[Senate Hearing 112-852]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 112-852

   IMPROVING FOR-PROFIT HIGHER EDUCATION: A ROUNDTABLE DISCUSSION OF 
                            POLICY SOLUTIONS

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON

    EXAMINING IMPROVING FOR-PROFIT HIGHER EDUCATION, FOCUSING ON A 
               ROUNDTABLE DISCUSSION OF POLICY SOLUTIONS

                               __________

                             JULY 21, 2011

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions



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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

BARBARA A. MIKULSKI, Maryland      MICHAEL B. ENZI, Wyoming
JEFF BINGAMAN, New Mexico          LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington           RICHARD BURR, North Carolina
BERNARD SANDERS (I), Vermont       JOHNNY ISAKSON, Georgia
ROBERT P. CASEY, JR., Pennsylvania RAND PAUL, Kentucky
KAY R. HAGAN, North Carolina       ORRIN G. HATCH, Utah
JEFF MERKLEY, Oregon               JOHN McCAIN, Arizona
AL FRANKEN, Minnesota              PAT ROBERTS, Kansas
MICHAEL F. BENNET, Colorado        LISA MURKOWSKI, Alaska
SHELDON WHITEHOUSE, Rhode Island   MARK KIRK, Illinois
RICHARD BLUMENTHAL, Connecticut    

                      Daniel Smith, Staff Director
                  Pamela Smith, Deputy Staff Director
     Frank Macchiarola, Republican Staff Director and Chief Counsel

                                  (ii)










                            C O N T E N T S

                               __________

                               STATEMENTS

                        THURSDAY, JULY 21, 2011

                                                                   Page

                           Committee Members

Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    22
Hagan, Hon. Kay R., a U.S. Senator from the State of North 
  Carolina.......................................................    26
Blumenthal, Hon. Richard, a U.S. Senator from the State of 
  Connecticut....................................................    39

                               Witnesses

Cruz, Jose, Vice President, Higher Education Policy and Practice 
  at the Education Trust, Non-Profit Advocacy Organization, 
  Washington, DC.................................................     5
    Prepared statement...........................................     6
Batson, Hayes, President and CEO, Regency Beauty Institute, 
  Brooklyn Park, NY..............................................     9
    Prepared statement...........................................    11
Hamburger, Daniel, President and CEO, DeVry, Inc., Downers Grove, 
  IL.............................................................    12
    Prepared statement...........................................    13
Bob Shireman, California Competes, San Francisco, CA.............    19
Petraeus, Holly K., Director, Office of Servicemember Affairs, 
  Consumer Financial Protection Bureau, Washington, DC...........    21
Nassirian, Barmak, Associate Executive Director, American 
  Association of Collegiate Registrars and Admissions Officers, 
  Washington, DC.................................................    28
    Prepared statement...........................................    30
Barr, Michael, Professor, University of Michigan Law School, Ann 
  Arbor, MI......................................................    35

                          ADDITIONAL MATERIAL

Response to question of Senator Enzi Jose Cruz...................    66
Response to questions of Senator Merkley by:
    Hayes Batson.................................................    66
    Jose Cruz....................................................    69
    Daniel Hamburger.............................................    71
    Barmak Nassirian.............................................    72
    Holly Petraeus...............................................    74
    Robert Shireman..............................................    74
Letter to Senator Harkin from DeVry, Inc.........................    75

                                 (iii)

  

 
                      IMPROVING FOR-PROFIT HIGHER
                   EDUCATION: A ROUNDTABLE DISCUSSION
                          OF POLICY SOLUTIONS

                              ----------                              


                        THURSDAY, JULY 21, 2011

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:04 p.m. in Room 
216, Hart Senate Office Building, Hon. Tom Harkin, chairman of 
the committee, presiding.
    Present: Senators Harkin, Hagan, Merkley, Franken, 
Blumenthal, and Enzi.

                  Opening Statement of Senator Harkin

    The Chairman. Thank you all for being here. The Health, 
Education, Labor, and Pensions committee will please come to 
order.
    Higher education yields enormous returns, both for students 
and for our country. That's why, over the past 5 years, 
Congress has expanded its investment in Pell grants and student 
loans. Just over a year ago, this committee began to examine 
for-profit colleges because of the tremendous growth of 
students and financial aid dollars going to these schools, 
combined with disturbing reports about whether the schools were 
providing the promised education.
    Higher education faces many challenges in the coming years, 
including capacity, cost, and accountability. All of America's 
colleges and universities must adapt to effectively meet the 
needs of an ever-changing global economy. In this environment, 
the for-profit sector has an important role to play. But to do 
so, for-profit education must work for students, not just for 
shareholders.
    Today's hearing will focus on what must be done to protect 
and get full benefit from the Federal investment in this 
sector. Before I turn to our distinguished panel, let me 
briefly outline some of the problems that have been documented 
by this committee in five hearings, three reports, and 
thousands of documents reviewed.
    As a sector, the for-profit schools enroll about 10 percent 
of students, yet they receive 25 percent of all Federal aid, 
about $30 billion last year, and that number is growing every 
year, and growing rapidly. The first and most urgent problem 
that I see is poor student outcomes. For-profit colleges ask 
their students to borrow a great deal of money to pay high 
tuition but do not have a really good track record of 
completion and student loan repayment.
    Our committee has documented that the majority of students 
attending for-profit schools are leaving in less than a year. 
Unfortunately, this trend is not isolated. Over 1 million 
students last year attended for-profit schools that have 
withdrawal rates between 62 percent and 84 percent in their 
associate degree programs, in their 2-year programs. That means 
62 to 84 percent dropped out in the first year.
    And because nearly all students borrowed to pay the cost of 
tuition, those who withdraw do so financially worse off. For-
profit students now account for almost half of all the student 
loan defaults in the country, even though they are only 10 
percent of the students in higher education.
    These outcomes are clearly unacceptable and they're at the 
heart of this committee's concerns with this sector's 
performance. The current regulatory scheme does little to 
ensure that schools have an incentive to give priority to 
student services like tutoring, remediation, job placement, 
services that may help more students to graduate and get jobs 
and pay back their loans.
    We now know that the for-profit schools with the highest 
withdrawal rates spend enormous amounts on marketing and 
profit, in some cases more than half of their revenue, with 
little left over for these kinds of support services. One 
school employs 8,137 recruiters but has no job placement staff 
at all. Another school has a ratio of 1,770 student recruiters 
to one student job placement staffer.
    No one, no one underestimates the challenges of educating 
students who may have struggled in prior educational settings 
or who have been poorly prepared by the K-12 system. Lack of 
academic preparation and financial aid are the major barriers 
to access and success. However, for-profit colleges expressly 
target their marketing and recruitment efforts at this 
population of students, students who have struggled in prior 
settings or who have been poorly prepared by the K-12 system, 
who may be from an environment where studying was not the norm.
    So if a school is going to recruit these students, capture 
their financial aid, then that school should have an obligation 
to serve the students' often exceptional academic needs.
    Twenty years ago, Senator Sam Nunn chaired a series of 
hearings focusing on these very same problems. Those hearings 
led to concrete policy changes that helped to protect students 
and taxpayers. While some policies have been rolled back or 
picked apart over the years, several are still on the books.
    So here we are today revisiting many of the same issues 
Congress has been grappling with for decades. And why are we 
doing this? Because I believe it's our job to both safeguard 
Federal investments and to help make sure that we have an 
educated populace, that we have the kind of students that are 
going to meet the job needs that we have in the future.
    At this point, there should be no question about how the 
for-profit higher education sector differs from other 
industries. Eighty-six percent of the public companies' 
revenues come straight from Federal student aid. That's the 
taxpayers. In some cases, it's 90 percent, or even more.
    That's what our job is, to make sure that our taxpayer 
moneys are well invested and that we have good outcomes for 
students.
    Now I'd like to introduce our distinguished panel of 
officials and experts, including two leaders from the industry 
who share an admirable commitment to improving for-profit 
education to ensure it is able to meet its promise. I want to 
note for the record that we reached out to a number of schools 
to see if they would join us for a constructive public 
dialogue. This is not a hearing. This is a public dialogue and 
a roundtable discussion. We asked a number of for-profit 
schools to join us. Most turned us down. They all turned us 
down except for the CEOs of DeVry and Regency, institutions 
that are leaders in two important segments of for-profit higher 
education leading the way today.
    So let me introduce our roundtable participants in no 
particular order. It's just the way they are here. Maybe it's 
in the same order that it comes across here.
    First I'd like to introduce Michael Barr, currently a 
professor at University of Michigan Law School and a senior 
fellow at the Center for American Progress and the Brookings 
Institution. Mr. Barr is an expert on consumer protection 
issues and financial regulation and will help lead the 
discussion on the challenges facing low-
income borrowers.
    Next is Mr. Hayes Batson, president and CEO of Regency 
Beauty Institute, headquartered in Brooklyn Park, MN.
    It's not near Lake Woebegone, is it, by any chance? Only us 
from the Midwest know that joke anyway.
    Since 2002, Mr. Batson has expanded Regency to a system of 
over 62 campuses in 16 States. He is here to discuss the 
challenges the for-profit sector faces and potential solutions 
based on his leadership role at Regency.
    Dr. Jose Cruz is the vice president for Higher Education 
Policy and Practice at the Education Trust. Dr. Cruz is a 
former vice president of the University of Puerto Rico System, 
where he was responsible for admissions, financial aid, and 
student life programs. He is here today to talk about the 
challenges that low-income and minority students face, and 
solutions Congress should consider to make sure they receive 
high-quality educational opportunities.
    We have Mr. Daniel Hamburger, president and CEO of DeVry, 
Inc., based in Downers Grove, Illinois. He has played a 
leadership role at DeVry since 2002, becoming CEO in 2006. Mr. 
Hamburger is here to discuss how we can work together to 
maximize student achievement and meet our workforce needs. From 
reading his testimony last night, he will discuss how we can 
develop a policy framework that will cultivate graduate success 
from his perspective as a leader of an international higher 
education corporation.
    We have Mr. Barmak Nassirian, associate executive director 
of the American Association of Collegiate Registrars and 
Admissions Officers, an organization he's been with for 20 
years. Mr. Nassirian is an expert on the higher education 
system of accountability known as the ``triad''--accreditation, 
State authorization, and Federal oversight--and is here to help 
us discuss how Congress should consider to improve the 
oversight of that triad.
    Next we have Mrs. Holly Petraeus, who, as of today, is the 
director of the Office of Servicemember Affairs at the Consumer 
Financial Protection Bureau, where she will work to protect 
military personnel and their families from predatory lending 
activities. Previously, Mrs. Petraeus served as director of the 
Better Business Bureau's Military Line program, a partnership 
with the Department of Defense Financial Readiness Campaign. 
Based on her advocacy for military families, Mrs. Petraeus will 
offer her unique perspective on for-profit colleges and discuss 
ways Congress can ensure that military personnel and their 
families receive high-quality educational opportunities.
    And finally we have Mr. Bob Shireman. Mr. Shireman is 
currently starting a group called California Competes, which 
will promote public support for higher education. He previously 
served as deputy undersecretary at the U.S. Department of 
Education, where he led efforts to reform the Federal student 
loan system, strengthen consumer protections, and draw 
attention to college completion. Before joining the 
Administration, Mr. Shireman held a variety of positions, 
including the president of the Institute for College Access and 
Success, a senior fellow at the Aspen Institute, and program 
director at the James Irvine Foundation. Mr. Shireman will 
offer his perspective as an expert on higher education costs 
and financing.
    Now, I'd like to begin what I hope will be a spirited, 
fruitful discussion. I am assured that we will be joined by 
some Senators later. I just left a caucus in which the White 
House was present and in which obviously there was a lot of 
debate and discussion going on the debt ceiling right now. So 
they will probably be tied up in that for a few more minutes, 
but they will be here shortly.
    I want this to be a roundtable discussion. Some of you had 
statements prepared. They will be submitted in their entirety 
to the record.
    It's not a formal type of hearing. I'd like to kick it off 
with some questions, and then we'll go around and discuss 
things and get perspectives.
    I'd like to make two points on the discussion, on the 
guidelines. If you want to make a statement, respond at length 
or to give a perspective on what somebody has said, or ask a 
question, I ask you to take your nameplate and turn it on its 
edge. That way I'll know it and I'll have my staff keep track, 
so I can see who did it first, second, third, that kind of 
thing.
    If you have an interjection that you would like to make to 
what somebody is saying that is very short, a clarification 
perhaps or something, if you hold up your finger, I will try to 
interrupt the person who is speaking and go to that person for 
a very short interjection, not for a long speech. If you want 
to give something lengthy, do that. If it's a short, wait a 
minute, I want to ask this or I want to point this out, it's 
very short, a minute or two, fine. Just give me this, because a 
lot of times I like that format. I've done this before. Because 
if you wait, then you lose the dynamic of what was being 
discussed at that point in time.
    Let me start with four questions. First, what constitutes 
student success? What constitutes student success at a for-
profit college, and what does a successful for-profit college 
look like?
    Second, what should students know when they're considering 
a for-profit school? Is disclosure sufficient?
    Third, should we have tougher standards for schools? Who 
should hold them accountable? Are voluntary standards enough?
    Fourth, are there other ways to realign incentives for 
better performance?
    And since I said the key thing for this committee is 
outcomes, I'm going to start with Mr. Cruz, just to get it 
going. Our investigation has peeled back the curtain on 
outcomes in the for-profit sector. First, what are the outcomes 
that we ought to be concerned about? What should we expect from 
colleges in terms of performance? What should a high-performing 
for-profit sector look like?
    Let's start talking about this. What constitutes student 
success? Is it just completion? What is it? What is the 
outcome?
    Mr. Cruz, I started with you because this is your second 
appearance. You're the only one here who has been here before. 
And at the time, you leaned upon your background knowing about 
what students need, especially minority students, low-income, 
the kind of students I talked about that go to for-profit 
schools.
    What are the outcomes that we ought to be concerned about?

STATEMENT OF JOSE CRUZ, VICE PRESIDENT, HIGHER EDUCATION POLICY 
      AND PRACTICE AT THE EDUCATION TRUST, WASHINGTON, DC

    Mr. Cruz. Thank you very much, Mr. Chairman, for the work 
you have done to unveil the inner workings of the for-profit 
sector, for convening this panel and giving us the opportunity 
to weigh in on such an important issue.
    As to the question of concerns, what should concern us 
regarding the for-profit sector and the outcomes of those 
students, I would say that you stated it very well in your 
opening statement. We should be concerned about the general 
state of affairs around for-profit education.
    Here's a sector, as you pointed out, that has grown 
significantly during the past 10 years. It has grown by 236 
percent, a sector where 15 publicly traded companies control 60 
percent of the student enrollments.
    The Chairman. Fifteen percent----
    Mr. Cruz. Fifteen publicly traded companies that control 60 
percent of the enrollments in the sector.
    The Chairman. Did you say 60 or 50?
    Mr. Cruz. Sixty.
    The Chairman. Sixty.
    Mr. Cruz. Six-zero. And a sector and some players within 
that group that have experienced even higher rates of growth. A 
case in point, Bridgepoint, Inc., which was recently discussed 
in one of your hearings, that within a 6-year period 
accomplished an outstanding 23,000 percent increase in 
enrollments. And it's also a sector where some of the players 
are able to generate operating profit margins that exceed those 
of industry giants like Hewlett Packard and Apple. So those 
things in and of themselves are good. There's nothing wrong 
with them, except that in terms of the concerns that we should 
have, the success of their students does not seem to be as well 
aligned in terms of generally speaking in the sector to the 
success of the stockholders of these companies.
    So that's the state of affairs today. It is what it is. We 
need to find ways to move forward, which I think is the purpose 
of this roundtable today.
    What does a successful for-profit sector look like? I would 
say that a successful for-profit sector is one that embraces 
the strategic context in which they're immersed, in which the 
country is immersed, and it's a strategic context whereby we 
have determined that economic competitiveness is the name of 
the game, that we have reached consensus that the only way to 
be economically competitive is if we once again lead the world 
in educational attainment, and that in order to do that, the 
workforce projections facing the United States, we need to take 
care of the students that have traditionally been underserved, 
because these are the students that, because of demographic 
shifts in America, will be able to take us to once again lead 
the world in educational attainment and continue to be 
competitive economically.
    To the extent that we can create policies that will allow 
the sector to align the incentives and the projections to the 
projections and needs of the country, I think that we might be 
able to get to a place where the for-profit sector is high 
performing, if you will.
    Otherwise, if we can't do that, then I think it's important 
to remember that public dollars are scarce. And if for-profit 
education expects us to continue to out-source our higher 
educational needs to them, they need to demonstrate the 
particular ability to educate the students that need it the 
most. If they do so, that's great; and if they don't, then 
maybe we need to rethink whether or not we are better off 
investing our scarce funding to strengthen public institutions 
to provide what ultimately, given our collective aspirations, 
is a public good.
    The concern is the general state of affairs today. A 
successful for-profit sector is one that embraces the country's 
needs, as well as their stockholders' needs, and the direction 
in which we should take policy is one that would look at the 
trajectory of success for these institutions in terms of the 
trajectory of success of their students.
    The Chairman. Thank you very much.
    [The prepared statement of Jose Cruz follows:]
                    Prepared Statement of Jose Cruz
    The Education Trust has contributed to the national discussion 
about for-profit colleges and has closely followed the investigation, 
led by the U.S. Senate Health, Education, Labor, and Pensions (HELP) 
Committee, into the sector's professional performance and practices. As 
a research and advocacy organization that promotes high academic 
achievement for all students--pre-kindergarten through college--we are 
deeply troubled by the sector's aggressive and questionable marketing 
and recruitment practices, low student retention and student outcomes, 
high cost and student debt burden, and soaring default rates, all of 
which have been uncovered during these proceedings.
    Our November 2010 report, ``Subprime Opportunity,'' examined the 
graduation rates and debt burdens incurred by students who entrust 
their futures to for-profit college companies. Our examination revealed 
that, too often, for-profit institutions enroll students in high-cost 
degree programs that saddle the most vulnerable ones with more debt 
than they can reasonably manage to pay off, even if they do manage to 
graduate.
    Our March 2011 Senate testimony before the HELP committee stressed 
that for-profit college companies demand new attention and a new 
approach to regulation, that oversight is badly needed for an industry 
that makes billions from taxpayer subsidies, and that inaction is 
certainly not an option.
    Today, we present a six-element framework to improve for-profit 
education in America to ensure students get the education that they are 
promised, and that taxpayers make a worthwhile investment. The 
framework requires:

    1. For-profit colleges, Federal and State regulators, accrediting 
bodies, and advocacy organizations to embrace the country's economic 
competitiveness as the strategic context in which all higher education 
sectors operate.
    2. Policymakers to address the misguided K-12 and higher education 
policies and practices that have led to the disparities that gave rise 
to the current state of for-profit college education.
    3. Policymakers and for-profit colleges to level the playing field 
by eliminating the most toxic academic programs, and by strengthening 
consumer information and protections.
    4. Policymakers to incentivize investments in student success and 
controlling the student debt burden.
    5. Policymakers, regulators and accrediting bodies to contain risk 
by implementing effective quality controls, and by strongly enforcing 
the corresponding laws and regulations.
    6. Policymakers to encourage disruptive innovations in the for-
profit college sector--innovations that will transform the dismal 
student outcomes that currently plague the sector and cause the most 
harm to the most vulnerable students who, because of demographic 
shifts, could in fact contribute the most toward our collective 
aspirations.

    We can't meet the workforce demands of tomorrow unless we clean up 
the for-profit college sector today.
    A brief description of the framework is presented below. Details 
will be provided during the roundtable discussion.


