecondary vocational institutions that prepare students for gainful employment in a recognized occupation and have been in existence for at least two year wouldn’t be affected by this bill.

This bill would also establish a transparent process for approving a for-profit school’s conversion to a non-profit school. It would require a school seeking such a conversion to:

  • Be a nonprofit with 501(c)(3) status;
  • Not have paid more than fair value for assets and services acquired from previous owners of the institution;
  • Not have any board members or people with power over board member appointees with an economic interest in the institution; and
  • Not have any core functions controlled by a for-profit entity. 

Argument in favor

For-profit colleges have poor performance records, especially in comparison to community colleges and four-year institutions. For-profit colleges were originally ineligible for federal funds, and should once again be made ineligible again in light of their poor performance.

Argument opposed

For-profit colleges play an important role in providing education services to certain marginalized communities, such as minority, veteran and low-income students. These students should be able to receive federal loans wherever they’re attending school, including at a for-profit school if they choose to attend one.

Impact

Undergraduate students; students at for-profit colleges and universities; for-profit colleges and universities; and for-profit colleges and universities’ eligibility for federal funds.

Cost of H.R. 4724

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Pramila Jayapal (D-WA) introduced this bill to protect students from the predatory practices of for-profit colleges by ending taxpayer subsidies to such schools: 

“The Students Not Profits Act is a bold plan to stop predatory, for-profit institutions from exploiting disadvantaged students striving for a better future through higher education. I met with students who were left with burdensome debt, incomplete degrees and few options for recourse after the for-profit Art Institute of Seattle abruptly closed earlier this year. It’s time for taxpayers to stop subsidizing the institutions that put hardworking students through this heartbreaking mess.”

Senate sponsor Sen. Sherrod Brown (D-OH) adds: 

“For too long, for-profit colleges have wreaked havoc in Ohio and across the country. Thousands of students, a disproportionate number of whom are low-income and students of color, have been left with nearly worthless degrees and credits, limited job prospects, and tens of thousands of dollars in loan debt because these companies defrauded them. Taxpayers shouldn’t be footing the bill for these institutions.”

The American Federation of Teachers supports this bill. Its president, Randi Weingarten, says: 

“Institutions of higher education that put profits before people drag down our entire system, preying on low-income students and students of color who are trying to access a better future by going to college. These for-profit colleges rely almost solely on federal financial aid to fund their institutions and, in turn, generate very few graduates and a disproportionate amount of student loan debt and defaults. This fraudulent corporate model has already had catastrophic consequences for an entire generation and is in desperate need of stricter regulation. Ultimately, the Students Not Profits Act will protect future students from fraud, deception and harm.”

Steve Gunderson, president and CEO of Career Education Colleges and Universities, says this bill would punish the single sector of the higher education industry focused on career education. He says, “This is just the latest congressional proposal that threatens to deny access to students who seek career skills.”

James Kvaal, president of the Institute for College Access & Success, says that while for-profit schools’ problems have understandably made people consider cutting off funding, better regulation of the sector would be a better solution. He says, “Our view is that under the appropriate accountability system, for-profit schools can generate value for students.”

However, Americans for Financial Reform (AFR) senior policy analyst Alexis Goldstein disagrees with these assertions. Goldstein says, “This is just an industry that has refused accountability. They should compete in the free market. They should not be able to get 90% of their revenue from the federal government [as some schools do].”

This legislation has eight Democratic House cosponsors. Its Senate companion, sponsored by Sen. Sherrod Brown (D-OH), has one Senate cosponsor, Sen. Elizabeth Warren (D-MA).

The American Federation of Teachers, Americans for Financial Reform, the Debt Collective, Demos, and the Project on Predatory Student Lending endorse this legislation.


Of Note: When Congress passed the Higher Education Act in 1965, for-profit institutions were ineligible for federal aid. As the industry’s lobbying efforts ramped up, Congress amended the law in 1972 to allow for-profit entities to access to federal aid dollars. Since then, Congress and successive administrations have tried to effectively regulate this industry.

Democrats have accused Education Secretary Betsy DeVos of siding with for-profit colleges over the students they’ve allegedly harmed. As an example, they cite $10 million from the Dept. of Education to the Art Institute chain despite those schools’ lack of accreditation and ineligibility for funds.

Student loan expert Mark Kantrowitz says the for-profit college sector takes in around 15% of the government’s financial aid each year. Additionally, about a third of for-profit colleges derive almost all of their revenue from federal sources.

Despite being more expensive than non-profit colleges, for-profit schools have poor results. Their graduates earn less than public university graduates (on average, students attending for-profit earn no more than they would have if they hadn’t attended college at all); struggle to pay their loans (the twelve-year default rate for for-profit college undergraduate borrowers is 52% versus 19%, 26% and 18% respectively for undergraduate borrowers who attended private nonprofit four-year colleges, public two-year colleges, and public four-year colleges); and tens of thousands of people have accused for-profit schools of fraud.

For-profit colleges also account for the vast majority (88%) of college closures. These have impacted half a million students over the past five years. 

Research shows that when for-profit schools are barred from aggressively recruiting students from disadvantaged communities (such as low-income, minority, and veteran communities), those students turn to community colleges. For example, in the period 1991-200, when the government imposed sanctions on federal student aid to for-profit colleges, community college enrollment in the counties where the sanctioned institutions were located rose 17%, completely compensating for the drop in attendance at for-profit schools.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / Jorge Villalba)