                       embrace strategic context
    Educational Attainment Goals: If we are going to meet the 
President's goal to be first in the world in college degree completion 
by 2020, we need all college degree completion by 2020, we need all 
sectors of higher education to be contributors to degree attainment.
    Workforce Projections: Competing in the international economy is 
more difficult every day. In order to prepare our country for the 
workforce demands of the future, we must educate our students today. By 
2018, 63 percent of jobs will require a postsecondary degree, and 22 
million new college degrees will be needed to meet workforce demands. 
If we continue on our current path, we will have a degree shortfall of 
3 million postsecondary credentials. At a time when the world is 
demanding more of students--higher degrees, more sophisticated 
knowledge--we cannot expect less of the institutions that seek to 
educate them.
    Demographic Shifts: Low-income students make up 44 percent of the 
elementary and secondary student population. The more than 49 million 
students in public schools in 2009 represented a 13 percent increase 
over the number enrolled in 1994. That enrollment jump is due in large 
measure to increased numbers of students of color--African-American 
student enrollment increased 15 percent, Latino enrollment increased 91 
percent and Asian-American enrollment increased 57 percent. On the 
other hand, there are actually six fewer white students enrolled than 
in 1994. Given these demographic shifts, we must get better at offering 
equitable educational opportunity to students of all backgrounds.
    State of For-Profit Education: For-profit colleges rake in a high 
level of Federal dollars relative to the number of students they serve. 
While they enroll only 12 percent of the Nation's college students, 
they consume 24 percent of all Federal student-loan dollars. And their 
proportion of loan defaults is even higher: For-profits produce 43 
percent of all defaults on Federal loans.
                          invest in prevention
    Address Misguided Policies: Low-income students and students of 
color are doing their part to advance America's goal to become the best 
educated country in the world: Some 86 percent of African-American and 
80 percent of Hispanic high school seniors plan to attend college. This 
is remarkable, given that these students are clustered in K-12 schools 
where the Nation spends less, expects less, teaches them less, and 
assigns them our least qualified teachers. Unfortunately, traditional 
institutions of higher education are not responding with the increased 
levels of access and opportunities for success that these students 
deserve. This reality, coupled with billions of dollars in Federal 
subsidies and lax regulations, has created a formidable market for the 
for-profit college sector--a market whose growth seems impervious to 
lackluster student outcomes.
    The problem is not the ``for-profit'' nature of these colleges, it 
is that their returns are a function of sustained failure, rather than 
student success: failure of the K-12 system to prepare all students for 
college and career; and failure of public and private nonprofit 
colleges to provide access and success for low-income students and 
students of color. Any attempt to improve for-profit education must 
include a rethinking of the misguided K-12 and higher ed policies that 
have fueled the sector's growth to a ``too-big-to-fail'' status.
    K-12 Policies and Practices: No Child Left Behind (NCLB) has 
revealed many uncomfortable truths about our Nation's schools. It has 
laid bare painful and damaging achievement gaps. It has exposed too 
much mediocrity. And it made plain that adequate preparation for 
success beyond high school is not a corollary of meeting the 
``proficient'' level of student performance. As we reauthorize NCLB, we 
need to raise our sights. That means new and higher standards; new and 
higher quality assessments; new and better ways to measure teacher 
impacts on student learning, and new, richer supports for teachers.
    Higher Ed Policies and Practices: Poor and working-class students 
trying to pay for a college education already face a perfect storm: 
Tuition is skyrocketing, Pell's purchasing power is dropping, and 
precious financial-aid dollars are shifting away from them and toward 
more affluent students who would attend college regardless of whether 
they got financial aid. Currently, public 4-year institutions spend 
about the same amount in grant aid on low-income students as they do on 
wealthy ones. As a result, a typical low-income student has to finance 
an amount equivalent to about 72 percent of his or her family's annual 
income to attend college. These practices need immediate attention and 
action: we need cost-saving strategies in our colleges and universities 
and a redirection of institutional aid toward students who actually 
need it to attend.
                        level the playing field
    Eliminate Toxic Choices: For-profit colleges need to deliver on the 
promise of opportunity they have made to students and taxpayers alike, 
earning their profits through innovation in educational delivery, 
rather than through under-investment in student success. In the absence 
of strong gainful employment regulations and the spirit of meaningful 
and sincere reform efforts, for-profit institutions should step up, 
review their program offerings, and eliminate those that are not 
serving a workforce need or graduating students with job prospects that 
will allow them to payback their student loan debt and to sustain their 
families.
    Strengthen Consumer Information and Protections: Design a more 
complete method to calculate graduation and placement rates and require 
institutions to publish them in obvious places on their Web sites. What 
students care about is whether they will graduate and what the 
difference will be between their pre-enrollment earnings and what they 
earn postgraduation. This information needs to get into students' 
hands, not lie buried on a Web site. And it needs to be available in an 
intuitive and standardized format which allows for comparison among 
institutions.
    Strengthen laws around overly aggressive marketing and 
advertising--it's hard for students to sift out legitimate information 
from the excess of ads and marketing material they receive and there is 
little to no recourse for students that are taken in by misleading 
advertising. Furthermore, take a close look at how some for-profit 
colleges offer and manage their own private loans to students. The 
opportunities for conflicts of interest and perverse incentives are too 
numerous and too dangerous to ignore.
                    nudge for-profits toward success
    Completion Incentives: Students who leave college without a 
credential are more likely to be delinquent or default on their loans. 
Recent research shows that more than half of students who left without 
a credential became either delinquent or defaulted on their loans. So, 
we need strategies to incentivize institutions toward student success, 
and to hold them accountable for that success--both in terms of college 
completion and loan repayment. And, you could explore risk-sharing 
models around student borrowing and loan debt so that both students and 
institutions have some ``skin in the game.''
                             contain risks
    Quality Controls: Accreditors and States need to carry their 
weight. The transfer of accreditation with a change of ownership should 
be banned. Institutions should not be allowed to offer programs that 
require specialized accreditation for licensure purposes unless they 
have the required specialized accreditation. And accrediting bodies 
should certainly be measuring student success. States simply need to 
start regulating beyond the absolute minimum, which is what many do 
today.
    Strong Enforcement: It's not enough to put new laws, standards, and 
regulations in place. The Federal Government, States, and accrediting 
agencies have to commit to enforcing them as well.
                          encourage disruption
    Transformative Change: At least one major for-profit college 
company needs to step forward and commit to increasing its success 
rates and lowering its students' debt levels through a concrete and 
persuasive goal. A challenge needs to come from within the sector that 
it's not acceptable to just admit students--institutions must also be 
committed to the success of each student they admit. Public university 
systems in the Ed Trust/NASH Access to Success Initiative have set the 
goal of increasing the number of degrees in their States, and halving 
access and success gaps for low-income and underrepresented students of 
color by 2015. These systems also have committed to publicly reporting 
their progress. Why shouldn't institutions in the for-profit college 
sector do the same?

    The Chairman. Mr. Batson, what metrics do you use? I've 
looked at your schools. You have high completion rates. What 
metrics do you use to measure student success at your colleges? 
Is it job placement? Is it income earning? What is it? What do 
you use to measure your success?

 STATEMENT OF HAYES BATSON, PRESIDENT AND CEO, REGENCY BEAUTY 
                  INSTITUTE, BROOKLYN PARK, MN

    Mr. Batson. If I could, what I'd like to do is provide just 
a little bit of background.
    The Chairman. Sure.
    Mr. Batson. Because we're somewhat different in that we 
operate not only as a vocational school, but because we're 
focused on beauty, we're a clock-hour school rather than a 
credit-hour school. And what that means is that we're regulated 
fairly differently by the triad, and in a much more robust way 
by our States and by the accreditors than many other 
institutions.
    We've learned some things through this interaction with the 
States and the accreditors that we think have been helpful to 
us and may be helpful more broadly in higher education.
    Our students come to us with many different dreams and 
goals. If I ask students what they hope to do, the answers 
range from I want to own my own salon someday to I want to 
provide a better life for my babies than I had. And so we're 
all about helping our students achieve their career and their 
life goals.
    The way we do that is by focusing on four things while our 
students are with us.
    First we focus on attendance. We know minute to minute who 
is there and who is not, and we intervene very quickly if we 
see attendance starting to diminish because that's one of the 
biggest issues and the biggest challenge for our students, is 
just overcoming the life issues, the transportation issues, the 
health issues, the childcare issues that they need to get to 
school every day. So we've put a lot of focus there, and I'll 
talk about that later.
    No. 2, we focus on completion. Students come to us because 
they want a career in the beauty industry. They've known this 
in most cases since they were little children. I can't tell you 
how many students--when I've said how did you know you want to 
get into this--said I did my doll's hair when I was 6 and I 
knew, or I've been doing my friends' hair for my whole life, or 
my grandmother asked me to do her hair and I figured out that I 
was really good at it.
    And so in order to achieve that dream, they have to 
complete. You cannot work in the beauty industry without a 
license in all 50 States. So if a student drops out of the 
program, they cannot work in our industry. So we take 
completion extremely seriously.
    The next thing we focus on is licensure. And every State 
offers either and/or written and practical tests that the 
students have to pass. And so we're very rigorous about trying 
to prepare our students for those. We offer mock exams at three 
different points in our program, which is 1\1/2\ academic 
years, 1 calendar year.
    And then finally we focus on placement. So that's the 
fourth metric.
    The Chairman. What is that?
    Mr. Batson. Placement.
    The Chairman. Placement.
    Mr. Batson. Again, it's very clear, we run short programs. 
They lead to real jobs, and----
    The Chairman. Do you have placement officers in your 
school?
    Mr. Batson. We do, we do, and I'd be happy to provide more 
color on that as we go through the hearing in terms of the 
kinds of things we do, the amount of support we provide, the 
number of people involved and so forth.
    But those are our big four.
    The Chairman. I'd like to know, if I could, Mr. Batson, the 
ratio, like how many students you have. You have, what, 60,000 
or something?
    Mr. Batson. No. We have between 5,000 and 6,000 students, 
depending on the time of year.
    The Chairman. OK.
    Mr. Batson. We operate fairly small campuses that are 
located in major retail areas near where students live and 
work, and there will typically be 50 to 100 students per 
campus.
    The Chairman. I see. How many placement officers would you 
have for that many students?
    Mr. Batson. Let me explain how we do placement.
    The Chairman. OK.
    Mr. Batson. Because we have two different types of people 
involved in the process. We have student advisors who 
coordinate the delivery of all services to our students while 
they're with us, and those folks work with dedicated financing 
advisors and dedicated career advisors in order to support the 
students.
    The way it works is we have about 24 or 25 of these student 
advisors, and then we have 9 people who are specifically in 
career placement. The advisors interface directly and regularly 
at key milestone points with the students.
    The Chairman. I see.
    Mr. Batson. The career advisors are very, very focused on 
building relationships with the employer community, getting 
them in as guest speakers, running salon fairs, signing 
students up on our free beauty jobs Web site that connects them 
to the employment community. And so they work hand-in-hand with 
the advisors to bring the salon community in and connect it 
with the students.
    The way we look at it is we have roughly 25 people in 
student advising, about 30 to 40 in financial counseling. It 
helps them with financial aid and any other issues that come 
up. And then 8 to 10 who are more employer-facing in the 
organization.
    The Chairman. Very good. Thank you, Mr. Batson.
    [The prepared statement of Mr. Batson follows:]
                   Prepared Statement of Hayes Batson
    Good afternoon. I am Hayes Batson, Chairman and CEO of Regency 
Beauty Institute. Thank you for the opportunity to participate in this 
roundtable discussion aimed at improving higher education.
    Regency is a Minnesota-based vocational education provider focused 
on cosmetology. We are privately held, were founded more than 50 years 
ago, and serve 6,000 students through 87 campuses in 20 States.
    We differ from traditional educators in several key ways.

     Our programs are offered on a clock-hour basis (rather 
than credit hour) and lead to State licensure which is required to 
practice as a cosmetologist in all 50 States.
     States prescribe most major aspects of our programs 
including length, attendance and time recording, faculty ratios and 
training requirements, curriculum, and number of practical services by 
type. In a number of States we track and report this data on a daily or 
monthly basis.
     Our students learn in a ``hands on'' manner by practicing 
services on guests and mannequins in small, salon-like campuses located 
in major retail areas.

    We are accredited by the National Accrediting Commission of 
Cosmetology Arts and Sciences which monitors many aspects of our 
educational program and requires us to meet minimum student outcome 
thresholds in areas such as graduation (50 percent), licensure (60 
percent), and placement (70 percent). At a Federal level we are subject 
to the same laws and regulations that apply to other proprietary higher 
education institutions participating in title IV.
    I am concerned about the sustainability of our current higher 
education system. There are undoubtedly cases of misinformation and 
abuse in proprietary schools, and the HELP Committee's work has brought 
these to light. I believe these issues are addressable through sound 
policy and enforcement and look forward to working on solutions. In 
addition, there are major structural issues in higher education around 
quality, cost and access that must be tackled, and I hope we will have 
an opportunity to discuss those today. For example, since the economic 
downturn began in 2008 our student mix has shifted towards independent, 
Pell eligible students who report more life obstacles and lower incomes 
prior to entering school. These students need education to build 
successful careers and lives, but experience challenges that affect 
their success rates. We must crack the code to success for these 
students.
    Educational success requires a partnership between the school, the 
student and the student's parent, spouse, or other supporters. Schools 
should be accountable to students and taxpayers. We are facing huge 
Federal deficits, a stagnant economy, and growing pressure to 
demonstrate a return on our public investment in education. Now is the 
time to reform our current regulatory system to create a healthy long-
term higher education environment for students, taxpayers and quality 
schools.
    There are countless regulations in place today but many are 
indirect, ineffective or unevenly enforced attempts at ensuring that 
students get a quality education at a good value. We envision the 
creation of a new regulatory framework based on: (1) program cost and 
benefit information--right stuff, right format, right place; (2) 
verification--internal controls, auditors, accreditors, D Ed; and (3) 
thresholds for title IV participation--completion, licensure and 
placement. This framework should replace not supplement the current 
patchwork of regulation, be applicable to all of higher education 
within a reasonable timeline, and consider implications on access and 
success rates of economically disadvantaged students. It could be 
supplemented with program lending limits that prevent students from 
over-borrowing in the first place by linking borrowing levels to the 
typical wages prevailing in the field served by the program.
    We recognize that a re-design of the regulatory framework will be 
difficult and will require all participants in the higher education 
process to work outside their comfort zones. For our part, we need to 
be willing to make changes in the way we design and deliver education. 
However, we believe the collective interests of students, taxpayers and 
quality schools will be served by taking the steps outlined here, and 
we are committed to supporting the process going forward. Thank you 
again for the opportunity to share our views.

    The Chairman. We'll go from a school that is--excuse my 
expression--narrowly defined--I mean, you have one thing that 
you teach--to one that's bigger and broader. DeVry is a much 
bigger school, much broader based. I was thinking about your 
metrics that you were using, Mr. Batson, attendance, I'm sure, 
through their completion. Licensure doesn't, I don't think, 
affects DeVry much, but placement obviously.
    Mr. Hamburger, going to a bigger school then, what are your 
metrics, and how do you look at student outcomes and how 
they're being reported?

STATEMENT OF DANIEL HAMBURGER, PRESIDENT AND CEO, DeVRY, INC., 
                       DOWNERS GROVE, IL

    Mr. Hamburger. Absolutely. Thank you again, Mr. Chairman, 
for the opportunity to focus on solutions. They say timing is 
everything. I think your timing is impeccable. It's a great 
time to be looking forward to that.
    And to your question of what does student success look 
like, what does a good private sector college look like, it's 
pretty similar to the answer I'd give what does any good 
college or university, whether public sector or private sector 
or independent, look like, and I think it's three things. 
You've covered some of them already. Hayes has talked about the 
metrics of outcomes.
    So No. 1, is outcomes. And in that, I would highlight five, 
some that overlap.
    First category, do the students learn? So, metrics of 
learning.
    No. 2, do they graduate? Do they complete? So we've talked 
about that.
    No. 3, do they achieve the outcome they set out for, which 
could be a career objective or admission to a graduate school?
    No. 4, licensure. And, yes, we do have programs that lead 
to licensure; for example, nursing. The Chamberlain College of 
Nursing we talked about does lead to licensure.
    The Chairman. You have a big nursing school.
    Mr. Hamburger. Yes, we do. So that's clearly, I think, a 
relevant metric.
    And then No. 5, are they repaying their loans? That's a 
relevant metric.
    Those would be the five outcomes of metrics in category one 
of what a successful college or university looks like.
    Second category, then, would be does the college or 
university hold to standards of practice? And we've outlined in 
our written submission a number of standards of practice, from 
disclosure, and not just disclosure buried somewhere in the Web 
site but active disclosure where you have to make sure you 
proactively give the information, even in written form as well 
as Web site form, to a student; and training and best 
practices. So that would be the second category.
    And then third, I would submit, a successful college or 
university is one that gives something back. So does it 
contribute to its community? And one example of that from the 
DeVry family of schools is the DeVry University Advantage 
Academy where, for the last 8 years in Chicago and the last 5 
or 6 in Columbus, OH, we've run a dual-enrollment early college 
high school in partnership with the school districts where high 
school students take high school courses and college courses 
from DeVry University professors and then complete both a high 
school diploma and a college associate degree, at no cost. And 
so I think giving back to the community would be the third 
category.
    The Chairman. Very good.
    [The prepared statement of Mr. Hamburger follows:]
                 Prepared Statement of Daniel Hamburger
    On behalf of the students, faculty and administration of the DeVry 
family of postsecondary institutions including the Carrington Colleges, 
Chamberlain College of Nursing, Ross University, and DeVry University, 
thank you for the opportunity to participate in this roundtable 
discussion focused on how the higher education community can continue 
to work together to maximize student achievement and economic and 
global competitiveness.
    The time is right for coming together to identify solutions. As we 
collectively work to address how we all can improve and serve students 
better, we need to look to the future and focus on the policy framework 
that will cultivate graduate success. We believe that for the Nation to 
achieve measurable improvements in student and institutional 
performance, we must do so collegially with stakeholders across higher 
education. To that end, we remain at the ready to work toward solutions 
by developing meaningful metrics and improving accountability and 
transparency in higher education.
    Education is the key to our Nation's economic success. As President 
Obama noted recently at a Jobs Council meeting,

          ``We're going to have to up our game when it comes to how we 
        train people for the jobs that actually exist, and design 
        credentialing training programs, apprenticeship programs, so 
        that people know if they complete this work, they are prepared 
        to work at an Intel or GE.''

    Two companies, I might add, that are in the top five employers of 
DeVry University graduates over the past 5 years.
    Individuals lacking post-secondary educational attainment are at a 
significant disadvantage in the modern economy. According to 
Georgetown's Center on Education and the Workforce, in 1973, only 28 
percent of U.S. jobs required a college education. By 2008, that number 
had increased to 59 percent. What this data shows is a new economy that 
is less about muscle and more about brains. College education, now more 
than ever, is critical to the well-being of our workforce and Nation's 
economic future. Private-sector education is part of that solution; we 
look forward to DeVry's family of schools continuing to play a critical 
role in meeting our Nation's future education needs.
                              about devry
    The DeVry family of institutions has a long history of serving 
students: DeVry University was founded in 1931 in Chicago and just 
celebrated its 80th anniversary; Chamberlain College of Nursing was 
founded in 1889, our Carrington Colleges were founded in 1967 and 1975 
respectively, and Ross University Schools of Medicine and Veterinary 
Medicine in 1978 and 1982 respectively. Our institutions are accredited 
by regional and national accrediting bodies, including the Higher 
Learning Commission of the North Central Association of Colleges and 
Schools (HLC), the Accrediting Commission for Community and Junior 
Colleges of the Western Association of Schools and Colleges (WASC), and 
the Accrediting Council for Independent Colleges and Schools (ACICS). 
In addition, many of our programs are programmatically accredited by 
specialized accrediting bodies, recognized by the U.S. Department of 
Education. We have graduated hundreds of thousands of students in 
programs ranging from medical assisting to family physician. We 
currently serve over 120,000 
degree-seeking students and have alumni and students in every State.
    Our commitment to student academic and career success is the 
superstructure that brings value to our students and the communities 
that we serve. That commitment is demonstrated in our efforts to 
continuously improve the quality of institutional programs and 
services, such as Carrington College's practice of reviewing each 
student's progress each week on an individual basis. Or DVU's use of 
student success coaches to monitor and advise students in the early 
terms of study, recognized by the Pell Institute as a promising 
practice to support high-risk students. Or our Keller Graduate School's 
partnership with CareerBuilder to provide personalized career services 
for its graduates.
    Our organizational philosophy can be summed up as, ``Quality leads 
to growth.'' We stick to that philosophy in everything we do. When we 
acquired Ross University School of Medicine, one of our first actions 
was to increase admissions and academic progression standards and 
cutting our enrollment. We believed that the short-term loss of revenue 
would bring long-term gains in student outcomes. The same was true in 
our acquisition of Chamberlain College of Nursing. Chamberlain was a 
quality nursing college, but small and underfunded. We invested in the 
college, purchasing state-of-the-art patient simulators and upgrading 
student support services. Chamberlain students have a 90 percent pass 
rate on their NCLEX exams, an indicator of quality outcomes.
                        private sector colleges
    I point out these successes because it is important to recognize 
the private sector's strength in issues like capacity, access, 
innovation, and quality. The private sector has not grown by accident. 
It has grown to meet a vast unmet need for more education.
    When States are cutting enrollments at their public colleges and 
universities because of State budget issues, private-sector colleges 
are adding more seats at lower cost to taxpayers--in fact, they pay 
taxes. At a time when we must educate more non-traditional students to 
meet our educational attainment goals, many of those students choose 
private-sector colleges. And when innovative educational models are 
called for, the private sector helped create online and blended 
approaches that have transformed how students are educated.
    But still, some have asked how private-sector or proprietary 
institutions are appropriately motivated to provide a quality education 
to our students. Some go further and assert that private-sector 
colleges simply cannot produce quality academic programs; that their 
incentives are de facto incompatible with serving students. What we 
know in practice is that a firm commitment to academic quality and 
student support services produces student success. Like any public-
sector or independent college (or any business for that matter), if we 
serve our students well, they will succeed, they will pass their 
boards, and hospitals and Fortune 100 companies will hire them. DeVry 
University is celebrating its 80th anniversary this year because it 
made those commitments to its students.
    Quality academics are the primary focus of any institution of 
higher education. DeVry uses a multifaceted approach to assist our 
students and graduates, combining innovative academic methodologies 
with focused support services.
                               technology
    DeVry uses innovative technology to improve and maximize student 
engagement. There are those that have expressed concerns about online 
learning in this regard. We believe that regardless of delivery 
modality student engagement is the key. Onsite, online and a 
combination of the two is what it takes to educate all of our students. 
We were one of the early leaders in the development of ``blended 
learning,'' the mix of these two learning modalities. A May 2009 
Department of Education meta-analysis of effectiveness studies of 
online, face-to-face and blended learning concluded that blended 
learning offers a larger advantage to students than do either 100 
percent face-to-face or online courses. We believe our emphasis on a 
blended approach most effectively meets the needs of our students.
                            academic support
    Chamberlain College of Nursing's Center for Academic Success (CAS) 
provides students with an opportunity to enlist the services of peer 
and professional tutors for assistance with course content in both 
nursing and general education courses. Tutors provide resources for 
academic support, advice on how to study and insight into particular 
classes and instructors. The Center also holds study sessions covering 
subjects like chemistry, microbiology, critical care nursing, 
pharmacology and algebra.
    The Center also provides an online tutoring service called 
SMARTHINKING that provides pre-licensure students with tutoring support 
in a variety of different subjects. Tutoring resources are accessible 
24 hours a day, 7 days a week, so that students can get help whenever 
it is most convenient. This service also allows students to access 
archived tutoring sessions for future reference.
                        student support services
    DeVry University's Student Central model provides centralized 
locations staffed with ``success teams.'' Teams include a student 
success coach (academic advisor) and a student finance consultant. 
Students are given course direction to make certain that they are 
taking the courses they need to graduate along with a means to map out 
their academic studies from one term to the next. The student finance 
consultant provides financial literacy tools and guidance to help 
students navigate the financial aid process, which can be very 
difficult for students who are the first in their family to go to 
college.
    Students may visit their success coach or consultant at will: 
additionally, new and first-time college goers receive more intrusive 
engagement given a general lack of familiarity with the college 
experience. The success team is also in constant contact with faculty 
and other academic staff to help coordinate a student's experience.
    If a student needs help, we want to know early and often so they 
can stay on track. We look at a variety of metrics to see how the 
student is progressing including persistence rates, credit hour load 
and student satisfaction. Any one of these indicators can give an early 
warning that a student may be experiencing difficulty, allowing our 
success teams to reach out and help.
    The Pell Institute recently released a qualitative study on DeVry 
University's support services for low-income, first-generation students 
and said, ``What is most promising about these categories is the 
calculated investment that DeVry University has made to weave together 
the practices, and how they continue to develop and refine these 
practices to better support their students . . .''
    DeVry University and Chamberlain also offer a service called 
ASPIRE. ASPIRE is a special program that provides all enrolled students 
direct and confidential access to counseling professionals who can help 
them stay focused on their goals during difficult times. This 
complimentary service is accessible 24 hours a day, 7 days a week, to 
help address any issues of a personal, family, financial or legal 
nature affecting students.
                            career services
    Our goal is that our graduates gain the academic knowledge and 
workforce skills to launch their careers. The student support and 
career services process begins the first time we meet a prospective 
student and goes on even after the student graduates--through lifetime 
career service guidance.
    Keller Graduate School of Management, a part of DeVry University, 
launched a first-of-its-kind, personalized career services program for 
its graduate students in conjunction with CareerBuilder, the global 
leader in human capital solutions. Through the Keller Career Services 
program, students have access to a dedicated team of career experts--
strategists, writers and coaches--for a high-level, personalized 
approach to career development.
    Eligible Keller students are individually assigned a Career 
Strategist to mentor them through an intense 90-day career search that 
encompasses assisting with establishing goals and expectations to 
customizing a personalized job search strategy. Additionally, these 
students have access to a certified career coach for mentorship on 
topics like interviewing techniques, career path planning, networking 
and workplace etiquette. Additionally, a CareerBuilder professional 
writer assists Keller students in the creation of career-related 
materials, such as keyword-rich resumes and cover letters to help 
Keller students stand out among job applicants.
                          potential solutions
    Over the course of the past 13 months, the committee has held a 
number of hearings focused on private-sector education. Throughout the 
course of the Senate hearings and public debate on the value of private 
sector provided education, different perspectives have been heard 
regarding the performance and value of higher educational institutions. 
Assessments of performance are typically made through one's own 
proprietary lens and, as a result, have led to vastly different 
perspectives of performance and value. However, there is common ground 
among all parties in two areas--the current metrics used to evaluate 
institutional performance are insufficient, and the opportunity exists 
to improve institutional programs and services. It is therefore 
reasonable that we begin seeking solutions on these common grounds, and 
we propose a policy framework comprising two pillars:

    1. Metrics of accountability
    2. Standards of best practices
                       metrics of accountability
    In developing proposed metrics, we suggest the following design 
principles:

    1. The metrics should be easily and clearly understood by 
educators, policymakers and the public. The number of metrics should be 
limited in order to minimize the occurrence of ``competing'' outcomes.
    2. Metrics should represent a final outcome as opposed to an 
interim measurement of performance. For instance, they should measure 
completion rate instead of retention rate or repayment rate instead of 
delinquency rate.
    3. Metrics should be relevant to the level of education. In 
general, it is not relevant to apply the same test to a certificate 
program and a graduate-level program.
    4. Metrics should be risk-adjusted to the students schools serve, 
and should be used to measure results amongst institutions that serve 
similar populations.
    5. Metrics should apply to all institutions: public-sector, 
private-sector, and independent.
    6. Metrics should be used to ``flag'' questionable performance, 
facilitating regulators' enforcement actions.

    There are five areas of measurement that are almost universally 
applicable within higher education:

    1. What did students learn;
    2. Did students successfully complete their program;
    3. Did they achieve the education or career objective which they 
sought from their education;
    4. Did they gain eligibility for their chosen profession; and
    5. Are they repaying their student loans?

    These are commonly measured and used to gauge performance and 
progress towards institutional goals. The following discussion 
illustrates ways in which the design principles can be applied to 
develop metrics to meet the goals for better transparency and 
accountability.
                        what did students learn?
    Measurement of Learning Outcomes can be taken at both the 
coursework and program levels. Tests such as the Collegiate Assessment 
of Academic Proficiency (CAAP), the Collegiate Learning Assessment 
(CLA) and the ETS Proficiency Profile all seek to measure the 
development of knowledge and analytical and communication skills across 
a span of time and coursework. Though imperfect, these tests can be 
used to reflect the differential amount of learning attained from the 
1st through the 4th years of study as well as the overall absolute 
amount of knowledge gained at an institution as compared to peer 
institutions or a national standard. Similarly, measurements of 
analytical, quantitative and verbal abilities are taken with graduate 
school admissions tests (GMAT, GRE, etc.) and could be applied to 
program and institutional graduates. Metrics of learning outcomes are 
used in other settings, including in the United States in K-12 
education, and in Brazil in postsecondary. In Brazil, every 
institution, regardless of public- or private-sector status, is 
measured by the performance of its graduates on learning assessment 
exams.
           did students successfully complete their program?
    In measuring completion rate, it is important that we compare 
``apples with apples.'' We propose a system whereby all students are 
counted, and completion metrics are viewed in the context of the 
student population being served. As referenced above, the predominant 
metric for completion rates currently omits many students from 
measurement. For example, the measurement does not count a student who 
enrolls for 1 year, then transfers with credits to another institution 
and successfully completes a certificate or degree as a ``success'' for 
the initial institution. Likewise, institutional completion rates 
should be viewed in comparison with other institutions that serve a 
similar student population, taking into account current Education 
Department risk factors. Finally, completion measurements could include 
completion rate for all enrollments (including transfers, part-time and 
starting dates outside the fall term), on-time completion rates 
(students completing program within an institutionally defined and 
disclosed normal period of enrollment) or a progress rate (successful 
completion of courses attempted within the past year).
 did they achieve the education or career objective which they sought 
                         from their education?
    Metrics that provide an accurate reflection of program graduates' 
employment or acceptance to graduate schools are helpful in evaluating 
institutional quality. In developing employment metrics we can learn 
from the experience of national accreditors, who for many years have 
mandated collection of employment outcomes. It is critical that these 
measurements be applicable to the scope of the program. Whereas a 
Diagnostic Medical Imaging certificate may be a prerequisite to 
employment in the field, there are many programs (such as a graduate 
program in Computer Information Systems) that augment students' 
knowledge and skills allowing them to continue and advance in fields in 
which they are already employed.
         did they gain eligibility for their chosen profession?
    For programs in fields where licensure is required, this metric 
presents a clear, objective measure of institutional accountability. 
Licensure passage rates are available in programs ranging from 
cosmetology certificate programs, to nursing, to post-baccalaureate 
professional programs.
                 are they repaying their student loans?
    Repayment or default rates have been used as a proxy of 
institutional or program quality. A cohort-based default rate provides 
greater transparency into the potential impact on individual students, 
whereas a dollar-weighted default rate provides greater transparency 
into the taxpayer's risk with a particular school's participation in 
the loan programs. Whereas the use of a default rate is consistent with 
design principle #2, the Department's recent development of a loan 
repayment rate represents an interim measurement and is imprecise in 
actually measuring borrowers' status in meeting repayment obligations. 
Current measurement of cohort default rates is similarly imprecise in 
that it fails to accurately account for loans whose default is delayed 
through the use of deferments and forbearances. We propose the 
development of dollar-weighted, risk-adjusted repayment in conformance 
with design principle #3 (did students achieve the education or career 
objective which they sought from their education) to meet our standards 
for transparency and accountability.
                      standards of best practices
    The second area of common ground is the opportunity all 
institutions have to improve programs and services to students. This 
opportunity becomes even greater as education opportunity is extended 
to larger populations to meet future workforce needs and the 
President's 2020 goals. The following summarizes the standards and 
practices which can serve to protect both students and taxpayers.

    1. Prospective students should have sufficient information provided 
to them to make sound decisions regarding their education alternatives 
and career and financial implications of their decisions.
    2. Schools should provide all prospective students with information 
regarding employment outlook, costs and financing for their programs of 
study prior to any students' incurrence of a financial obligation. Such 
information should include:

    a. Accreditation of institution and program, including graduates' 
qualification for licensure in associated occupations;
    b. Graduation rate of students entering the program;
    c. Employment rate (in field of study) of graduates;
    d. Licensure pass rates of graduates;
    e. Total tuition and fees of the program;
    f. Information from the Bureau of Labor Statistics on outlook of 
occupations associated with the program of study, including number of 
new jobs forecasted in these occupations and median earnings associated 
with those occupations;
    g. Median debt incurred by graduates of the program; and
    h. Cohort default rate of students graduating or withdrawing from 
the program.

    3. To protect students from well-intentioned, but poorly understood 
decisions, institutions should adopt a trial policy which provides some 
financial protection for at-risk students. A model for such a policy 
might provide that:

    a. First-time students (first time in any postsecondary education) 
may withdraw during the first 14 days of enrollment with a 100 percent 
refund of tuition and fees and institution-provided room and board. All 
loan funds will be returned to the lending source. Grant funds will 
only be retained to cover unpaid costs associated with unreturned books 
and equipment.
    b. Students repeating failed remedial or developmental coursework 
will not be assessed tuition for that coursework.

    4. Progress reports should be provided at regular intervals to 
students to enhance their ability to manage their education. A model 
for such reporting may include:

    a. Progress towards degree or certificate, including number of 
credits earned to date and remaining number of credits needed to 
complete the program;
    b. Cumulative grade point average;
    c. Total tuition and fees assessed to date for studies within the 
current program;
    d. Total debt incurred to date toward studies within the current 
program, including name and contact information for each loan-holder 
and the principal amount disbursed from each; and
    e. Prospective students should have access to professionally 
trained staff who will serve them in a knowledgeable and ethical 
manner. This may include the following:

        i. All recruiting and financial aid staff will be required to 
        complete compliance training at least once per year. Such 
        training may include, but not be limited to, regulatory 
        requirements and restrictions related to:

          1.  Misrepresentation;
          2.  Compensation;
          3.  Institutional eligibility for title IV assistance;
          4.  Program eligibility for title IV assistance;
          5.  Student financial assistance eligibility; and
          6.  Student financial assistance programs, including 
        specifically, requirements and repayment obligations of student 
        lending programs.

    5. Institutions of higher education should continually assess their 
effectiveness. A model for assuring this assessment is captured would 
provide that:

    a. Institutions will collect input from students, alumni and 
employers to assess the effectiveness of their programs in meeting 
educational and posteducational objectives.

           i.  Students will be, no less than annually, surveyed 
        regarding effectiveness of faculty instruction and 
        institution's support for student success.
           ii.  Alumni will be, no less than tri-annually, surveyed 
        regarding the success of the educational program in preparing 
        them for careers in their fields of study.
         iii.  Employers will be, no less than tri-annually, surveyed 
        regarding the sufficiency of the preparation and skills of 
        graduates of the institution.
         iv.  Survey results will be published and made available to 
        prospective and current students.

    6. Ideally, all institutions would voluntarily ascribe to improving 
these types of practices. Compliance with each can be assured by 
including these activities in the institution's annual compliance audit 
requirements for Federal Student Assistance program eligibility. As a 
publicly held organization, DeVry embraced Sarbanes-Oxley when it was 
enacted and we believe the time is right for a similar model to be 
considered in the context of higher education.
                               conclusion
    President Obama recognizes the significant challenges we face, and 
has set ambitious, yet achievable goals. He said:

          ``To get there, we have to realize that in today's global, 
        competitive economy, the best jobs and newest industries will 
        take root in the countries with the most skilled workers, the 
        strongest commitment to research and technology, and the 
        fastest ways to move people, goods, and information. To win the 
        future, America needs to out-educate, out-innovate, and out-
        build the rest of the world.''

    Given the difficult budget choices facing State legislatures, 
public colleges and universities cannot meet our capacity needs alone. 
As education researcher Sandy Baum has noted,

          ``Many for-profit institutions provide students with 
        opportunities not available to them at public colleges. We do 
        need a wide variety of programs and institutions to serve at-
        risk students if we are going to achieve our goals for 
        increased educational attainment.''

    DeVry's Chairman, Dr. Harold Shapiro, also recognizes this need for 
a broad spectrum of educational opportunities. He has a unique 
perspective on higher education, having been president of one of the 
leading public-sector schools, the University of Michigan, one of the 
leading independent schools, Princeton University, and now a leading 
private-sector institution.
    He says:

          ``. . . one of the strengths of the American system of higher 
        education is its diversity of choice. Public-sector, private-
        sector, independent universities, community colleges--they all 
        serve different niches in higher education, and there is 
        strength in this variety.''

    We have an educational infrastructure second to none: world-leading 
research universities, liberal arts colleges, a dynamic and far-
reaching community college system and a growing and vibrant private 
sector.
    Private-sector institutions are demonstrating the vital role they 
play by serving a growing percentage of non-traditional students 
enrolled in higher education--the very students we need in order to 
reach our college attainment goals.
    As Secretary Duncan said at DeVry's policy forum held in May 2010,

          ``For-profit institutions play a vital role in training your 
        people and adults for jobs and for-profits will continue to 
        help families secure a better future. They are helping America 
        meet the President's 2020 goal and helping us meet the growing 
        demand for skills that our public institutions cannot begin to 
        meet alone, especially in these economically challenging 
        times.''

    Solutions-oriented discussions are the right start. DeVry looks 
forward to working together with policymakers and our colleagues in 
higher education to regain our edge in an increasingly competitive 
global economy.

    The Chairman. Bob Shireman, let's stay on this for just a 
little bit longer. Again, we look at Federal aid, Pell grants 
come through this committee and on my appropriations committee. 
I've got to find $11 billion this year to fill the Pell grant 
gap, $11 billion. I don't know where I'm going to find it.
    A lot of the Pell grants are going to for-profit schools. 
We know that. It's increasing. And again, I wouldn't mind that, 
as long as the students are achieving and getting outcomes.
    But how do you see this in terms of what's happening with 
our Pell grants, and how do we make sure that we're getting the 
best use of those dollars? That's something we grapple with 
here.

        STATEMENT OF BOB SHIREMAN, CALIFORNIA COMPETES, 
                       SAN FRANCISCO, CA

    Mr. Shireman. Yes, it is something that I have grappled 
with, and I think some very important steps have already been 
taken in that regard.
    I find that the potential for what for-profit colleges can 
deliver to be very compelling. And I think back to 2\1/2\ years 
ago when I was on the Obama-Biden transition team and we were 
meeting with all kinds of groups, and that included groups of 
representatives of for-profit colleges. And here we were in the 
beginnings of the recession, and they were talking about 
connecting with industry and being innovative, responding to 
student needs and what industry really needs, and being nimble 
in terms of being able to be responsive, and those are all of 
the kinds of things that I think we should look for in all of 
our colleges, and I think a good case can be made that there's 
the real potential for that to be faster and better in for-
profit colleges.
    What we found, unfortunately, was that when we started 
looking at the numbers, it didn't match up. The reality wasn't 
close enough to the rhetoric for comfort, and I think that's 
what you've been seeing now. The need for some kind of 
indicators to use in regulation.
    I think we also need to think about how students think 
about their options, and this issue of disclosure is really 
important because while I agree that disclosure is important, 
there's an issue of timing and context.
    Too often, a disclosure is something that happens when a 
purchase decision has essentially already happened and someone 
is given a 3-page form, little print, and it says, ``oh, one 
more thing, you have to sign this.'' And it ends up 
accomplishing nothing in terms of them really thinking about 
the purchase that they are making. Really, all it ends up doing 
is it becomes a document in court later where the school can 
say, ``look, we told them their credits might not transfer.''
    What we need to think about is how do we get that kind of 
disclosure happening from a neutral party much earlier in the 
process, because the information that a student needs is 
information just when they're starting to think about I maybe 
want to improve my skills, I maybe want to go back to school, 
and they need to be thinking about questions like: do I have 
the time to go full-time; what are my options that are part-
time; or do I want it to be a situation where I can meet other 
people, so it can be a ground campus as opposed to an online 
campus, and then becoming aware of things like default rates, 
graduation rates, placement, is licensure an issue for the 
careers that they might be interested in.
    Unfortunately, now when people have these thoughts about 
college, they go on the Internet, and the next thing you know 
they're on the phone with someone who is not an advisor. They 
are a recruiter trying to get someone to sign up for that 
school, and they'll end up getting that worthless disclosure 
statement later, trying to figure out how we get human contact 
with low-income students, veterans, etc, who are beginning to 
think about I want to figure out what's going to be a good 
college match for me.
    The Chairman. So you're saying put disclosure more up 
front.
    Mr. Shireman. Put disclosure more up front, but not by the 
schools. Some other neutral--and I don't know if that's taking 
our 1-800-FOR-FEDAID phone folks who exist now and----
    The Chairman. No, I've seen different disclosures. I looked 
at DeVry's disclosure, for example. It's pretty comprehensive. 
There's a lot of stuff there. I've looked at other schools' 
disclosures, and there is not much there. And so I got to 
thinking should there be some kind of comparative, some kind of 
comparisons somewhere in there? One school has a lot of 
disclosure, another school has just a few little things in 
there and you can't really get through the haze.
    Mr. Shireman. Yes, comparison is critical, because you 
can't know what--is 50 percent good or bad in terms of 
placement, graduation, etc.
    The Chairman. Mrs. Petraeus, I want to get to you because a 
couple of years ago, 3 years ago Congress passed the Webb bill, 
as we call it, which really we all supported because we thought 
it was a good thing to do, which allowed us to get more Federal 
aid to military personnel who were active duty, who had served 
I believe it was 90 days at least in a theater of war, in Iraq 
or Afghanistan. And so we opened up aid to military personnel, 
active duty, and their families, which we all thought was a 
good thing to do. I still think it's a good thing to do.
    But what we found was in the intervening couple of years, 
more and more of the for-profit colleges really going and 
recruiting military people. If you look at the graph--and I 
don't have it now, but in our previous hearings I showed it--
how much more of the military money now was flowing into the 
for-profit schools.
    Tell me from your experience, do you think military people 
are getting the kind of disclosures or information they need to 
make a wise choice on a for-profit school?

      STATEMENT OF HOLLY K. PETRAEUS, DIRECTOR, OFFICE OF 
 SERVICEMEMBER AFFAIRS, CONSUMER FINANCIAL PROTECTION BUREAU, 
                         WASHINGTON, DC

    Mrs. Petraeus. I will say that I really first became aware 
of this issue when I read an article about somebody who 
certainly did not get that disclosure. It was an article in 
Business Week in January 2010 that said U.S. Marine Corporal 
James Long knows he's enrolled at Ashford University; he just 
can't remember what course he's taking.
    He was a veteran, a Marine with traumatic brain injury who 
had been recruited by a recruiter who had come to the Wounded 
Warrior Battalion at Camp LeJeune, NC, where he was staying 
during his convalescence and signed him up for classes that 
obviously he was not capable of taking advantage of.
    So I think it's a wonderful benefit that was passed, and 
certainly there are many military families who are very 
grateful for the opportunity to transfer those benefits in some 
cases to their family members. But an unintended consequence of 
the fact that the 90/10 rule, where the military G.I. bill and 
tuition assistance benefits are not counted in the 90 percent 
title IV education funds but in the 10 percent--
    The Chairman. Right.
    Mrs. Petraeus. It's made them a target for very aggressive 
recruiting, because for every one G.I. bill or tuition 
assistance recipient that you can recruit, you can get nine 
other students in your title IV category. So unfortunately, I 
think military folks at this point are seen like a dollar sign 
wearing a uniform for many recruiters in the for-profit model. 
They're seen as cash that enables them to sell more of their 
product, and that's unfortunate.
    You talked about what constitutes student success, and to 
me success would be a military student that comes out of it 
with a degree that they can use for gainful employment to 
become a productive member of the economy after they obtain 
that degree. There was a great success story after World War 
II. That generation of veterans came home, went to college on 
the G.I. bill, and really became the engine that drove our 
economy to the success that it achieved, and that's what I 
would love to see happen today.
    Unfortunately, I think the way things are configured right 
now, folks are being aggressively recruited into programs that 
are not necessarily ones that are designed for them to succeed. 
And when they're on active duty with tuition assistance, they 
do have to do that through an education counselor at their 
military installation, so they do get some help evaluating 
programs.
    But the G.I. bill, there really isn't that assistance. 
There's very little comparison shopping to be done, and the 
Consumer Financial Protection Bureau is all about being able to 
comparison shop for credit cards, for mortgages, and I say it 
should be for student loans as well.
    There should be an understandable piece of paper where you 
can look at what does it cost, what are the gainful employment 
or licensure rates coming out of it, what are the graduation 
and retention rates, can I transfer my credits, what is the 
accreditation, is it regional, is it national, will it be 
accepted. All of those things, I think, are something that, in 
order for military people to get the most out of this very 
generous benefit, they should be able to see up front.
    The Chairman. And I know you made this point, but I think 
it's worth repeating and emphasizing, and that is that once a 
G.I. has used up their G.I. bill or used up these benefits, 
they never get them again.
    Mrs. Petraeus. No. It's done. So if they have squandered 
them basically on a program that turns out not to be accepted 
anywhere, not to be transferrable if they didn't finish the 
degree, basically they've got a whole lot of nothing, and they 
have to start from scratch and pay for it themselves.
    The Chairman. Thank you.
    For the Senator who just showed up, we're having a 
roundtable discussion. It's not a hearing as such. I want to 
get people engaged. We just started this.
    The first topic that I threw out there was outcomes and how 
we measure outcomes and what the different schools do to look 
at the outcomes and what students should know before they sign 
up.
    I've said anybody that wants to interject, put their sign 
up, and Senator Franken put his sign up.

                      Statement of Senator Franken

    Senator Franken. Thank you, Mr. Chairman. Thank you for 
having this roundtable.
    Mrs. Petraeus, thank you for coming to my office the other 
day. I was very taken with you and what we talked about, and so 
I want to follow up with the chairman on this.
    This guy who was recruited at Camp LeJeune with TBI, how 
many recruiters do some of these for-profit colleges have as 
compared to how many guidance counselors they have at the 
school itself? What would the ratio be? Would it be a couple of 
guidance counselors for every recruiter, maybe 10 guidance 
counselors for every recruiter, something like that?
    Mrs. Petraeus. The Chairman named a couple of them that are 
egregious examples, and I certainly have one, which was 78,000 
students, 1,700 recruiters, 1 full-time employee tasked with 
job placement. That's probably the most egregious.
    Senator Franken. So they have 1,700 recruiters, and they 
have 1 person serving to give career advice?
    Mrs. Petraeus. Yes.
    Senator Franken. OK. That person must be very good, though.
    [Laughter.]
    Mrs. Petraeus. I suspect you probably go straight to 
voicemail with that individual.
    Senator Franken. Now, we talked about the 90/10 rule, and 
that's very important as far as I can tell, and you made the 
point that since guys on the G.I. bill, on the new G.I. bill 
count in the 10 instead of the 90, even though the 90 is 
Federal aid, it seems like the G.I. bill would qualify as 
Federal aid, and as a result these guys sort of are a walking 
dollar sign to some of these schools that have a lot of 
recruiters.
    Do you think that changing that rule might be, like, a 
swell idea? I mean reclassifying our veterans so that they're 
not a target.
    Mrs. Petraeus. Certainly I think removing them from that 
equation could help them not be the focus of this kind of 
recruiting. I'm not sure what would be the best way to work it, 
if it would be move them into the 90 percent or just take them 
out of the equation altogether and just not count the G.I. bill 
and tuition assistance in that 90/10. I will leave it to 
legislators and their staffs to figure out what might work the 
best. But I think as long as they're in that 10 percent, they 
are going to be aggressively recruited.
    Senator Franken. And you talked--and I can open this up a 
little wider to anyone who cares to jump in because it's a 
roundtable, or square more, really.
    You were talking about veterans who come out and use all of 
their G.I. bill. But don't they, in fact, often on top of that, 
get other loans, and aren't they then, in addition to in many 
cases wasting their G.I. bill and coming out with nothing, but 
also put in a position where they owe a great deal of money, 
and that this is money that--and this again is open to 
everyone--this is a debt that can't be gotten rid of when you 
go into bankruptcy? This is a debt that you'll take for life, 
and we've had other witnesses testify on this issue.
    And so I'm sitting here as a Senator and I'm thinking, OK, 
I'm trying to get our debt down. That's a very important part 
of our job right now, is getting a handle on our deficits and 
on our national debt. And for me to see these G.I. bills and 
the Pell grants going to very, very expensive schools that 
aren't really doing their job--and I thank Mr. Batson for being 
here because Regency does a great job; and I thank you, Mr. 
Hamburger, for being here from DeVry.
    So I'm seeing both Federal money, as far as I'm concerned, 
the taxpayers' money being wasted when we're in this tremendous 
budget difficulty, and then seeing lives really put into 
difficult straits. And worse than that, seeing veterans, men 
and women who have put themselves on the line and see them 
taken advantage of, and it really makes my blood boil, I must 
say.
    What I kind of want to know is--this doesn't just happen to 
veterans, it happens to many people--how widespread is this 
that people go to these for-profit schools? Because we've had 
testimony, and I suppose you could say, ``well, that's just a 
couple, a few people who that's happened to.'' How widespread 
is this, for those who have been studying the industry? How 
widespread is that, and if it is widespread, what can we do to 
prevent that, and why don't the DeVrys and the Regencys of this 
world, the very good actors or the kind of good actors, why 
don't they get in there and help us and police their own 
industry--how could they help do that?
    The Chairman. If I might just interject here, Senator 
Franken, again, this is a roundtable discussion. I just want to 
make the point that we had invited a number of for-profit 
schools to come here to join us at this roundtable discussion, 
and only two acceded to do so, and that's Mr. Hamburger from 
DeVry and--
    Senator Franken. Do you have any names of the ones who 
didn't show up?
    The Chairman. I don't know. My staff probably----
    Senator Franken. You don't have to answer. I mean, it was 
kind of just a joke to embarrass them. That's not a nice thing 
to do. That's not very Minnesota, is it, Mr. Batson?
    [Laughter.]
    It's not a Minnesota nice thing to do.
    Let's go back to the--Mr. Cruz seems to have a response.
    Mr. Cruz. Senator Franken, I can speak to the numbers. 
Students at for-profit colleges are more likely than others to 
take out loans, significantly more likely. If you look at, for 
example, students enrolled in 4-year institutions, 94 percent 
of the students enrolled in for-profits take out Stafford 
loans, and 46 percent also have to take, in addition to that, 
private loans in order to meet their financial needs at these 
schools.
    When you look at the rates, the loan rates at private 
nonprofits and publics, you see that it's between 25 percent 
and 50 percent lower than those at for-profits.
    Senator Franken. What did you say is lower? I'm sorry.
    Mr. Cruz. Sure. If you look, for example, at public 
institutions, the Stafford loan rates are 42 percent, which is 
less than half.
    Senator Franken. OK. But now I think the for-profit 
industry will say, and rightly so, that they serve a different 
population. So those figures aren't necessarily saying anything 
bad about the for-profit industry. It just, in fact, might say 
something good, that they're serving people who need their 
services and who benefit by their services. And the for-
profit--I'm sure the great actors in the for-profit industry 
also have a higher incidence of loans being taken than 
certainly your public colleges, and maybe your private.
    Now, they're more expensive, and then you've got to get to 
what your default rates are and that sort of thing. But I 
think----
    Mr. Cruz. If I could just follow up real quickly.
    Senator Franken. Yes. I'm sorry.
    Mr. Cruz. When we also look at public and nonprofit 
institutions that have similar types of students in terms of 
their selectivity which they're admitting into the school, 
their academic credentials, and also look at schools in these 
sectors that also have similar students from the perspective of 
socioeconomic, what percentage of their students are low-income 
and receive Pell grants, we see that in the for-profit sector 
the graduation rates and the loan default rates, the graduation 
rates are much lower and the loan default rates are much higher 
than these other institutions that take similar students.
    There seems to be a lot of room for improvement when we 
talk about this sector as a whole, but I'm sure that my 
colleagues here can talk about----
    Senator Franken. OK. I didn't let you complete your 
thought, which was spoken to.
    The Chairman. I'm going to ask Senator Hagan, who had her 
sign up there for some time.
    Senator Hagan, if you want to jump in here.
    Again, Mr. Batson had a response. Was that to what was just 
said, Mr. Batson? Go ahead.
    Mr. Batson. It was. Senator Franken asked why schools 
hadn't stepped forward and been part of the discussion and made 
a better effort to participate in a way that would strengthen 
the system over time. And I think one reason is that we just 
haven't known how to do that. There's been a lot of discourse 
on a lot of symptoms, and I think we need to start talking 
about the root causes, and I believe we're beginning to get at 
that today during the early parts of this discussion.
    You asked what constitutes student success, and you heard 
every panelist who spoke to the topic refer to student 
outcomes.
    The Chairman. That's right.
    Mr. Batson. And so what we have to do is we have to set the 
system up so that incentives are aligned for the students, the 
taxpayers, and the schools around outcomes. And until we do 
that, we're going to be chasing symptoms.
    We live in a world where we've had bright-line outcome 
requirements from our accreditor around completion, licensure, 
and placement. We don't target our marketing at any particular 
students. We take students who come to us. We have an incentive 
if we're concerned, if we could identify that a student wasn't 
going to succeed, to not match them in the program, because if 
we fall below certain completion thresholds, we lose our 
accreditation.
    Everything we do is driven around completion. Everything we 
think about during the admissions process, everything we think 
about in terms of designing our curriculum, in terms of 
designing our advising support, more than any other regulation, 
it is the completion requirement through our accreditor that 
drives our business, and it's the No. 1 thing we're focused on 
here, 3 years into a recession, when there's pressure on our 
students and pressure on those rates.
    When you talk about 90/10, our 90/10 is 80 percent. And so 
we haven't spent a lot of time focused on 90/10. We're focused 
on completion. I guess what I would ask is if we--meaning 
higher education as a whole, not just Regency, not just for-
profit--can produce good outcomes, and if there's a way to 
measure those and report those, do you care how much funding 
comes from the Federal Government? Or is it really about 
funding students in schools that get good outcomes?
    Senator Franken. It's, of course, the latter. I mean, we 
care how much. I mean, at a certain point we talk about 
economies. But my question is, is that you're a good actor. 
There are other great actors in Minnesota. But what I'm saying 
is there are bad actors, and that's exactly what we're trying 
to do with the new gainful employment regulations that we're 
trying to put in place. We're trying to measure outcome. We're 
trying to measure outcome. And you take your outcomes seriously 
because you want to get accreditation.
    There are places these kids go to college and they don't 
have accreditation when they get out. They are told they will, 
or it's been ignored.
    I'm sorry, Senator Hagan, but I just wanted to comment on 
that, and I'll give up my time.
    The Chairman. Thank you, Senator Franken.
    And we'll go to Senator Hagan. Thank you.

                       Statement of Senator Hagan

    Senator Hagan. Thank you, Mr. Chairman. I want to thank you 
for holding this roundtable today and want to thank all of the 
witnesses who have come here to share your thoughts and your 
testimony with us.
    I also want to thank Mrs. Petraeus for being here. We held 
a roundtable type discussion at Ft. Bragg several months ago. 
When I was in the State senate in North Carolina, I was very 
involved in being sure that we removed predatory lending from 
our military bases in North Carolina. It was critical. In Mrs. 
Petraeus' new role, we had a great discussion with the soldiers 
and the officers and different advocacy organizations on how to 
help support our service members and their families across the 
Nation from predatory lending. One of the many topics that did 
come up was for-profit education.
    You know, Mrs. Petraeus, it is my understanding that the 
Department of Defense, as well as the individual installation 
managers, manage lists of businesses offering questionable and 
poor service to military families and members. I'm told that 
this is called the black list. Several of these black list 
discussions came up at the forums we held at Ft. Bragg.
    Do you know if this list currently includes any educational 
institutions?
    Mrs. Petraeus. Not that I've seen. I think what you're 
referring to is the list put out by what's called the Armed 
Forces Disciplinary Control Board, and it's a list of 
businesses that are considered either dangerous or prejudicial 
to morale, discipline, and so forth. And often it could be 
something like a bar with drug activity, or it could be and has 
been, for instance, an auto dealer that's consistently ripping 
off the troops. It gets put on this list, and when that 
happens, no service member can go in there without basically 
getting in serious trouble. So it's effectively putting it off 
limits.
    It is a thought, you know? If there is an educational 
institution that is consistently doing very questionable 
practices, for instance possibly lying to recruits, telling 
them that the entire cost of school will be covered by their 
G.I. bill and once they get enrolled they find out that's not 
the case, which we've certainly heard about, that's one 
possible avenue that it might be addressed locally by those 
disciplinary control boards. But those are installation based, 
and it would just cover that local area.
    Senator Hagan. Thank you. I also think if there is a 
predatory relationship with wounded warriors and enrolling them 
in classes, that would certainly, to me, be something that 
should be looked at in a much more in-depth situation.
    Mrs. Petraeus. You know, the Department of Defense has 
something called the DOD Rule on Commercial Solicitation which 
does not allow folks to come onto installations under the guise 
of doing financial education and sell financial products. And 
one possibility also may be to try to control some of the 
educational solicitation that goes on to be sure that the folks 
who are on the base trying to recruit students are actually 
vetted in some way before they come on and do that.
    Senator Hagan. Thank you.
    Mr. Hamburger, thank you for being here. I understand that 
your school gets about the fourth highest amount of DOD and VA 
tuition benefits, and I was just curious what you think of the 
90/10 rule and whether or not DOD and VA benefits should be 
included in that 90 percent.
    Mr. Hamburger. Thank you, Senator. And specifically we're 
talking about DeVry University.
    Senator Hagan. Yes.
    Mr. Hamburger. Which is the largest of the colleges that we 
have. And just in contrast to some of the things that were said 
earlier, maybe before you walked in, we're not just a Johnny-
come-lately here. DeVry University has been serving the 
military proudly since World War II. Dr. Herman DeVry was 
training the military on radar and electronics. We were one of 
the first schools approved under the G.I. bill after World War 
II, and of course that's one of the greatest pieces of 
legislation arguably that we've ever had in this country.
    And one of the interesting things is we gave the money to 
the G.I., and then the G.I. could apply that to any accredited 
school, not an unaccredited school. For sure, it has to be 
quality, and I would agree that any college or university, 
whether they're public sector or private sector or independent, 
if they came on a base and were lying to students or 
misrepresenting in any way or doing any of the things that have 
been mentioned, they should be on that list and they should not 
be allowed to be on that base.
    Senator Hagan. How about the 90/10 rule?
    Mr. Hamburger. In terms of the 90/10 rule, when I think of 
the 90/10 rule, I go back to the purpose for which it was 
intended. My understanding at least is it was an indication or 
a proxy for, is this a quality program. And so the thinking, as 
I understand it, was that a certain percentage of self-pay or 
of corporate reimbursement, those kinds of things, would sort 
of be a marker of quality.
    One of the things that we talked about here at the 
beginning part of the roundtable is, as we look toward 
solutions, we're really looking for markers of outcomes. So if 
the college has students who learn, who graduate, who are 
employed or who go on to grad school, who are licensed in their 
field, if they are repaying their loan, those are the markers 
of quality.
    So if the college is providing those kinds of outcomes, 
then it's not as clear to me that the 90/10 rule is as relevant 
as a quality marker. And the military reimbursement is in many 
ways analogous to that corporate reimbursement. Many of our 
students who--and, by the way, military students are very 
important to us, but they're less than 5 percent of our 
enrollments. We're not out doing crazy things here. But just as 
many students, who have come to us from a corporation, have 
told us is that one of the benefits that was attractive to them 
in joining that corporation was the corporate reimbursement----
    Senator Hagan. It seems to me that if the public really 
understood that all of this is literally taxpayer money, then 
they would feel differently about for-profit institutions. So 
you disagree on the 90/10?
    Mr. Hamburger. I'm sorry. Which part of it?
    Senator Hagan. That's fine. I mean, on the 90/10, on the 
fact that the military should not go into----
    Mr. Hamburger. It also seems more like that corporate 
reimbursement category. It's a benefit.
    Senator Hagan. OK.
    The Chairman. I think, Senator Hagan, you've hit on 
something, and Mrs. Petraeus has also, that we've been looking 
at closely here. I think you just hit the point. This is all 
taxpayer money.
    Now, the 90/10 rule is in the Higher Education Act, which 
is under the jurisdiction of this committee. The DOD is not 
under that jurisdiction, so they've never been subject to the 
90/10 rule. I think one of the things that we're looking at is 
to correlate with the armed services committees, bringing that 
into that fold. It's all taxpayer dollars. And so why shouldn't 
it be all the same, treated the same? I think that was the 
point you were making. Instead, there's this kind of bifurcated 
type system.
    Again, I open it up for anybody that has any views on that 
at all.
    Mr. Nassirian. Thank you.

 STATEMENT OF BARMAK NASSIRIAN, ASSOCIATE EXECUTIVE DIRECTOR, 
 AMERICAN ASSOCIATION OF COLLEGIATE REGISRTARS AND ADMISSIONS 
                    OFFICERS, WASHINGTON, DC

    Mr. Nassirian. Mr. Chairman, thank you. I'll try to be very 
brief.
    On the 90/10, it's important to understand that the basic 
purpose of 90/10 was to prove market viability. It's not so 
much a matter of assessing quality but understanding that if 
somebody is selling a product for which there is only one 
customer, you really ought to take a second look at the 
processes by which that customer decides to be the only 
purchaser of that product.
    So when you push 90 cents on the dollar onto the title IV 
programs, you are already, in my view, in very dicey territory. 
Why is it that nobody seems to want to reach into their own 
pockets and put 10 cents on the dollar down?
    When you commingle other Federal resources, you now are 
running the risk of essentially fully funding what purports to 
be a private sector operation, a private sector college or 
university, which kind of reminds me of Dancing with the Stars. 
It's not really dancing, it's not really stars.
    [Laughter.]
    It's not really private sector, and it's not really a 
college or university at that point. You are at this point 
dealing with what ought to be the subcontractor that is 
evaluated on terms other than the ability to go out there and 
pitch.
    And part of the problem, by the way, is it would be one 
thing if the DOD exercised its own separate judgment. It would 
be one thing if the VA exercised its own separate gatekeeping. 
But guess what? They all defer to title IV. So, de facto, 
you've created a very powerful incentive now for entities that 
are already pushing the envelope and are on the verge of losing 
eligibility for title IV because they're at 90 cents on the 
dollar to now exert additional effort to go out there and 
recruit some service members under the active duty tuition 
assistance programs, or recruit as many veterans as possible, 
for two reasons now.
    One, because their money is green, so that's extra 
revenues. But additionally, that money becomes a gateway to 
title IV funding. So in my view, active duty and veterans are 
actually sort of exposed to extra jeopardy here.
    Also I want to make one point here. There is no--because of 
the title of the hearing at least, from my point of view in 
terms of what the committee has done, there's really no 
hostility whatsoever to the profit motive, right? I mean, the 
profit motive is what makes this country work. This building 
was built, I hope, by a for-profit builder, the automobiles we 
drive. We don't want things to be all manufactured by the 
government, I assume.
    But envision this, envision a parallel. Look at our 
construction industry. Would you rather have building codes and 
very intrusive inspections and very severe penalties if 
somebody undersizes the beams in the construction of the 
building? Or would you rather have the honor system and 
disclosures? I mean, I'd much rather have a system in which I 
know there is a very specific framework that buildings don't 
collapse on people's heads. And you know what? When it comes to 
higher education, candidly, the for-profit sector, because it's 
been basically completely unregulated or very ineffectively 
regulated, is now essentially on the honor system. And guess 
what? Buildings are collapsing on people's heads every day.
    The Chairman. I think Mr. Hamburger wanted to respond to 
that.
    Mr. Hamburger. Yes, just quickly. I like the analogy 
because those regulations are outcomes driven, does the 
building fit the purpose for which it was intended, is it safe 
and so forth? And likewise, if you had a college that was 
producing students who learned and they graduated and they're 
employed and they're repaying their loans, and they had 91 
percent from Federal funds, versus--isn't it the outcomes that 
we really care about? And as we work in this roundtable on 
solutions, that's just our view as we focus on solutions based 
on outcomes.
    Mr. Nassirian. But----
    The Chairman. Go ahead, Mr. Nassirian.
    Mr. Nassirian [continuing]. Very briefly, the problem is we 
have terrible outcomes and a complete lack of oversight. So 
you've got to give me one or the other. Either give me good 
outcomes and tell me ``leave me be, I'm doing such a great 
job''--but that's not the case.
    Mr. Hamburger. Outcomes and enforcement. Shut them down. If 
you don't get the outcome----
    Mr. Nassirian. We need both. But really, when you get into 
the guts of title IV gatekeeping, I'll make this statement----
    The Chairman. I'm sorry. Say that again, Mr. Nassirian.
    Mr. Nassirian. When you get into the guts of title IV 
gatekeeping mechanisms, once you really wrap your head around 
what's going on here, you really begin to understand, the 
lunatics are in charge of the asylum. There is nobody empowered 
by law--this is not a flaw, this is a feature, right? Because 
they wrote the law. That the stakeholders run the show, and 
none of the authorities are actually empowered to question 
horrific outcomes that are going on on a daily basis. I mean, 
evidence of it is piling up, and yet we seem powerless to do 
anything because we have these tomes of regulatory language 
that do nothing.
    [The prepared statement of Mr. Nassirian follows:]
                 Prepared Statement of Barmak Nassirian
        Summary--Policy Options for Improving Program Integrity
                             accreditation
     Impose conflict of interest rules to prevent regulated 
entities (schools) from controlling their regulators.
     End regulatory arbitrage and forum-shopping.
     Mandate minimal financial and administrative 
qualifications for accrediting bodies.
     Create financial incentives for accreditors to keep bad 
actors out.
     Tie accreditation to verifiable outcomes where 
practicable.
     Require proper due diligence practices by accrediting 
bodies.
     End practice of buying and selling accreditation.
                          state authorization
     Maintain a minimalist State authorization requirement only 
for those schools that receive significant amounts of State funding.
     Articulate substantive criteria for State authorization of 
schools that receive insufficient funding from the State.
     Impose multi-state approval requirements only above a 
certain threshold of presence in a given State.
                         federal certification
     Modify the 90/10 Rule by capping the maximum amount of all 
title IV, VA, and DOD tuition assistance funds to no more than 85 
percent of total revenues. Prevent gaming by excluding from the 15 
percent all institutional aid including private label loans facilitated 
or guaranteed by institutions.
     Track defaulted loans for the life of the loan and update 
cohort default rates no matter when defaults occur.
     Create risk-sharing for high margin schools and their 
insiders, and create joint and several liability for defaults that 
occur in the out-years.
     Tie Federal certification to specific licensure rates 
where available.
     Weed out deceptive and abusive practices. Stop the 
proliferation of fake or misleading programs and degrees.
     Hold institutions accountable for the claims and 
representations they make in their advertising and recruitment efforts.
     Re-examine the elimination of the ``50 percent rule'' and 
consider reinstatement.
                                 ______
                                 
    Chairman Harkin, Ranking Member Enzi, and members of the committee, 
my name is Barmak Nassirian and I am associate executive director with 
the American Association of Collegiate Registrars and Admissions 
Officers. I appreciate the opportunity to participate in this 
discussion of institutional eligibility for participation in Federal 
student aid programs authorized in Title IV of the Higher Education Act 
of 1965, as amended. The Senate HELP Committee's oversight 
investigation of the for-profit sector during the past year has 
demonstrated significant shortcomings and failures in the current 
Federal gatekeeping framework. I hope that this brief summary of my 
views on some of the underlying defects in the current title IV 
institutional eligibility triad system might be useful to the committee 
in its deliberations about how to improve outcomes for students and the 
taxpayers.
    AACRAO is a non-profit association of more than 2,500 institutions 
of higher education and some 10,000 campus enrollment services 
officials. Our members play a central role in protecting and 
maintaining the academic integrity of their institutions as admissions 
gatekeepers and as enforcers of the institutional academic policies on 
the basis of which academic credits and credentials are earned. As key 
stakeholders on behalf of their own institutions, they also have a 
systemic interest in the academic integrity of other institutions 
because they rely on credits and credentials granted by high schools 
and previously attended colleges and universities.
    Over the course of the past decade, our members have become 
increasingly alarmed by a dramatic rise in the number of diploma 
mills--from fake ``high schools'' to phony ``doctoral'' institutions--
and the proliferation of applications based on fraudulent and 
questionable credentials. The constant battle against ever more 
sophisticated fraud and abuse now occupies a major aspect of our 
members' professional responsibilities.
    While the detection of document fraud and identification of 
outright diploma mills are difficult enough tasks, a third and more 
systemic threat to academic integrity has emerged in the form of 
questionable schools that have managed to establish eligibility for 
participation in Federal student aid as collegiate institutions. These 
institutions often combine multiple indications of potential trouble, 
such as high-attrition/low-graduation rates, non-transferability of 
academic credits to other institutions, low licensure pass-rates for 
programs in licensed professions, low job-placement rates for their 
vocational programs, high-debt/low-income characteristics for the vast 
majority of their students, high default-rates, and very high levels of 
dependence on Federal dollars. The ability of subpar and often 
predatory institutions to game the Federal gatekeeping triad (i.e., 
non-governmental accreditation, State licensure and Federal 
certification) undermines public support for Federal student aid 
programs and devalues all academic credentials, even those that have 
been earned at legitimate institutions.
    To successfully establish eligibility for participation in Federal 
student aid, institutions must be accredited by an accrediting body 
that is recognized by the U.S. Secretary of Education; they must be 
licensed by the State(s) in which they operate; and they must be deemed 
eligible and certified to participate in Federal student aid programs 
by the Department of Education. While this triad is procedurally 
difficult, burdensome and expensive to navigate, structural 
shortcomings in every one of its three layers allow for abusive and 
fraudulent operations to get through. Given the enormous sums of 
Federal funding that are available for the taking upon establishing 
full eligibility, it should come as no surprise that there has been no 
shortage of investment capital to pay for upfront expenses of breaching 
the system. Over the course of the past decade, and particularly since 
2006, when all limitations on distance education delivery by the for-
profit sector were lifted, numerous new ``institutions'' have cropped 
up on the Internet and many established institutions have seen 
enrollment growth figures, along with title IV utilization rates, that 
are difficult to reconcile with genuine academic quality and even a 
modest probability of reasonable outcomes for their students or the 
taxpayers who foot the bills.
                             accreditation
    In offering the following critique of accreditation as it is 
currently configured, I should emphasize my own strong commitment to 
institutional autonomy and the American tradition of political non-
interference in the academic affairs of colleges and universities. I 
certainly agree with those observers who believe that our current 
practices in accreditation are so abstract, so subjective, so 
procedural and so self-referential as to border on being substantively 
meaningless in assuring institutional quality or integrity. Just about 
the only worse way of doing things would be to adopt governmental 
recognition as an alternative.
    I should also explicitly acknowledge that quality assurance through 
peer-review has been a historically successful model by which 
institutions that are truly interested in maintaining high standards 
can continually improve. The problem we face is that the quality 
assurance scheme, that once worked magnificently well, has failed to 
keep pace with the transformational changes in the industry it is 
supposed to oversee, and that it is increasingly reduced to a vestigial 
structure with little relevance or effect.
    Conditioning eligibility for Federal funding on accreditation is at 
the root of most, if not all, of the latter's present shortcomings. 
Accreditation worked best when it was entirely voluntary and non-
governmental. The very act of tying eligibility for Federal financial 
aid to accreditation created powerful incentives that altered 
accreditation as it had existed until then. With billions of Federal 
funding at stake, accreditation has to be able to competently confront 
well-funded or well-connected operations that only pay lip service to 
the historical orthodoxies of institutional mission, self-evaluation, 
and peer review. It does an abysmal job of it today for a number of 
fairly obvious reasons.
    First, accreditation is dominated by the very entities that it is 
supposed to oversee. Not only is the National Advisory Committee on 
Institutional Quality and Integrity (NACIQI) disproportionately 
composed of officials from institutions, accrediting bodies themselves 
and their association are also dominated by and financially dependent 
on institutions. Rarely do regulated entities have such overt and 
overwhelming control of their regulators. A clear legislative solution 
here would be to require appropriate conflict of interest rules to 
exclude individuals with fiduciary obligations to or financial 
interests in any regulated entity from positions or appointments that 
influence the Federal recognition process. Such individuals should also 
be legislatively barred from serving as officers or employees of any 
Secretarially-recognized accrediting body. Legislation could also 
mandate broader representation in all tiers of accreditation by other 
significant stakeholders.
    Second, accrediting bodies often have insufficient resources to 
play the role that they are assigned. Some of the smaller accrediting 
bodies have budgets so small that they appear to be little more than 
sham operations. Clearer guidelines on factors of administrative 
capability and financial responsibility are desperately needed to 
ensure that accrediting bodies have resources commensurable with the 
resources of the institutions that they approve and the Federal dollars 
they put at risk. In addition, rules should require all accreditors to 
have visible and accessible consumer complaint, fact collection, and 
due diligence processes, and require institutions to explicitly refer 
to these processes every time they invoke or advertise their 
accreditation status.
    Third, our current system is biased in favor of erring on the side 
of granting, rather than denying, accreditation. Accrediting bodies 
have strong financial, political, and legal incentives to approve even 
the most questionable applicants. This is a function of the previous 
two attributes, and it is given additional impetus by the fact that 
there are no substantive adverse consequences for accreditors with a 
history of bad judgment. A legislative remedy here would be to impose 
requirements and liabilities similar to those imposed on auditors of 
accrediting bodies. The threshold for any liability should be 
calibrated in a manner that would impose penalties only on accreditors 
that display systemic poor judgment or a purpose of evasion. Another 
mechanism to create meaningful consequences for accrediting bodies 
would be to use cohort default rates much in the same way as they are 
used for institutions, and previously, lenders and guarantors.
    Fourth, Secretarially-recognized accrediting bodies should be 
prohibited from engaging in accrediting activities outside the scope of 
their recognition, particularly with regard to foreign institutions. In 
our work on diploma mills at AACRAO, we have come across instances of 
troubling behavior by Secretarially-recognized accrediting bodies 
overseas, and have been concerned as well with some Secretarially-
recognized entities' activities vis-a-vis high schools.
    Fifth, accrediting standards need to be more explicitly tied to 
verifiable outcomes where practicable. The abstract and highly 
subjective review process historically associated with accreditation is 
laughably inappropriate for some fields. The self-evaluation/peer-
review process, for example, would be a far less reliable and more 
complex measure of the quality of a truck driving school than the 
percentage of its students who pass the licensure exam. Where direct 
outcomes measures may not be available, reasonable proxies can often be 
put in place to ensure program integrity.
    Sixth, accrediting standards should be appropriately tied to the 
incentives, internal structure, and capabilities of the institutions 
being accredited. Self-evaluation and deference to institutional 
academic judgment, for example, make perfect sense in settings where 
tenured faculty are in control of the curriculum through shared 
governance, but make no sense at all in settings where a group of 
business-minded executives determine academic policy and hand it to at-
will instructors to execute.
    Seventh, do away with referencing infinitely variable institutional 
missions as a significant determinant of a pass-fail accreditation 
system, and develop a more meaningful classification of institutions to 
codify judgments about institutional quality. Our current scheme is, on 
its face, counter-intuitive because of its grouping of clearly 
dissimilar institutions together. When confronted by the public's 
puzzlement at how some of the finest and some of the worst institutions 
in the land enjoy the same accreditation status--a feature that the 
latter often trumpet in their advertising--accreditation insiders refer 
to the uniqueness of institutional missions as central to all judgments 
about quality. This, in effect, means that we currently assess some 
7,000 accredited institutions on a grading scale with 7,000 different 
grades. A far simpler, more meaningful and more enforceable grading 
system would be to recognize and explicate a more comprehensible set of 
possible missions, and create an accreditation system that evaluates 
institutions on the basis of the classification that they believe best 
represents them.
    Finally, put an end to the current practice of buying and selling 
accreditation. Changes in ownership or control should trigger a new 
accreditation application and review.
                          state authorization
    The requirement for State authorization is a key component of the 
title IV gatekeeping triad. The logic behind mandating State approval 
was partially a function of the fact that, by far, the vast majority of 
institutions--including private ones--issue degrees through a grant of 
authority from their respective State governments. Equally as 
important, States have long been primary providers of consumer 
protection for their residents, and the State authorization requirement 
further empowers them to enforce their rules in that capacity.
    It should come as no surprise that the States vary tremendously in 
how actively they have performed this important function. Some States 
have implemented robust criteria for authorization and licensure, while 
other States mandate little more than basic incorporation requirements. 
There clearly are structural shortcomings with the current State 
authorization mandate.
    It is not unreasonable to rely on the States when they have some of 
their own funds at risk, which they do with all public and many private 
institutions. But it is important to realize that in too many cases, 
because the States have none of their own resources at risk, they have 
no particular financial incentive to engage in meaningful oversight of 
institutions operating within their borders. Indeed, propping up such 
institutions solely to keep them operating may become a higher priority 
for some States than ensuring good outcomes or protecting students, 
particularly if the students in question happen to be out-of-state 
students enrolled through distance education. The committee may wish to 
examine the following policy recommendations to improve the State 
authorization requirement of the triad.
    First, the current minimalist State authorization requirement 
should be maintained only for institutions that receive significant 
amounts of State funding. On the theory that in such cases, the State 
already has a powerful incentive to conduct oversight, Federal law 
should continue to rely on State approval without additional micro-
management. Furthermore, the committee may wish to explore the idea of 
a State reciprocity arrangement under which institutions receiving 
significant funding from any State would be allowed to provide distance 
education in all States without multistate approvals, provided that 
they don't exceed certain ratios in revenues or enrollments outside 
their own State.
    Second, for those institutions that the States are deemed to have 
insufficient financial incentives of their own to properly regulate, 
Federal law could provide several options. The committee may wish to 
spell out additional substantive requirements for State authorization 
in legislation for this subset, or it could delegate additional 
oversight responsibility to the Department of Education. Under either 
arrangement, this leg of the triad should primarily focus on 
traditional consumer protection activities to prevent predatory 
practices and waste, fraud and abuse.
    Third, to minimize unnecessary duplication of effort and costs, 
multistate approvals should only be required for institutions that 
cross a threshold of presence in each State. Institutions that have 
already received appropriate approval from one State under any of the 
provisions discussed above should be required to obtain additional 
approvals in other States only if they enroll a sufficiently large 
number of students in those States.
       federal certification and program participation agreement
    Like the other components of the title IV gatekeeping triad, 
Federal certification and the execution of a program participation 
agreement involve primarily procedural requirements on institutions. It 
is fair to describe the current Federal regulatory approach as focusing 
on the means, but not the ends. There are extensive regulations on 
administrative capability and financial responsibility, but no concrete 
definition of good outcomes for students or the taxpayers. In short, 
the current Federal framework fails to provide the most basic assurance 
that institutional interests align with the interests of the students 
that they enroll or the interests of the taxpayers who finance the 
system. The committee may wish to explore the following policy 
recommendations for an altogether new Federal oversight system that 
ties institutional eligibility to specific protections and outcomes for 
students and the taxpayers.
    First, ensure market viability of participating institutions by 
restricting inappropriate reliance on Federal funding by schools. A 
number of key policymakers have, for example, proposed changing the 
current ``90/10 Rule'' by limiting the total amount of Federal funds 
received through title IV, VA educational benefits, and the DOD tuition 
assistance program to no more than 85 percent of each institution's 
total revenues for any given year. The rule should prevent the current 
gaming of the system by excluding all institutional aid including any 
private-label loans that have been made or are held by an entity that 
has had an origination relationship or any business arrangement with 
the school. Such a change would certainly be appropriate and it would 
ensure that no institution becomes exclusively dependent on Federal 
funds.
    Second, expand the current definition of cohort default rates to 
more accurately capture all defaults. It is odd and counterintuitive 
that defaults that occur outside the official window don't ``count'' 
against the institutions where the loans were disbursed. Just as 
borrowers and taxpayers are stuck with defaults whenever they occur, 
schools should likewise have all defaults associated with them counted 
accurately, no matter when they occur.
    Third, vest institutions in good outcomes through meaningful risk-
sharing as an intermediate-sanction alternative to simple loss of 
eligibility. This is particularly necessary for institutions that 
generate egregiously large margins, because their internal incentives 
and rewards are tied to quarterly statements, while current Federal 
metrics for each quarter's enrollments are measured in years. If 
management is paid on the basis of last quarter's financials, in other 
words, it may be willing to engage in risky behavior with disastrous 
outcomes that only register 5 years down the road. The committee may 
wish to explore a mechanism to impose joint and several liability for a 
portion of actual defaults on institutions and insiders associated with 
each cohort of borrowers.
    Fourth, simplify and rationalize the Federal certification process 
where possible by linking eligibility to specific outcomes. 
Specifically, for programs that lead to licensure, programmatic 
eligibility should certainly be tied to licensure rates.
    Fifth, to avoid gaming of the licensure system by schools, the 
certification process should weed out deceptive and abusive practices 
by schools offering phony programs that are intended to confuse 
students. The committee has already heard testimony from a victim who 
did not realize she would not even be eligible to sit for the licensure 
exam because of her program's lack of proper programmatic 
accreditation. There are numerous examples of misleading and deceptive 
programs, odd and misleading degrees and major fields, all of which are 
designed to justify the high costs of such programs by confusing 
students into thinking that they would get jobs that the programs 
simply did not prepare them for.
    Sixth, the Federal certification process should ensure the veracity 
of career placement, representations about salaries, and other claims 
made by institutions in their advertising and recruitment efforts. This 
committee's groundbreaking investigation of how institutional 
recruiters lied to prospective students should not have taken the 
Department of Education by surprise. Institutions and, more 
specifically, their management should be held responsible for 
misrepresentations and deceptive practices. The committee may wish to 
examine some of the provisions of the Sarbanes-Oxley Act with regard to 
how upper management may be incentivized to ensure proper 
organizational behavior.
    Finally, it is important to realize that much of the feeding frenzy 
associated with the new participants in title IV is a direct result of 
the elimination of the ``50 percent'' rule in 2006. Prior to the 
enactment of the Budget Reconciliation Act of 2005, for-profit 
providers would not be eligible to participate in title IV if more than 
50 percent of their enrollments or 50 percent of their courses were 
entirely distance-based. It was the removal of that provision that 
created the gold-rush for Federal dollars that the committee has 
documented. I should emphasize that the issue here is not so much that 
distance education itself is suspect, but that fraud has always been 
easier to carry out and harder to detect from afar. The committee may 
wish to examine the wisdom of the social experiment that Congress 
embarked on in 2006 when it eliminated this important safeguard for 
students and taxpayers without any hearings or any evidence for its 
necessity. In light of the already massive evidence of abuse and 
outright fraud, it would not be unreasonable to reinstate some variant 
of the original rule.
    Mr. Chairman, I thank you for your distinguished history of 
leadership on higher education issues, and stand ready to assist the 
committee in its efforts to protect students, taxpayers, and the 
integrity of Federal student aid programs.

    The Chairman. OK. Can I play off of that just one second? 
Mr. Barr has his hand up, and this is kind of an area of his he 
might want to weigh in on.
    It seems to me that when we looked at the for-profit sector 
here, and that's what we're talking about today, for-profit 
schools, in the last several years, have been some of the best 
performers in the market, on a margin basis, in this country. 
But their financial success seems divorced from student 
success. So you can make tremendous profits and have all these 
students flunking out and leaving.
    So in contrast to a typical corporation, the corporation 
that provides a product or a service, if the product or service 
doesn't work, the company is going down. But in this case, we 
see schools that have started up recently, within the last 5 or 
6 years, they start with almost nothing and they have many 
thousands of students now, and their outcomes are terrible, and 
their dropout rate is 80-some percent in the first year, and 
yet they keep making more money.
    So how do we address this? How do we couple a performance 
in the marketplace--this is a marketplace for for-profit 
schools--couple that with whether or not their students are 
succeeding? Am I making any sense on that?

 STATEMENT OF MICHAEL BARR, PROFESSOR, UNIVERSITY OF MICHIGAN 
                   LAW SCHOOL, ANN ARBOR, MI

    Mr. Barr. Absolutely. The discussion that has preceded this 
I think indicated that most of the panelists, or perhaps all of 
the panelists are committed to the idea that there should be 
metrics that are used to assess success of the schools, and 
that there should be consequences if the schools fail to meet 
those metrics. I think those are essential because right now 
the incentives are only loosely aligned with outcomes for 
students, and you see that in the figures that you cited.
    You see it also, I think, underlying the basic problem in 
default rates on the private loans. If private loans are 
generated in order to meet the 90/10 rule, you are going to get 
outcomes that you don't like to see. You're going to see very, 
very high default rates because, on net, the incentive facing 
the firm is to continue to pursue those loans.
    I should say, just that, I very much agree with the point 
that Director Petraeus was making before, that there is 
something I think particularly horrific about the targeting of 
military members and their family for this kind of activity, 
and it's similarly the kind of targeting that we have seen in 
other aspects of consumer finance, payday lending, refund 
anticipation lending, auto title lending, sub-prime mortgage 
lending, that military members and their family are often 
particularly vulnerable to those kinds of appeals that can be 
quite harmful to them, that can be harmful to their families, 
and can undermine security interests because our military 
members who get into financial trouble can't pass their 
security clearances. So it's quite a widespread problem in the 
consumer finance market.
    I think the interesting thing to me, and I'm not a 
specialist in the education field in this way, the interesting 
thing to me is those incentives are there already. On top of 
that, in the context of the 90/10 rule and the way that the 
military benefits are counted in that rule, you have an 
additional incentive to go after these kinds of military 
families in the way that has been described, and to me that's 
just completely inexcusable to treat our military families in 
that way.
    So I think that ought to be a special area of focus and 
protection, as it has been elsewhere in consumer finance. It 
needs to be part of the consumer education facing our troops 
and their families. But there also need to be disclosures and 
protections, special protections for those military families 
who are quite open to that kind of abusive tactic.
    The Chairman. I'll recognize Mr. Batson, and then I'll go 
to Senator Franken.
    Mr. Batson. I recognize that we're going to discuss ways to 
align incentives later in the meeting, but I think it's 
pertinent now, and I'd like to respond to a couple of things 
that Barmak and Michael raised.
    First, Barmak indicated that we don't have a lot of 
regulation, and I'd like to point out that we actually do have 
an enormous amount of regulation. Now, I'll acknowledge that 
much of it is procedural, but it is complicated, it costs 
money, it takes time, it pulls us off of where we should be 
focused, which is on student outcomes.
    The States dictate every aspect of our program, how many 
hours, the size of our facility, how many square feet, how we 
use every hour of that curriculum, how many haircuts a student 
has to complete before they can get licensed, how many of those 
haircuts have to be on a human versus a mannequin. I could go 
on and on and on. In fact, they dictate whether or not we give 
students breaks, how long they are, whether the breaks can be 
taken inside or outside of the building, and they have officers 
that come to the back of the buildings and check to see whether 
the students are outside, and come inside to see whether 
they're clocked in or out. That specific example comes from 
Texas.
    So we have an enormous amount of State regulation. We have 
a significant amount of regulation through our accrediting 
agency. We submit outcomes every year. Those outcomes are 
verified. We have a lot of Federal regulation.
    We calculate seven different completion rates between our 
accreditor and the Department of Education. I find it difficult 
from day to day to tell you what our completion rate is, and I 
guarantee you, from a consumer's perspective, it's impossible.
    So what we have, to build on what Michael raised, is a 
situation where we don't have a sensible regulatory system that 
has aligned all the incentives around student success, but we 
do have an enormous amount of regulation.
    And so what we'd like to talk about later in the day is how 
to introduce a new, better, three-level framework built around 
disclosures, auditing, and thresholds that aligns the incentive 
and goes after the root of the problem rather than chasing the 
symptoms. Because as we sit here, I know it's very hard for me, 
it's probably hard for Daniel to respond to all of the 
different piecemeal parts of this, but I think we have a pretty 
clear view, and my sense, just from reading Daniel's testimony, 
is that DeVry has a pretty clear view of how we could have a 
good system that really is student success focused, and I hope 
we have a chance to talk more about that later today.
    Thank you, Mr. Chairman.
    Senator Franken. Well, I think later in the day is here, 
and I think that we know, we've identified in the hearings that 
we've heard what many of the problems are. You say that you 
have regulations from your accreditors. We've had testimony 
from kids, from students who went to schools that had no 
accreditation, and they paid a lot of money to go to a course, 
and then when they finish the course they find out it's not 
accredited.
    So what I want to find out from you is what kind of 
regulation we should have. Later in the day is here. It's 3:15, 
3:20. We're going to 4:00. This is later in the day.
    Now, let me ask you specifically about the gainful 
employment regulations, which seem to be saying are students 
graduating, are they paying off their loans, are they in 
default, and what do you think of them, these specific 
regulations that we're talking about? They seem actually pretty 
lax to me, and I'll ask Mr. Nassirian, because you nodded, and 
I like that, when somebody nods at what I say.
    [Laughter.]
    Mr. Nassirian. Senator Franken, the gainful employment, 
430--by the way, my colleague is correct. There is an enormous 
amount of regulatory language. Sadly, as you point out, it 
doesn't do anything. That's the challenge. The over-regulation 
is actually a feature of this system. The regs are there so 
that the industry can claim to be--why are you picking on us? 
We're one of the most regulated businesses in the country, 
except for one thing: We do what we want to do at the end if we 
have enough smart lawyers and enough consultants.
    Apropos gainful employment, 437 pages of contorted language 
in which the administration essentially backed out of the path 
that it was embarked on. I have an 11-page transcript I'd be 
happy to share with you of a publicly traded company CEO's 
description of how they were realigning their practices 
essentially to evade the regs. And when you read the logic, you 
learn the lesson, which is procedural regs are not going to do 
the trick.
    What you want to do is you want to have very meaningful 
requirements that tie the outcomes for students and the 
taxpayers to the outcomes for company management and 
shareholders, and until you do that--and remember, this isn't 
the act of walking after the product. See, that's easy, because 
you can assess the product. You're given a physical object.
    This is an experience. It's years. It's the out-years that 
sort of register the outcome. So you want to have a mechanism 
by which you have some assurances on the front end. But most 
importantly, that there is essentially a disgorgement of ill-
gotten gains post facto if it turns out that the outcomes were 
not so good for the people who footed the bill.
    The Chairman. Mr. Shireman, I see you have your card up. 
You want to respond to that?
    Mr. Shireman. Thank you. I think that the--I'm pleased to 
hear today discussion about major incompletion, aiming for 
completion, incentives for completion. I see the gainful 
employment regulations. They were weakened in the face of a lot 
of opposition. They are a very important first step toward 
actually having some measures of outcomes of are people 
repaying their loans, is their debt ridiculous given their 
earnings after college. Those are the kinds of things that have 
been coming up today in terms of are people being employed, was 
the cost reasonable given the kind of employment that they 
might be getting.
    So I think whether it's a matter of strengthening those 
regulations or looking for or taking those kinds of measures 
and using them in ways that can provide incentives for colleges 
to aim for getting students enrolled in programs where they can 
be successful given their background and interests, and in 
programs that are likely to lead to getting a job where they 
can repay their loans if they've taken out loans, those are the 
right kinds of outcomes to be focused on. The question is not 
just about figuring out how to eliminate schools but how do we 
get all of the schools driving toward those kinds of outcomes.
    The Chairman. Can I restate my question from earlier again, 
throw it out there again? Some of these schools are making 
tremendous profit margins, tremendous profit margins, even 
though their performance is very poor. So there's nothing tied 
in there. I mean, I would say the better your students are 
performing, the more profits you ought to make. If your 
students are dropping out, it ought to come down. But you're 
getting 90 percent, or more in some cases, of your money from 
the Federal Government, it doesn't make any difference.
    Mr. Hamburger.
    Mr. Hamburger. If I may, and also address Senator Franken's 
direct question about the time is now. So what are the 
solutions? And that, of course, is the point of today's 
roundtable, is to talk about solutions, because we can talk all 
day long about the problems, and we're all concerned about the 
problems. But what are the solutions?
    So we propose two pillars that we think the solution should 
rest on, surrounded with enforcement of them. First is metrics 
of outcomes, and the second are standards of practice. So in 
terms of metrics of performance, and we've talked--we've all 
had a lot of time to think about this over the past couple of 
years, and we've talked with Bob, and we talked with the Gates 
Foundation, Lumina, and it always seems to come back to these 
five fundamental metrics.
    No. 1, do the students learn? And there's a lot of 
universities that don't want to measure learning, but we think 
you should.
    No. 2, do the students graduate? Did they complete? And we 
heard Mr. Batson talk about that.
    No. 3, did they achieve the objective they set out? Which 
could be employment typically is what we're talking about. It 
could also be admission to graduate school. That might be the 
educational objective they had.
    No. 4, did they achieve licensure for nursing or 
cosmetology or other programs where there's licensure involved 
in working in your profession?
    Senator Franken, to your point, it is absolutely 
unacceptable if there's a school that does not give their 
graduate the opportunity to sit for licensure. That's the 
specific example you mentioned.
    Senator Franken. Well, those schools exist, and there are a 
lot of them, and they're very successful.
    Mr. Hamburger. And that is unacceptable. So we completely 
share the concern, and that should be taken up.
    And then No. 5, did they repay their loans?
    So those would be the five categories of metrics, and these 
would be enforced, and we do applaud the additional resources 
that you've given the Department of Education to enforce the 
rules.
    At the same time, we think that there should be standards 
of practice. So disclosure, we talked a lot about enhanced 
disclosure. That's very important, and the right kind of 
disclosure, and not just a disclosure to decide but aggressive 
and intrusive disclosure, if you will, so that we know the 
student got it and they couldn't have missed it.
    Standards for training and ensuring continuous improvement 
for the admissions recruiters, for the financial aid 
professionals and so forth, and they're all further outlined in 
my written submission.
    So those two pillars of metrics, outcomes metrics and 
standards of practice, surrounded and backed up with 
enforcement from the police, the Department of Education, would 
be our suggested framework for moving forward to solutions.
    The Chairman. Thank you very much.
    No one else is jumping in?
    Senator Blumenthal.

                    Statement of Senator Blumenthal

    Senator Blumenthal. Thank you. I've read through your 
suggestions, your specific suggestions in your testimony on 
best practices and so forth, Mr. Hamburger, and I guess I have 
two areas of questions.
    First to Mrs. Petraeus. Are there specific measures, either 
standards of accountability or best practices, that you would 
say should be adapted or framed for members of the armed 
services or veterans so as to make them more effective for 
them? Do they have special sorts of areas of need that should 
be targeted, so to speak? I'm not articulating it well, but 
obviously they're in different situations. They're more 
isolated, in a sense. They're coming back to the civilian world 
or newly in the civilian world, or even possibly suffering from 
invisible wounds, whether it's post traumatic stress or 
traumatic brain injury. Obviously, this system has to be 
adapted to their needs.
    So I wonder if you could comment on those rules or metrics 
that Mr. Hamburger is suggesting with a view to the situation 
of veterans.
    Mrs. Petraeus. I think you're right that they do have 
specific and sometimes unique needs, and I will say that the 
for-profits were quick to recognize some of that, and part of 
the reason that a lot of the military signed up for them, 
especially on active duty, is because they did provide 
education online that was easily accessible to military even 
when they were deployed, and did give them the flexibility to 
kind of take the classes when they could take them. Before, 
that was a real barrier for the military, who were trying to 
take a course at the base where they were assigned, because 
they could never finish it. They would be sent to the field, 
they would deploy, and they would just have to give it up. So 
that is a unique need.
    What's interesting, I think, is once they get out of the 
military, online education probably is not such a good thing 
for them because I think the veterans, as you said, with 
special needs, often it's better for them to be on a campus 
where they actually are interacting with people and they have 
the chance to have hopefully a student support network there, 
both among other students and hopefully from someone on the 
staff as well. And obviously the one college we talked about 
that only had one support person for 78,000 students, that 
would not work out.
    The metrics again would be the military has a very high 
rate of dropping out of these classes, signing up and not 
completing them. For the person who recruits them, as long as 
they get them through the first week of class and sort of past 
the point when they can be counted, then there's not that much 
interest in did they finish. So I think, again, a measure has 
to be, do they actually finish the coursework, are they able to 
succeed at it. When they were recruited, was any consideration 
given to whether or not they could actually do the work?
    With somebody with traumatic brain injury, there may be a 
point when they shouldn't be accepted into a college. A private 
college, a public college, or a nonprofit, would have more 
rigorous acceptance standards where they would not sign you up 
if they thought you couldn't succeed.
    So will they get through the coursework? Will they actually 
achieve that degree? If they move or decide to go elsewhere, 
will those credits--will they be able to transfer them? Will 
anybody else accept them?
    And then I think the most important thing we can do for the 
military is really enable them to have a good idea of what 
they're signing up for and to be able to evaluate it. And right 
now, we were talking earlier, the Veterans Administration, 
nobody is really telling them, especially the G.I. bill, giving 
them a very good assessment of the quality of the programs 
they're signing up for.
    If you look on the VA Web site, it's very minimal. It tells 
you, yes, you can use your G.I. bill here, and here's sort of 
the maximum you can use, but there's absolutely no comparison 
in terms of it costs this much versus another school, and 
here's the graduation rate, and all the other things. So I 
think something I would really like to see is much more clarity 
up front so somebody can compare and see what they're about to 
spend their precious G.I. bill money on.
    Senator Blumenthal. In the military, there is the 
Transition Assistance Program, the TAP program, which is 
generally provided on the eve of the return to civilian life, 
and the military is moving toward providing it again or 
repeating it, or making it available at points down the road. 
And maybe what you're suggesting is that as part of that 
program some counseling on these educational options would be 
appropriate.
    Mrs. Petraeus. I think it could be very helpful, yes. The 
transition program, they're working hard to make it more 
effective. It certainly helps if the military person gets 
engaged before the last minute, when they're about to sign out 
of the military. But if you give them the opportunity a little 
bit later to come back and revisit, that might help. I don't 
know how much of a logistical nightmare that would be since 
they're no longer really part of the active service. They're a 
veteran.
    The sad truth is I think a lot of them are signing up based 
on advertisements and word of mouth, and I actually saw 
something in the Military Times newspaper recently which was an 
insert, a magazine that basically listed the 50 most popular 
colleges for military. And most popular literally was just 
based on how many military were enrolled in them. So there was 
no other measure there. But if they wrap themselves in the flag 
and they try to say that they cater to the military, they may 
get picked for that reason without any real serious evaluation 
of what they can provide.
    Senator Blumenthal. To go back to Mr. Hamburger, in your 
last comment you used a word that I think is very, very 
important, and that is ``enforce.'' And no matter how good 
these rules, they have to be enforced vigorously and fairly.
    So I would invite comments about how the system should be 
changed to improve the enforcement of these rules.
    Mr. Hamburger. Sure, and others may want to comment as 
well. It looks like they do.
    Part of the reason it's so important, and we've all seen 
the struggle, it's so difficult to come up with a set of 
metrics that will apply to everything from a certificate in 
cosmetology to a bachelor's in nursing to a degree in 
psychology, a postdoctorate degree.
    A certain amount of human judgment in the enforcement, I 
think, allows for the kinds of metrics that we've suggested to 
be taken in context and to be used as a flag for poor 
performance and not necessarily as a sort of automated on/off 
switch. And so the human judgment that comes with enforcement I 
think can supplement that.
    I think the other thing is the enforcement needs to be, in 
our view, applied across all sectors of higher education. We 
need to protect students who attend public-sector, private-
sector, and independent colleges.
    The Chairman. Mr. Barr.
    Mr. Barr. I think that enforcement of these, whatever the 
rules are, is absolutely critical, and it obviously faces the 
challenges of budget resources in tough times. But I do think 
that there are steps that can and ought to be taken that are 
similar to the kinds of steps that you would expect in any 
environment in which consumers are potentially put at risk 
financially.
    So the same kinds of steps you would expect for a consumer 
finance company or for a bank or for a mortgage lender, you can 
put those in place with respect to at least the financial side 
of what the schools are doing.
    And so in particular, requirements with respect to what the 
schools themselves can do as the first line of defense. I think 
that the kinds of things in particular that Mr. Batson 
mentioned briefly are really important, compliance, internal 
compliance, internal controls, internal audits, internal tests 
of whether procedures are being followed, measures using 
mystery shoppers, mystery student shoppers to make sure that 
rules are being followed.
    Internal rules about compensation and how recruiters, 
marketers, or others that interact with students are 
compensated makes a big difference in how they perform. And I 
think one of the steps that I know the Department of Education 
is embarking on, I guess effectively now, is changing the basic 
structure of compensation for recruitment. I think that's 
really important as one of the tools here.
    But those kinds of internal measures need themselves to be 
enforced on. So you can't just leave it to the schools to do 
what they think makes the most sense in terms of enforcement 
and auditing. There need to be rules about internal controls, 
and those rules about internal controls need themselves to be 
supervised and audited and checked.
    There's also an additional level, which is what either the 
Department of Education or the new Consumer Financial 
Protection Bureau can do to supervise and enforce for 
compliance with existing rules, for example on the Truth in 
Lending Act with respect to disclosure, improving disclosure 
with respect to loans to potential students in this context, 
making the disclosures better to use for the students.
    So we've talked a little bit about the comparability, the 
comparison issue on the panel. One of the key things is making 
it so that it's very easy for students to compare across loan 
products. You can do that using technology, machine readable 
format for disclosures that could improve significantly on what 
groundwork has been laid.
    So that's all to say that it really is absolutely critical 
when you're thinking about enforcement to think about it at the 
level of the firm, the level of incentives, the level of 
auditing of those incentives, and then at the final level of 
supervision or enforcement by the Federal Government or State 
agencies.
    Senator Blumenthal. What about using the whistleblower 
concept, the ``qui tam'' concept which, in effect, creates 
private enforcement, in some cases maybe a larger deterrent to 
wrongdoing?
    Mr. Barr. I think whistleblower statutes in general and in 
this case are an important supplementary tool. They can help 
highlight individual instances of wrongdoing. But if you really 
want to get at the heart of what's going on, you need to set up 
a system that is designed to produce the outcomes you want and 
then rely on these other mechanisms to supplement that. So I 
think whistleblowing is really just an adjunct, an additional 
tool to uncover problems.
    Senator Blumenthal. Thank you.
    The Chairman. Mr. Batson.
    Mr. Batson. I'd like to provide just a little bit more 
context on the framework we envision in order to answer your 
question about enforcement.
    I found it very helpful to understand Mr. Hamburger's 
framework, and we support much or all of what's in that 
framework and feel like it's very similar to ours.
    What we envision is a three-level framework, and the first 
is built on disclosures around cost and affordability and 
potential benefits and returns, and those disclosures include 
things like total price, student debt, typical debt-to-income 
ratios. They include information on typical benefits and 
returns like completion rates, placement rates, licensure pass 
rates, graduate incomes for fields that the program typically 
serves.
    What we need to do is make sure that schools are measuring 
and disclosing all of those things not only accurately but on 
an apples-to-apples basis so that students can compare across 
schools, public sector, private sector, different types of 
programs. Somebody might want to compare what the dynamics or 
returns are on a cosmetology diploma versus a 4-year nursing 
program. There's no reason why they shouldn't be able to do 
that.
    So we think there is a common set of disclosures. We think 
we can take all the stuff that we measure and report now and 
take the best of in a few categories that are really meaningful 
to students and parents, and put it out there in the right 
formats and the right places in an understandable way. Then we 
think we could build on a couple of things we already have in 
place to ensure the accuracy of that.
    We have an auditing process. We have to submit two audits 
to the Department of Education every year, a financial 
statement audit and a compliance audit. We think that there 
ought to be separation between the firms that are performing 
those two audits. There ought to be certification around the 
firms that are performing those compliance audits. It's my 
understanding that you can go get a few hours of training from 
the Department and go perform a compliance audit, and over the 
years we've seen unbelievable variation in the quality of those 
auditors and their ability to detect problems.
    We think that from an accreditation perspective there are 
opportunities to have some basic standards around how you 
measure outcomes and how you verify those outcomes, and that 
would give me comfort that we're all operating on a level 
playing field and that students who are looking at schools are 
getting accurate information across the board.
    Then you've got to figure out what to do when schools 
misreport that information, what kind of sanctions are there 
going to be. I think that fundamentally there's three levels 
there, too. First, there's public disclosure of the errors that 
are made. So every year we gather this information, we report 
it. If issues have been found, we flag it. We say last year 
when the school reported their outcomes, they missed, or they 
missed badly, use these with caution. If it's a more egregious 
offense, I think we're talking about fines. If it's a very 
egregious offense, it could lead to loss of accreditation or 
loss of title IV eligibility.
    So I think there are some very simple ways that we could 
take the enormous complexity that exists in our system today 
and boil it down to one page, so to speak, change some of the 
ways we enforce things, and end up with a much better alignment 
of incentives between schools, students, and taxpayers, and I'm 
hearing a lot of ideas in this room about how to do that, and 
would love to have a further discussion on that at some point 
in the future. So, thank you.
    The Chairman. Mr. Batson, let me say that was just about as 
lucid a response as I've ever heard in any of our meetings.
    Mr. Batson. Thank you, Mr. Chairman.
    The Chairman. Now you're getting to it.
    Senator Franken. How long have you been in the Senate?
    The Chairman. That's what I say, that's one of the most 
lucid responses I've heard in 35 years.
    Senator Franken. Thirty-five years.
    The Chairman. Thirty-five.
    Senator Franken. OK. Thank you.
    [Laughter.]
    Mr. Batson. Thank you, Mr. Chairman.
    The Chairman. Because I had read your testimony last night, 
and you had given a brief outline, but you didn't go into it in 
depth like you did here. I look forward to working with you on 
that, and if you can help us with what you just outlined there 
and flesh it out a little bit more, I think you have really 
given us something to think about.
    Of course, now I would, again, go over to the other for-
profit school here. Yes, go ahead.
    Mr. Batson. Did I earn the right to ask that we ultimately 
apply it to all of higher ed for the benefit of students and 
taxpayers?
    The Chairman. Absolutely right. Now, I haven't gotten there 
yet, but----
    Mr. Batson. Thank you, Mr. Chairman.
    The Chairman [continuing]. Believe me, that's right. These 
ought to be comparisons across the board.
    Senator Franken. Junior highs, too.
    The Chairman. What's that?
    Mr. Batson. Junior highs, too.
    The Chairman. I didn't hear.
    Senator Franken. I said junior highs, too. I'm sorry.
    The Chairman. Would you set minimum standards for 
performance, Mr. Batson? If you don't know right now, think 
about it.
    Mr. Batson. I really appreciate that, because I think a lot 
of thought needs to be put into that.
    The Chairman. Yes.
    Mr. Batson. I think we would have to do it in a way that 
makes sure that we set the quality standards where they need to 
be, and at the same time minimize any damage to access. When we 
look at our data, we do have certain student segments that 
succeed at very different rates statistically. And so I think 
we have to be very thoughtful in designing a system that does 
require peak performance, and at the same time acknowledges 
that if we set the bar too high, we're going to force a lot of 
people out of the education system.
    I think the first step is to get all of this information 
defined, out there, to really understand where we stand today 
across higher ed, and then over time I think we have to 
continue to innovate and to ratchet up standards so that we get 
better and better and better and get a higher return on our 
education investment.
    The Chairman. Any observations, thoughts, on what Mr. 
Batson just said, anybody? We'll start here, right here, and 
then Mr. Shireman.
    Mr. Shireman. This point about some minimum level, some 
minimum standards is important to consider, because if there is 
a hard line, it has to be very low. If there's not a hard line, 
then it's unenforceable. And Mr. Hamburger had an interesting 
point, which was human judgment.
    From my experience at the Department of Education, when 
there's human judgment involved where a career employee has to 
make a decision, well, this is beyond the sleazy line in my 
judgment, inevitably they get overruled either because the 
lawyers say, you know what, we'll never succeed in court on 
that, or because the Department folks agree, yes, this is 
really, really sleazy. They take it, they go to the school and 
say there's some really questionable stuff going on, and next 
thing you know a Senator is calling the Secretary of Education 
and saying one of our schools in my State is being abused, and 
then the Department of Education backs away.
    So it becomes unenforceable if it's not a hard line, but if 
we have a hard line, it ends up being really low level. So 
figuring out how to get those incentives to push for the high 
levels of success, that's going to be a critical part of what 
we aim for.
    The Chairman. If you had to pick or choose, which would you 
choose, a hard line at a lower level, or----
    Mr. Shireman. I think having a hard line is critical to 
enforcement----
    The Chairman. But that's lower----
    Mr. Shireman [continuing]. And then having something that 
creates a zone that schools would prefer to stay out of because 
it doesn't look good. So maybe some of the mystery shopper 
stuff that we're talking about.
    Maybe it's about getting that information out there so that 
you've got a transcript of a conversation that is kind of 
questionable, it's something that's available. Students aren't 
going to see it, but advisors are going to see it. It will get 
out there among college admissions advisors. The VA will see 
it. The folks who do State oversight will see it and they'll 
say, hmm, there's some questionable stuff going on at this 
school, and it's happening more than once.
    I would get more information out there. The Department of 
Education has emails for everyone who has applied for financial 
aid. The Department of Education could survey folks about their 
experience in schools and could make that information 
available.
    The Chairman. Mr. Barr.
    Mr. Barr. Just briefly, I think it doesn't need to be an 
on/off switch. It doesn't need to be a hard line or a soft 
line. You can have essentially graduated penalties. So the 
worse the performance of the school, the more dinged they get 
in the title IV program, or the more fines they get and so on. 
And they'll internalize those costs, and they'll try and get 
better performance.
    The Chairman. Mr. Cruz, and then Mr. Hamburger.
    Mr. Cruz. I'd just like to touch briefly on three issues 
that have been discussed in these last few minutes: disclosure, 
accreditation, and minimum standards for performance.
    In terms of disclosure, we have heard about the importance 
of context, the timing of when the students get the 
disclosures, the clarity and the comparability of those 
disclosures. I would add another element, which is relevance. 
The disclosures cannot be ratios and more ratios and so forth. 
They should be relevant to what the students need to know and 
want to know. Things like for a student like me, that looks 
like me, that has this economic, socioeconomic status, that has 
these family responsibilities, how long is it going to take me 
to graduate? What is the placement rate? How much can I expect 
to earn? How much am I going to expect to earn above what I 
currently earn after you take away the loans and whatnot that I 
need to incur in order to study?
    Those are the issues that need to come through in those 
disclosures because, as a matter of fact, in a recent 
conversation with a good colleague, she said the problem is 
that middle income and upper income students, they get access 
to information when they want to go to college and further 
their careers, but low-income students and students of color, 
what they get access to is infomercials. So we need to find a 
way to make sure that this information is presented in a way 
that is relevant to them.
    In terms of accreditation, many of the comments by Mr. 
Batson I totally agree with, but that is what accreditation is 
supposed to do now, and we know that it's not effective at 
doing it. So that's another conversation that we need to look 
into and at a previous hearing we discussed.
    In terms of the standards for performance, I think that one 
way to deal with this notion of the hard lines and the regents 
and whatnot is to think of the necessity that we have right now 
to eliminate the most toxic programs. We have to have a hard 
line as soon as possible to eliminate the programs that should 
not be in place because of the danger, the clear and present 
danger that they present to students.
    And then with the remaining programs we should look not 
necessarily at the hard lines but at how they evolve over time, 
because we know that if this country wants to once again lead 
the world in educational attainment, we need for-profits, 
nonprofits, and public institutions to improve over time. They 
have to do better than they're doing now. So having static 
standards that say whether or not in a given year you graduated 
more than 40 or 50 percent of your students is not going to get 
us there. We have to see if there's a trajectory for success.
    If an institution, if DeVry is in this position right now 
in terms of graduation rates and loan default rates, where are 
they going to be in 2020? Can they articulate a projection for 
the American public in the same way that they articulate 
projections in terms of earnings to their stockholders, 
projections that we can hold them accountable to?
    I think that's an important way that we can think about 
standards for performance.
    And finally, to remember that our colleagues here today 
from the for-profit sector are very gracious in being here, and 
I like a lot of what I'm hearing. But the fact is that just 
yesterday the Association of Public Sector Colleges and 
Universities filed a lawsuit to not allow enforcement of the 
gainful employment regulations which, as we have discussed, are 
very weak to begin with; and that they also a couple of days 
earlier appealed a Federal judge's decision upholding two other 
regulations which bar deception in college recruiting and ban 
commissions for college recruiters.
    So I think that we might be accompanied here today by very 
good outliers in the for-profit sector, but we have to 
recognize the difficulty of doing something about what's going 
on in this area.
    Mr. Hamburger. I appreciate the tradeoff that Mr. Shireman 
has outlined about setting a hard rule or you're out. It's 
tough to set that really high because there are so many 
exceptions and so many considerations involved in the tradeoff 
with enforcement. And I think part of the solution is Mr. 
Barr's suggestion of graduated enforcement. I think there's 
precedent for that.
    Also there's precedent for using human judgment. The 
Department uses something called the financial responsibility 
ratio that says the institution, to remain eligible for the 
student financial aid system, has to show that it's financially 
viable; including, by the way, the fact that it has to show 
that it's profitable, which is interesting.
    We've asked how does that apply, and the Department has 
told us they use it as a flag. So if an institution violates 
the ratio, it's not just an off switch. They actually work with 
the college or university, give us a plan, show us how you're 
going to improve and get back to that. And if you can't show us 
that, yes, we have the right to throw you out, but we can apply 
human judgment as well. So I think there's precedent for that, 
although I do appreciate the challenge.
    Senator Franken. May I ask----
    The Chairman. Yes.
    Senator Franken. It's just a question of Director Petraeus. 
Mr. Barr noted earlier about some of the financial products 
that were targeted to members of the armed services and 
veterans in sort of a predatory way, and Congress did respond 
in some ways to that. I'm wondering if there's some kind of 
parallel suggestion that you might have on how Congress can 
respond to this targeting of service members and veterans in 
the for-profit college sphere.
    Mrs. Petraeus. You're right that they did successfully 
address the issue of payday loans, which was a real scourge 
around military installations back in the early 2000s, and 
ultimately ended up in the Talon amendment, which capped payday 
loans, auto title loans, and tax refund anticipation loans at 
36 percent for active duty military and their dependents. That 
is a success story.
    I don't think I'm ready today to recommend any specific 
measures along those lines, but it's certainly something I'd 
like to go back and think about and talk with you further.
    Senator Franken. Great. Thank you. Thank you very much.
    Mr. Nassirian. Senator, may I?
    The Chairman. Yes. I had Mr. Barr, and then I'll go--did 
you have just an intercession on that one point?
    Mr. Nassirian. Yes.
    The Chairman. Go ahead.
    Mr. Nassirian. With regard to one specific, concrete step, 
I participated in DOD's worldwide education conference last 
year, and one of the most stunning things I noticed was the 
extent of wining and dining of military advisors and DOD 
education advisors by schools. The four restaurants in the 
lobby of the hotel were basically shut down one evening, one 
per publicly traded for-profit, and with open bar and open 
menu.
    I think those are some fairly easy conflict of interest 
rules that ought to be in place because service members should 
be receiving disinterested advice from their advisors, and 
advisors should not be influenced by those kinds of behaviors.
    Also admission of recruiters on bases, big problem, because 
they're coming in in the guise of counseling, but it's so clear 
to anybody who cares to take even a 5-second look that this is 
essentially recruiting going on.
    Mr. Barr. Just to pick up on that same theme, I do think 
that we've seen in other contexts, in the context of life 
insurance, of mortgage lending, of payday lending, refund 
anticipation lending, the same kind of problem of the 
blurriness of the line between trusted advisor and agent of the 
financial firm, and I think that that's a difficult one the 
military needs to address. Director Petraeus' office, working 
with the DOD, can do a lot on that.
    I would also note, I said this quickly in passing but I 
want to be clear about it, that Congress also responded to this 
particular problem by making sure that the Consumer Financial 
Protection Bureau had jurisdiction over private student 
lending, and that will be I think an important new way in which 
enforcement occurs with respect to marketing, brokering, sales 
practices and disclosure. So it is an additional tool that is 
now available in this realm.
    The Chairman. Anything else?
    Senator Franken. Thank you all very much. I, unfortunately, 
have to leave. Thank you.
    Mr. Shireman. Thank you, Senator.
    The Chairman. I have one other thing on outcomes. We 
covered the first two. I said what constitutes student success, 
what should students know. We've gone over that, disclosure, 
and on outcomes, having these hard lines or not. I want to move 
on to something else.
    But before I do, I want to get to one kind of specific in 
terms of these outcomes. The investigations that we had showed 
retention rates at well below 50 percent, some even 40 percent 
or less in some of the large for-profit schools. I checked with 
the community colleges in Iowa, in my State, and the retention 
rate was about 60 percent. Some of the for-profits were less 
than 40 percent.
    What should reasonable expectations be for student 
performance, given that we know that the target for recruiting 
are low-
income and minority students? That's basically the bulk of who 
is being targeted, recruited. I don't know about targeted, but 
recruited.
    So what should be a reasonable expectation for retention 
rates for that group? Should it be 60 percent; 50 percent? What 
should we be happy with; 45 percent? Again, our investigations 
showed through documents that we got that there was a lot of 
churning going on, a lot of churning of students, so I don't 
know.
    Mr. Hamburger, take a shot at it.
    Mr. Hamburger. Since nobody is jumping in on this, maybe I 
can at least get it started and get some ideas to flow.
    When you think about graduation rate, of course, like all 
these outcome measures, I think it's very important that we 
look at it in context of the others. We could all have 100 
percent graduation rate tomorrow, pass everybody.
    The Chairman. Sure.
    Mr. Hamburger. But clearly that's not desired, and we would 
never do that. We will never sacrifice academic quality in 
order to raise graduation rates.
    The Chairman. Right.
    Mr. Hamburger. But if you use the system of outcomes that's 
been described here in a balanced way, there's the idea of a 
balanced scorecard, if you're familiar with that concept from 
other industries, if you think about graduation rate with 
employment or graduate school admission together, then you've 
set up a balance, because on the one hand I could have very 
high employment rates. I just don't graduate anybody but the 
very, very best and I have 100 percent employment. On the other 
hand, I could have 100 percent graduation rate but I would have 
very bad employment, right?
    So I have the two together, you set up a natural tension 
and a natural dynamic that encourages improvement over time.
    The Chairman. But so many of these students are dropping 
out in the first year or so. They're borrowing the money. They 
get the Pell grants. The school gets the Pell grants. They get 
the loans, and then the student drops out in the first year.
    Mr. Hamburger. Well, we know the average, across the 
country, I think at the 4-year level, is under 50 percent, and 
that's everybody from Harvard to the least selective school. 
And at the 2-year school, it's about 20 percent in the 
community colleges.
    The Chairman. But when I looked at the community colleges 
in Iowa, they said their retention rate was about 60 percent. 
So they've got 40 percent dropping out in the first 2 years.
    Mr. Hamburger. Oh, I'm sorry. OK. You were talking about 
retention. I was talking about graduation rate.
    The Chairman. No, I'm just talking about retention.
    Mr. Hamburger. OK, 1-year retention.
    The Chairman. Keeping students in. They're signed up, 
they're taking the course, they drop out. Again, getting back 
to what we talked about before, and that is support services, 
keeping students, I'm trying to see is there a metric that we 
should be thinking about in retention. What should the 
retention rate be?
    Now, I said community college was 60 percent. I think that 
seems kind of low, too, the difference being that the kids who 
drop out of community colleges don't have much debt. They 
haven't borrowed a lot of money. So they leave and they don't 
have a lot of debt. But those who have borrowed money, gone to 
a private for-profit school, they drop out, they've got a lot 
of debt.
    Mr. Hamburger. So here's an idea that we think is worth 
studying, which is to take the Federal student aid system of 
grants and loans--we have both grants and loans.
    The Chairman. Right.
    Mr. Hamburger. And without raising the total amount of 
money, just re-allocate it. So shift the order of grants to be 
earlier in the academic career, and loans later. That's an 
intriguing idea, I think. That way, if you tried it and college 
just wasn't for you as the student, you would have used more of 
your grant but less of your loan. You'd have a lower debt to 
deal with.
    The Chairman. Mr. Nassirian doesn't seem to like that idea.
    Mr. Nassirian. Yes, that's called front loading. By the 
way, I generally seem to be disagreeing with my colleague. I'm 
very heartened in hearing some very constructive proposals. 
This isn't one of them, sadly.
    [Laughter.]
    The Chairman. It's an idea. We throw ideas out, then we see 
what happens.
    Mr. Nassirian. What you end up doing is essentially 
rewarding institutions that capture as many warm bodies on the 
front end no matter how they do in terms of graduating them. So 
front loading is not--
    Mr. Hamburger. In isolation, yes. But it would have to be 
married with the outcomes measures that we talked about. But 
that's a fair point.
    Mr. Nassirian. I take the point, but the Chairman made--I 
think the Chairman answered his own question. There is no 
natural, God-given correct number for retention. Here in 
America, we would like to give second and third chances to our 
citizens, so we don't want to exclude anybody from attending 
college on the theory that they may drop out. They may drop 
out, they may not drop out. So we want to have a system that 
gives people opportunity and access.
    The problem really comes in when, for those who don't make 
it, we leave them worse off because they're saddled with 
crushing debt and really nothing to show for it.
    So the trick is to make sure that there are penalties 
associated with generating too many dropouts.
    Mr. Shireman. One helpful suggestion in Mr. Hamburger's 
testimony was the kind of free trial notion, and I think this 
development where some colleges are saying you can come in and 
try out this program, because that's one of the benefits of 
community colleges, is there isn't that downside of ending up 
in debt. So if a college has a low retention rate because 
they're giving people a free trial, that's not necessarily a 
bad thing.
    The Chairman. But in our investigation, we've seen schools 
that basically do a lot of work, expend a lot of effort to keep 
students in for 60 percent of the term, because once you get 
past the 60 percent of the term, you can drop out and the 
school keeps the Pell grants and the loans. Wouldn't they just 
be gaming the system, too? So if you get a free trial, sure 
they'll keep you in. They'll give you support and stuff. Then 
after you've passed that point in time, well, if you have to 
leave, you have to leave; sorry.
    Mr. Shireman. Maybe this is something where you need to use 
that indicator to then bring about more investigation.
    The Chairman. Mrs. Petraeus.
    Mrs. Petraeus. I was just thinking, listening to this, 
there is an interesting difference between military tuition 
assistance and the G.I. bill. With tuition assistance, as we 
were briefed just recently, they pay by the credit hour and 
they don't pay until the course is completed. So it's a 
completely different system of payment than----
    The Chairman. They don't pay it until the course is 
completed.
    Mrs. Petraeus. Yes. That's the reimbursement system, as you 
put it. It's a different system. Something to think about. It's 
a different way to pay.
    The Chairman. Mr. Cruz.
    Mr. Cruz. On the question of what should the retention look 
like, I think that most of the discussion has revolved around 
the students, but what institutions do matter. And so one 
possible way of looking at this problem is to see how well an 
institution is performing in terms of retention when we look at 
its peer institutions, those institutions that serve similar 
students. Are they under-
performing? Are they right where they should be? And are they 
over-performing?
    But we know that in America right now, and again I keep 
stressing that if we want to get to where we want to be in 
educational attainment, it's not about being where we should be 
with respect to our peers right now because everybody is not 
doing as good a job as they should be.
    So we would have to marry the notion of how well an 
institution is doing with respect to its peers to how well it's 
growing its overall retention and graduation rates over time, 
and in doing so how well it's closing the gaps between the 
different groups of students they serve, because they may be 
graduating high-income students at a much higher rate than low-
income students. And again, given all demographic shifts, that 
would not serve the country well. So there has to be some form 
of combining that.
    The Chairman. You just gave me an idea. I don't know if 
it's any good. Maybe, Mr. Hamburger, this is another idea that 
I'll throw out and get shot down, but----
    [Laughter.]
    Mr. Hamburger. That's what we're here for. It's a 
roundtable discussion.
    The Chairman. We're working right now on the 
reauthorization of the Elementary and Secondary Education Act, 
No Child Left Behind. We're spending a lot of time working on 
it. And one of the things that No Child Left Behind did and 
which kind of opened our eyes as to what was going on was what 
we call disaggregation of data according to income groups and 
according to ethnic backgrounds, and that provided us a real 
window to look at just what was happening to minority students, 
and especially in what we call the achievement gap schools, 
where we found that right here in Fairfax County, high-income 
grade schools, both my kids went to school there, they look all 
really well and good, but there's a subgroup down there not 
doing very well at all, and they just kind of forgot about 
them. Well, we started disaggregating the data and found out 
there were some real problems there.
    So I'm just wondering, do we need to have some kind of 
disaggregation of that kind of data from the for-profit 
schools? Who are these students? I don't know that we've ever 
seen that kind of disaggregation of information.
    Mr. Hamburger. I think that could be very helpful data. And 
again, I think that data would be useful to look at students 
who are attending public sector and independent schools as 
well.
    The Chairman. When Mr. Cruz mentioned that I said, well, 
you know, maybe some of your higher-income students who are 
going to the for-profit schools, they're graduating, but some 
of the ones down here aren't graduating. We need to know that, 
I think.
    Mr. Nassirian.
    Mr. Nassirian. Mr. Chairman, you're going to find out there 
are very few high-income students attending for-profit schools.
    The Chairman. I understand.
    Mr. Nassirian. In fact, that is the problem. I mean, in 
candor, we need to recognize we have, de facto, created a 
system of separate but allegedly equal. You have created a 
system in which the for-profit sector is overwhelmingly 
dominated by extremely low-
income students, and that ought to be of concern. Why is there 
such a separation? Why don't middle-income families send enough 
of their children to these institutions?
    And apropos of consumer protection and some of the 
suggestions that have been made, it's very critical to 
understand there is a conundrum here, and that conundrum has to 
do with the fact that to the extent there are bad actors, and 
there are lots of them, in my judgment, that the de facto fraud 
is not in the sort of wrapper financial practices that they 
engage in. The de facto fraud is at the heart of the 
enterprise. They're not teaching people.
    It's not just that they package them with predatory 
private-label loans, it's not just that they're capturing G.I. 
benefits or active duty DOD tuition assistance money. It's the 
fundamental problem that they're not actually teaching 
anything, that the credential is meaningless. It has been 
validated by an accreditor who ought to have known better. It 
has been rubber stamped by a State that ought to have known 
better.
    The Chairman. Mr. Nassirian, I hate to interrupt, but I'm 
not known as a big defender of the for-profit schools, 
obviously, but some of the kids who do go online and attend 
for-profit schools do very well.
    Mr. Nassirian. Some do.
    The Chairman. They do finish.
    Mr. Nassirian. Some do.
    The Chairman. And they do succeed.
    Mr. Nassirian. Some do.
    The Chairman. There are some out there.
    Mr. Nassirian. Oh, sure, there are some; not enough. If 
half of all defaulters in a peer cohort----
    The Chairman. I think that's what we're trying to get at.
    Mr. Nassirian [continuing]. Are coming out of 10 percent of 
your enrollments, on its face there is a statistical problem. 
It's not to say nobody succeeds. Some do. By far, too few, in 
my opinion. It seems to me the numbers don't support----
    The Chairman. Well, I agree with that. I agree far too few.
    Mr. Shireman.
    Mr. Shireman. I think it's helpful to look back at the 
original G.I. bill 85/15 rule, which was the precursor to the 
90/10 that we have.
    The Chairman. Right.
    Mr. Shireman. And when you look at what the reasons were 
for creating it, they were to have some independent evaluation 
that this is something that someone would buy if not for having 
the G.I. bill, and that the price was reasonable, and they 
wanted to make sure that veterans were--that the G.I. bill was 
providing access to higher education and access to the same 
kind of higher education that other people in America had.
    I think it would be worth the committee's while to go look 
back at the design of 85/15 originally and build on that design 
in terms of looking at how can we encourage programs that are 
not just aimed at bringing in low-income students and veterans, 
but how can we have programs that appeal to all income 
backgrounds, people who can self-pay.
    And this will actually help to get at the excess profit 
issue that you mentioned, because if programs have an incentive 
to bring in self-pay students who are either paying for 
themselves or have an employer who want them to take that 
program, they will need to focus on making sure it's a high-
quality program and/or that they reduce their price, and both 
of those things will help to eat into the excessive profit 
margins, to the benefit of students and taxpayers.
    The Chairman. Thank you very much, Mr. Shireman.
    Mr. Batson.
    Mr. Batson. I'd like to respond to Mr. Nassirian's comment 
that all of the students attending the for-profits are low 
income. When we looked at cosmetology, and we did a quick 
survey of Minnesota, we found that most of the people entering 
the cosmetology industry are being educated in the private 
sector. We think it's about 90 percent based on the data we 
could get from community colleges.
    And so this isn't a case of low-income students choosing a 
private sector school and higher income students choosing a 
public sector option. We believe that our population is 
reflective of all of the people who want to start a career in 
cosmetology.
    Now, if you look at the Bureau of Labor Statistics, it says 
that the median wage is about $12 an hour. If you look at our 
own studies, it's about $15 to $20 because tips are not fully 
captured accurately.
    So if you look at the types of folks who are going to go 
into an important service industry, a $50 billion salon 
industry, you've got 800,000 people employed in that in what I 
believe are good service jobs when you compare it to the other 
45 percent of our workforce that are in service jobs that are 
often minimum wage.
    I would hate to see us think that somehow only the segments 
of the population that are low income are choosing the 
proprietary sector, because that's just not what we see. I 
think people are choosing a field based on what they know, 
their family history, their incomes. Some fields are higher 
income than others, but I really want to be careful that we 
don't have a perception that somehow we're picking off low-
income students, because we're taking all comers.
    In terms of the thresholds, I really think that we do have 
to get serious about figuring out what the minimum standards 
are and what the zones look like, and I like Mr. Shireman's 
recommendation earlier in the meeting. I really think this is 
an empirical question.
    We've got to set a floor below which it's just 
unacceptable, there's not enough of a return on the investment. 
But at the same time we've got to gather the data across all 
the schools and the segments, and we've got to understand 
really where are we today with different student segments, with 
different programs. And then we've got to take an approach like 
Mr. Cruz described. We've got to be realistic about that. We 
can't set the standards where we wish they were, right? 
Otherwise we're not going to have higher education. We're going 
to fall further behind the rest of the world. But we can't be 
satisfied with where they are today.
    And so I think the ideas that Mr. Shireman, Mr. Hamburger 
and Mr. Cruz put out are right on on that topic.
    The Chairman. Thank you very much.
    Mr. Cruz, you had something to add to this?
    Mr. Cruz. Yes. So I'm a big believer in prevention, and 
today we've been talking about how to improve the for-profit 
education sector through policy. But when we're talking about 
the gaps, the Chairman mentioned the K-12 sector. So I would 
like to just point out that another way in which we can improve 
the for-profit education sector is through policy, with policy 
that will influence the K-12 space so that the students that 
today find themselves with no other options than for-profit 
education will be in a position to actually aspire to and 
qualify for and be admitted into institutions in the other 
sectors. That would move the for-profit sector to have a 
product that would be more broadly attractive to students.
    And through the reauthorization of the No Child Left Behind 
Act, there's an opportunity there to close those gaps and 
provide the students that are traditionally underserved with 
more options.
    The other area where we can work on policy to improve the 
for-profit education sector indirectly is by looking at the 
higher ed policies and practices of today where, for example, 
we're at a moment in time when we're talking about possible 
deep cuts to the Pell grant program, where States are 
disinvesting from need-based grant aid and shifting it to 
money-based grant aid, and where public institutions spend 
nearly the same amount of money on their highest income 
students as they do on their lowest income students.
    So what can be done at the Federal, State, and 
institutional level from the other sectors, the nonprofit and 
the public, in order to make it more possible that the students 
of today who have no other option but the for-profit sector can 
actually have choices?
    The Chairman. I said I wanted to move. I think we seem to 
have some broad agreement here today on the need for clear 
outcomes and better disclosure. I want to talk a little bit 
now, if I could, and I'm going to start with Mr. Nassirian on 
this, what role should the Department of Education, States, and 
accreditors play in holding schools to certain standards, 
certain standards of quality and performance? What is the role 
of that triad there? We have the Federal, States, and 
accreditors.
    Mr. Nassirian. That is the triad that has historically 
conducted gatekeeping for title IV. Obviously, this committee's 
own investigation should indicate that we have room for 
improvement presumably on all fronts.
    The Chairman. Actually, on accreditation, if I might 
interrupt----
    Mr. Nassirian. The problem with accreditation, frankly, is 
that it has become a kind of a vestigial practice that made a 
lot of sense 40, 50, 100 years ago, and that we are not 
sufficiently taking account of the changes that have 
eviscerated it. It made a lot of sense when education was a 
vocation and a calling that you went into because you really 
cared about it, as opposed to a lucrative business, to say that 
institutions ought to conduct self-studies and then share those 
studies with outside experts to see if they're doing a good 
job; and when you had, of course, faculty who were tenured, who 
were on the inside, who actually devised a curriculum and who 
were the only people who could touch the curriculum.
    Now you have an arrangement in which higher education can 
be extremely lucrative, where executives who are primarily 
businessmen as opposed to educators design academic policy and 
configure curriculum, and actually go all the way down to 
assignment of credit hours, which no sitting college president 
in the traditional sector would dare touch. That is not 
something that the president would want to be involved in. 
That's the academic senate's job. And guess what? They don't 
work for the president. They all have tenure, and their primary 
commitment is to the field of mathematics and their standing in 
chemistry, and they're not going to assign eight credits to a 
course that, in their judgment, is worth only three.
    Accreditation really needs significant reform. I am a big 
believer in keeping it nongovernmental and private, because we 
certainly don't want to have politics get into the business of 
what is ethics, what is biology. As you know, there are various 
political views on these topics. We think the faculty ought to 
be in charge of that.
    But the problem with accreditation is that insiders 
dominate it. I mean, would you feel safe on the road if you 
knew that GM, Ford and Chrysler were the three authorities that 
devised car safety standards? I don't think any of us would 
feel safe. We would want to talk to them. They certainly ought 
to be part of the conversation. But I think we need an 
independent authority to arbitrate the claims of consumer 
advocates and car manufacturers and other stakeholders.
    The process we have today is just so overwhelmingly 
dominated in every way, in terms of resources, in terms of how 
the system is financed, in terms of who does the accreditation, 
in terms of who sets the criteria, that you have essentially 
delegated what is a very important public oversight function to 
not only the private sector, but the private sector with a 
direct stake in the outcome.
    Accreditation needs to be significantly overhauled, very 
much along the lines, by the way, I think my colleagues would 
agree. And in fact, I think Mr. Batson is onto something 
primarily because his field is so well-defined that there isn't 
a huge amount of debate about whether somebody is eligible to 
become a cosmetologist, to become a barber. It's a licensed 
activity, and there is sort of a black line marker that you 
either cross or you don't.
    We need accreditors to be better incentivized very much in 
the same way as auditors are, right? I mean, one of the 
problems we have is that accreditors can rubber stamp 
applications of even the most questionable institution and even 
have horrific things happen, and they can just go on to rubber 
stamp another application, many times from the very same people 
who brought you the previous disaster.
    I have some very concrete ideas. There are some conflict of 
interest rules that the committee should insist on, and 
obviously there ought to be a system of graduated penalties. I 
really believe in that, because if the only option is to 
withdraw recognition, you have set a very high bar for the 
Secretary.
    The Chairman. Any other thoughts on accreditation? I must 
say openly that when we started looking at this, I always 
thought, well, a school is accredited; that's good. They got 
accreditation from some entity that was separate and apart. 
Imagine my surprise when I found out that the accreditors are 
paid by the schools they accredit.
    Part of my other life is being on the agriculture 
committee, and for years I have fought against, for example, 
having our meat inspection paid for by the packers. It should 
be paid for by us. I don't want them paid by the very people 
that they're inspecting. So far we've kept it that way.
    But I don't know how to--on this accreditation. Does 
anybody have any thoughts on that? But since we're looking at 
this how do we have better standards for our for-profit 
schools, and who is going to hold them accountable for these 
standards, will it be these accreditors or some other entity? I 
just don't know what role accreditation plays in this, in 
ensuring quality, for example, ensuring quality in these 
schools.
    We have examples of accreditors accrediting--well, let me 
get to another point. Right now, you can buy a school that's 
been accredited, and you get the accreditation. Well, should 
you deserve that accreditation or not? If you just buy a school 
and you buy their accreditation, shouldn't there be some 
performance standards that you should have to meet or something 
before you get that accreditation? I don't know.
    Mr. Nassirian. Mr. Chairman, taxicab medallions can't be 
sold as easily as accreditation is sold.
    The Chairman. What?
    Mr. Nassirian. Taxicab medallions, to buy a taxicab 
medallion, you need to have a hacker's license. It's really 
bizarre that a change of control, which is what we're talking 
about, doesn't trigger a new accreditation requirement.
    I actually have submitted in my written statement a 
proposal that the particular issue you raise is, frankly, an 
easy one. The practice of buying and selling accreditation 
ought to come to an end. That should not be sanctioned, because 
by definition your accredited status is a consequence of the 
previous management of the place. When a new management team 
comes in and buys the place, on what basis can you conceivably 
extend that status when you realize whatever it was that 
maintained that status is now gone and a new team is in town 
with different priorities and different previous behaviors?
    The Chairman. Any other thoughts on that, Mr. Hamburger?
    Mr. Hamburger. We should point out that accreditors can and 
do deny accreditation upon a change of control. A recent 
example was Dana College in Nebraska where the Higher Learning 
Commission of the North Central Association did not approve the 
change of control accreditation, and the college closed down, 
100-year-old Lutheran college in----
    The Chairman. Yes, Dana.
    Mr. Hamburger [continuing]. In Nebraska. You might be 
familiar with it. It's not too far away from Iowa.
    The Chairman. I know where it is. It's across the bridge. I 
know exactly where it is.
    Mr. Hamburger. So, they do. I think there's a little bit of 
a slight exaggeration there. But the point remains, whether 
it's the same as taxicabs or it's not, this is about solutions, 
and I think we actually agree that the solution would be that 
on a change of control, the accreditor does, as they can, 
evaluate the school that's in question. And certainly the 
Department of Education has to approve any change of control.
    Mr. Nassirian. Again, the burden is--it's not to prove that 
accreditors can't deny, it's that they have historically. I can 
cite examples even involving DeVry of a takeover of a 
traditional institution run a certain way, with a handover of 
that accredited status to a new management team that is just 
markedly different. This isn't to say they're worse 
necessarily, but they're different than the management team 
that earned that accreditation status.
    I think the burden is on the side that says accreditation 
ought to be transferrable.
    Mr. Hamburger. OK, Barmak, I'll give you an example of 
that. We acquired the Chamberlain College of Nursing in 2005. 
It was founded in 1889. And so, yes, we are different. We 
weren't around in 1889, so it is a new management. And what did 
we do? We invested in student support services. We cleaned up 
the dorms, got the asbestos out of the dorms, bought all new 
computers, invested millions in patient simulators that cost 
$100,000 apiece. The students now pass the NCLECs--that's the 
nursing boards--at an over 90 percent rate. That's a change of 
control.
    I don't want to get into blanket statements here. We do 
need to apply human judgment, back to my earlier point. There 
are times when the change of control and a new management team 
is perfectly appropriate.
    The Chairman. Well, two last things. We're getting late. To 
me this is vitally important, this discussion we're having, 
because we're trying to get to a point where we can see what do 
we need to do, and I'll follow up with that in a minute.
    But right now, one thing that's kind of bedeviled us in 
looking at this is that, as we point out, broadly speaking 
across the sector, 86 percent of the revenues come from 
taxpayer dollars; some more, some less, but that's the average. 
Most of that is not spent on education.
    What's the rationale for allowing schools to use unchecked 
amounts of taxpayer dollars, over $250 million each year at 
some schools, to market and in some instances market 
deceptively? We've talked about that.
    Should for-profit companies be able to use non-Federal 
revenue sources for this purpose? Should there be, again, a 
disaggregation there? How much should be used for marketing and 
for profit, and how much should be used for educational 
support? Getting back to educational support services. Any 
thoughts on that?
    Mr. Batson. I apologize. I just wanted to make one comment 
in response to Mr. Nassirian's comment about not allowing 
accreditation to continue on change of ownership. I think that 
that is impossible and impractical in the real world, and I 
think we have to manage it in other ways.
    I wouldn't be in this business if that were the case. I can 
tell you that I've bought a couple of small schools from owners 
who were ready to retire. They would have spent 20 years 
building up their schools and had no value, because it takes 2 
to 3 years to get accreditation from scratch, and if they've 
built a revenue stream over many years, you've basically 
destroyed all the value of their business.
    I really think that the answer is not a loss of 
accreditation on change of ownership. It's really making sure 
that these other kinds of standards that we've talked about 
today are in place. If you had these circuit breakers, as Mr. 
Shireman was talking about, you wouldn't have these issues. The 
circuit breaker would trip before you got hyper growth with low 
quality after an acquisition.
    I feel passionate about this because in our industry we 
have lots of small schools, and I know what a hardship that 
would be for all of those owners across our sector if they 
couldn't do that.
    The Chairman. Mr. Nassirian.
    Mr. Nassirian. Sorry, Mr. Chairman. I wanted to clarify 
what I meant by change of control was not the change of 
control, regulatory change of control language you're referring 
to. It was the conversion of nonprofits to for-profits or for-
profits back to nonprofit status. Obviously, a business by 
definition can change owners. That's not objectionable. At 
least I understand it's a for-profit activity. It's when you 
see those red flags of a Lutheran college that suddenly goes 
for-profit. And increasingly, by the way, we're seeing the flip 
side of it now, for-profit colleges that suddenly declare a 
charitable calling and become nonprofits.
    Mr. Batson. Thank you for the clarification. That's 
completely different than the circumstances that we're 
operating in.
    The Chairman. Should we be looking at how much Federal 
money is being used by for-profit schools for marketing?
    Mr. Nassirian. Yes.
    The Chairman. And if money is fungible, how do you do that?
    Mr. Nassirian. Mr. Chairman, I looked at the advertising 
and recruitment budgets of eight of them, eight publicly traded 
ones, about a couple of years ago, and it really was stunning 
to me because it was so clear that we're looking at something 
in excess of $2 billion, with a B, a year of Federal money. I 
mean, it's one thing for somebody to spend $2 billion selling a 
product they developed in infomercials on late-night TV with 
their own money. That's for them to decide. But if a sector is 
almost 86 percent dependent on Federal funding and it's 
spending $3 billion on advertising, there really is an issue 
there.
    Yes, money is fungible. But in some cases, I do think some 
measure of responsibility can be mandated in Federal law, that 
Federal financial aid money should not go into advertising, 
lobbying, those kinds of things that should only be done with 
truly private funds. So at least let's cap it so that they 
don't exceed their non-Federal resources for that.
    The Chairman. Mr. Shireman.
    Mr. Shireman. Perhaps this is one of those areas where it 
would be useful to have a trigger and then have something that 
goes into effect, so a trigger at some percentage of Federal 
funds as their revenue, and then it triggers something like--
and it may be useful to think about this not as a limit on 
marketing, because then you've got the problems of redefining 
categories, but instead maybe it's something like if the bulk 
of their revenues are from Federal funds, then the amount that 
they're charging can't be more than, let's say, double what 
they're spending on instruction, something that gets at 
something that's more definable and auditable. Something in 
that area might be a way of handling that issue.
    The Chairman. My staff just said we looked at 15 public 
companies, and 86 percent--it was $3.7 billion, so there were 
$3.2 billion in Federal dollars at these 15 companies were 
being used just for marketing.
    Oh. I'm sorry, Mr. Hamburger.
    Mr. Hamburger. On marketing, we certainly understand the 
concern. Any type of misrepresentation, inappropriate 
marketing, or even aggressive marketing, especially of a 
program that does not deliver value, is certainly of concern, 
and there's the point. The key to the solution I think goes 
back to the academic and educational outcomes. Do the students 
learn? Do they graduate? Are they employed? Are they repaying 
their loans? Are they getting licensure?
    I would think that we want a college that does those things 
to tell the world about it, which is marketing, and we would 
want them doing a lot of activities. I understand the concern, 
but we need to be careful about managing inputs rather than 
outputs, because when we get into the inputs, there are a 
number of categories, especially in the Federal cost category 
system that we have--in your office we talked about how at 
DeVry we visit a million high school students a year, including 
young women, encouraging them to go into science, technology, 
engineering and math, STEM programs. In the definition, that's 
considered marketing. But that's part of our outreach.
    On the other hand, college sports, football teams, 
basketball teams--and let's remember that public sector 
schools, the vast bulk of their revenue also is taxpayer 
funded--that's not considered marketing.
    We're into these measures of inputs rather than measures of 
outputs. So I would suggest, again with our focus on solutions, 
that we focus on a solution that's output measures, and if the 
college is doing a good job, that's the test.
    The Chairman. I have to think about that and how much 
Federal dollars are being used for marketing. Boy, I have to 
think about that one, especially when there's so much--when 
there's more--when out of every dollar for some of these for-
profit schools, like maybe as high as 60 to 70 cents is for 
marketing and profit, and 30 to 40 cents is for education. That 
seems to be an imbalance to me. No?
    Mr. Hamburger. No, I would agree with you. I haven't seen 
that. That's a ratio that I'm not familiar with--
    The Chairman. I'm not talking about yours. I'm talking 
about some of these others we've looked at.
    Mr. Hamburger. OK. But I do know that when I drive to 
work--I've got a long commute every day--the billboards are one 
after another for public sector State schools, for 
independents, the vast majority. There's a lot of marketing 
going on among all sectors. All colleges have to market.
    Mr. Nassirian. The difference is that there isn't the same 
sort of disproportionate--
    The Chairman. I asked my staff, I remember, we looked at 
how much the private, nonprofit, and community colleges were 
spending. It's about 3 percent on advertising, on marketing.
    Mr. Nassirian. And also, the revenue sources are different. 
The challenge here is you have a sector that is overly 
dependent on one set of programs, that is over-advertising, and 
that is associated with generally dissatisfactory outcomes. 
That's the holy triangle of unhappy Federal spending.
    It seems to me I don't disagree that in a perfect world you 
would key everything off of outcomes. The challenge here is the 
billions of dollars of revenues that go into the sector, the 
billions of dollars of advertising with which they pull those 
revenues into the sector are all front loaded, and the outcomes 
in question are years out, so it's very hard to measure.
    The Chairman. I'm going to try to bring this to a close, 
but if somebody has----
    Mr. Batson. I was just going to comment briefly. This issue 
doesn't really affect us because cosmetology students generally 
know very early that they want to be in the field, and so 
there's a finite universe, and they know how to find us.
    But from a practical perspective, it feels like this would 
be very difficult to do. I mean, I can't think of a clean way 
to put some sort of a bright line marketing restriction in 
place. And I've got to believe that if we get the alignment of 
incentives right and we have outcomes measures, that it will be 
completely unsustainable for a school to spend 60 or 70 percent 
on marketing and profit and have outcomes that aren't going to 
trip these circuit breakers that Mr. Shireman and others have 
talked about.
    I agree that it's an issue today, and it needs to be 
addressed. I'm just wondering if we can't get at it, at the 
root of it rather than at the symptom level.
    The Chairman. Before we close I'd like to go down the panel 
for any last thoughts. As I said at the beginning, I wanted to 
have a general discussion. I think we had a pretty good 
discussion on outcomes, disclosure standards, incentives and I 
just wondered if anybody had any last thoughts, maybe something 
we haven't even brought up or discussed yet that you might want 
to say before we leave here.
    Yes, Mr. Barr.
    Mr. Barr. Thank you, Chairman Harkin. The conversation 
today I think has been incredibly productive, and it's just 
been so richly benefited by the presence of two leaders in the 
private sector field.
    I think one of the challenges in this sector, as it is in 
many other sectors of regulation, is trying to improve the 
regulatory environment for what you think of as high-road 
players in the industry, the players who are trying to set the 
highest standards and to achieve them, because the competitive 
pressures that these institutions face from players who have 
lower standards is so strong, the incentives are so hard in 
that environment, and you've seen this in mortgages, in 
finance, in derivatives that I know you've dealt with a lot, in 
credit card markets.
    And unless you can set those standards and enforce them in 
a level playing field sort of way, the kind of institutions 
that we have here before us today can't really compete without 
being pushed into that lower standard environment.
    The Chairman. Anybody else? Mr. Batson.
    Mr. Batson. I think we've had a rich discussion on how to 
move to a new, more effective outcome-based regulatory 
framework that includes a combination of disclosures, 
enforcement, and circuit breakers. And as I think through this 
system, I think we have to be mindful that there's one group of 
constituents not at the table, and it's smaller schools.
    So I think a lot of these controls, secret shopping 
programs, the things that big schools are going to be able to 
set up very effectively and self-monitor, we've got to be 
thoughtful about how these are going to work within and for the 
smaller schools who aren't at this table, and we've got to be 
sure that we make this framework simple enough and transparent 
enough that you don't need huge amounts of people on your staff 
in order to manage it.
    The Chairman. Any other final thoughts? Mr. Cruz--I'll just 
go down the line.
    Mr. Cruz. I appreciate the opportunity to be here today. I 
would say that as we move forward in thinking about the policy 
decisions, as I mentioned before, if they're for improving for-
profit colleges, we also need to look at the conditions that 
create the niche for the for-profit colleges to exist in the 
first place, and that's about inequity in access to good 
schools in the K-12 system, and also inequities in the way that 
nonprofit and public institutions manage their institutional 
financial aid, and the way that States are diverting funds from 
those that need it the most to those that need it least.
    Then when looking at how to manage all these different 
policy proposals that have been presented here today, know that 
in the case of for-profit education there's this iron triangle, 
if you will. In the nonprofit and the public sector, the iron 
triangle refers to the fact that it's difficult to get access, 
affordability and quality at the same time. Well, we know that 
in the for-profit sector, access is there. By definition, it 
can be there; it's provided. But the other two items remain, 
which is the question around quality and the question around 
affordability, in this case affordability to the students.
    The third point that replaces access is profitability. So 
profitability is going to be at odds with access--I'm sorry, 
with affordability and quality. So how do we develop the 
incentives and the enforcement to compel the institutions to 
make sure that that balance is reached for the benefit of the 
students?
    The Chairman. Thank you.
    Mr. Hamburger. Thank you again, Mr. Chairman. We appreciate 
the opportunity to focus on solutions. The time is right to 
move forward on that. And our focus is on solutions to the 
issues here, as well as solutions to the big question, which is 
how do we educate more Americans for jobs, right? And how do we 
create a competitive workforce for our country when we have 
statistics like we're going to be a million nurses short by the 
end of this decade, yet collectively we're turning away 100,000 
qualified applicants because there is not the capacity to 
educate them.
    In that environment, to achieve those goals we're going to 
need the capacity from all three sectors, from the private 
sector, the public sector, and the independents. We do thank 
you for your acknowledgement that the private sector plays an 
important role, adding capacity and opportunity, and actually 
we're doing so at a lower cost to taxpayers when you do the 
math. The private sector can do so with quality outcomes, as 
we've talked about, and offering access to nontraditional and 
underserved students, and the private sector has been the 
source of a lot of the innovation in higher education.
    We are part of the solution. We want to work together on 
solutions, and our summary focuses on outcomes and holding 
universities to a set of best practices. So metrics of 
accountability and standards of practice. Those are our two 
pillars that we've included in our written statement.
    We look forward to working together, can't wait to follow 
up. We've got some big goals to go achieve together.
    The Chairman. Thank you very much, Mr. Hamburger. Thank 
you.
    Mr. Nassirian.
    Mr. Nassirian. Mr. Chairman, I just want to thank you for 
the entire series of hearings. I was around when the Nunn 
hearings sort of exposed the rampant problems within title IV, 
and I vividly remember the extent to which the committee of 
jurisdiction actually resisted suggestions that problems 
existed that needed to be very honestly and forthrightly 
addressed.
    So I just want to thank you on behalf of people who don't 
generally have access to you that this is important work that 
this committee has done. It's been very thankless work. It 
could have easily been avoided and swept under the rug, and I 
think it is enormously important that this committee, and 
particularly in your person, because you simultaneously carry 
the burden of funding these programs as well. So I think it is 
tremendous, and I just want to thank you for the entire series 
of hearings.
    The Chairman. I appreciate your input into our debate and 
discussion on this, and for your statement, and for being here 
today, Mr. Nassirian.
    Mrs. Petraeus.
    Mrs. Petraeus. Mr. Chairman, I can't claim to be the expert 
on education that many of the people who are at the table are 
today, but I will say that what I can claim to be an expert on 
is military families. And Congress has acted to give our 
military personnel, and now their spouses as well, a very 
generous education benefit system, and I'm very grateful for 
that.
    I appreciate you taking the next step, which is to see that 
that education money is well spent for them, and that they get 
good results from it. And on our very first day of official 
activity, I'm very happy to be here representing the CFPB and 
to say that we look forward to working with you on this 
problem.
    The Chairman. Thank you, Mrs. Petraeus.
    Mr. Shireman.
    Mr. Shireman. Mr. Chairman, thank you so much for holding 
this hearing and for your involvement in this issue over time. 
I think it has from the beginning been--there have been 
attempts to portray it in the same way that people tried to 
portray me, as just going after a sector because it was making 
a profit. But the reality is there has been a problem, there 
are issues, and there are solutions, and it's great to be here 
in a conversation about solutions going forward, because as my 
old boss, Senator Paul Simon used to say, we can do better.
    The Chairman. He was a great friend of mine. Well, thank 
you very much, Mr. Shireman.
    Thank you all for being here today and taking a lot of your 
time to be here and to share with us.
    I would say I hope that as we proceed on, that my staff, my 
professional staff could be in touch with you as we move ahead 
and start to develop some prospective pathways in which we're 
going to go, and develop some of these things. Mr. Batson 
especially, I want you to get me all that you just said that I 
don't remember, but it sounded pretty good to me. And Mr. 
Hamburger, you can also be very helpful in how we move ahead on 
this. All of you can. You all have different aspects of this.
    Mrs. Petraeus, I can tell you that just in the last few 
weeks or so, most of the talk has been about the deficit and 
the debt. Obviously, that's the big issue around here. But I 
can tell you not just a few but quite a few Senators on both 
sides of the aisle have come up to me to talk to me about this 
90/10. So I think that's one thing that we're really going to 
be focused on in the short term in that regard. There's other 
aspects of the military also in terms of recruitment and how 
that is being done in accordance with what Mr. Barr was saying 
in terms of the payday loans and things like that, that some of 
our military people have been subjected to. So we're going to 
be looking at that, too.
    How do we incentivize schools and their investors not to 
value growth in the absence of good outcomes? How do we ensure 
that investors look at more than just enrollment growth? Again, 
someone mentioned about the balance, the balance between profit 
and quality. As I've said many times, there's a role I believe 
for capacity. We need a lot of different people out there that 
we don't have the capacity for, and this is where for-profit 
schools can help a great deal, and we need it in a short span 
of time. You mentioned nursing just being one of those.
    How do we balance the profitability sector of that? And 
I've said more than once today that I'm going to be still 
looking at this and how do we connect profitability with good 
products, good outcomes, rather than you get a lot more profit 
if you just get the poorest students who get the most Pell 
grants and the most student loans, and whether they stay with 
you or not is not that big a factor.
    There's got to be something to do with profitability and 
also outcomes, and how do you get investors to look at that? I 
don't have the answer to that question. I have the question, 
but I don't have the answer.
    There are a lot of other things in terms of existing 
regulations. I have to thank Mr. Batson, who has been quite 
right in this. There's a lot of nitpicking regulations that 
drive people nuts, but not the overall that really ensures good 
outcomes and good standards for schools.
    This committee is committed to looking at this sector and 
seeing what we can do to help it improve. If there is a--and I 
am dismayed. I will say this publicly. I am dismayed that the 
association for the for-profits filed lawsuit on the gainful 
employment rule. It almost seems to me that there are some in 
this sector, not all--I'm not about to paint everybody with any 
broad brushes. But there are some in this sector that, quite 
frankly, don't want us to change anything. They're quite happy 
with the way it is right now. They're making great profits, and 
they're not being held accountable.
    If there are schools out there that feel that way, I'm 
sorry. I think there are other good schools out there that are 
really trying to do the right thing, and I don't want the good 
schools sucked into a vortex of--what should I say?--lower 
expectations and a race to the bottom kind of thing, where you 
can still make big profits but you don't have to do anything 
and have good outcomes. I have a sense, having been at this now 
for about 18 months, that it is a kind of a vortex, that 
sometimes good schools get caught into this. If I'm going to 
compete and somebody is taking my students away from me, and 
they're doing all of these bad things, well, maybe I've got to 
do it too to get my share of those students.
    So I don't want this race to the bottom. I'd rather have 
them competing on who has the best outcomes, the best 
performance, the best standards, that kind of thing, and not 
get sucked into this vortex of being dragged down because 
somebody else is competing with you and they aren't abiding by 
those standards and those outcomes.
    So I must say to this sector that we are going to look at 
making changes, and I want them to be meaningful. I'm not out 
to put anybody out of business or anything like that, but I 
want this sector to be able to do what you said, Mr. Hamburger. 
We've got a capacity problem out there, and we've got to meet 
this capacity problem.
    And again, and I'll just say this forthrightly. I think 
that maybe some of the profitability margins of some of these 
companies are going to have to shrink because they're going to 
have to put more money into student supports, and they're going 
to have to put more into helping these low-income students that 
don't have that good background.
    If that's who they're going to recruit, I want to see some 
support out there for it. And that may eat a little bit into 
the profit margins. I don't want to take away all their 
profits, but it may eat into it a little bit. OK, fine, but I 
want to see better outcomes.
    So anyway, this is what we're looking at, and I look 
forward to continuing our conversation with schools, groups, 
individuals who want to play a constructive role in this, who 
want to play a constructive, forward-looking role in moving 
this ahead so that we can meet the goal of making sure that our 
students are well-educated for the future jobs.
    I just saw a graph today between the demand and the supply 
of students. Since about 1980, the demand has gone up and the 
supply is going down, and we're just not getting well-educated 
people in our country.
    So help us out, all of you here. Help us in our thinking. 
Help us in where we've got to go. Just don't come to this 
committee and say nothing needs to be done, we're fine the way 
it is, leave us alone. That's not going to get very far with 
this committee.
    So with that in mind, I thank you all very much. You've 
been very constructive. Again, I hope we can continue to work 
with each one of you in moving ahead on trying to make this a 
better sector for all. Thank you very much.
    The committee will stand adjourned.
    We'll leave the record open for 10 days, and witnesses and 
others may submit statements for the record or supplemental 
statements.
    The hearing is adjourned.
    [Additional materials follow.]

                          ADDITIONAL MATERIAL

            Reponse to Question of Senator Enzi by Jose Cruz
    Question. Since January 20, 2008, have you been employed by the 
Department of Education or the Obama administration in any capacity? 
Have you worked for the Administration on a contractual basis during 
this time? If so, please explain the nature and scope of the work 
performed--as well as any compensation provided. Please also provide 
the committee with copies of any consulting contracts.
    Answer. Since January 20, 2008 I have not been employed by the 
Department of Education or the Obama administration in any capacity. I 
have not worked for the Administration on a contractual basis during 
this time, but in April 2009 I did serve on a review panel for the 
National Science Foundation's Centers for Research Excellence in 
Science and Technology (CREST). In accordance with standard NSF 
procedures, the Foundation covered the cost of my round-trip airfare 
(coach class) and provided me with a travel reimbursement of $280 and a 
meeting reimbursement of $480 a day. The review panel lasted 2 days. 
These reinforcements covered the cost of my hotel, ground travel in DC, 
and meals for the duration of the review panel.
        Response to Questions of Senator Merkley by Hayes Batson
    An issue which has been brought to the forefront at several of the 
HELP Committee hearings is programmatic or ``specialized'' 
accreditation, and who is responsible for informing a student about a 
particular program's status.
    There is no doubt that a contributing factor to the failure of some 
students to complete their education and in many cases having high 
default rates is that they find out too late that the program they are 
enrolled in doesn't have the necessary specialized or programmatic 
accreditation. However, it is important to point out that programmatic 
accreditation is not available for many academic programs, including 
many online programs.
    On May 20, I sent a letter to the Department of Education urging 
that they consider review of the false certification regulations as 
part of the upcoming negotiated rulemaking process. It is my view that 
expanding the false certification discharge provisions of the Higher 
Education Act would protect students from incurring student loan debt 
for enrolling in programs that are title IV-eligible and accredited by 
a primary accrediting agency, but that are not recognized by a 
programmatic accrediting body. This would encourage institutions to 
correctly represent their programs from the outset, rather than force 
students like Yasmine Issa (who testified at the June 24, 2011 HELP 
Committee hearing) to try and decipher through the complicated maze of 
institutional vs. programmatic accreditation or find out too late that 
the program they are enrolled in doesn't have programmatic 
accreditation, if available.
    The Department has issued new regulations on misrepresentation, 
however these rules provide no relief for the borrower/retroactive 
relief for someone in Yasmine's situation.
    Question 1. I would like to ask the panelists for their thoughts on 
this issue, including the need for schools to clearly communicate the 
accreditation status of individual programs to potential students 
before they enroll, and whether taxpayers should be subsidizing 
programs that do not have the requisite programmatic accreditation.
    Answer 1. We believe the Senator has raised some excellent 
questions about how we can ensure that students have meaningful access 
to the information that is most critical to them when they decide where 
to attend school. We agree that students must have meaningful 
information about what benefits they should expect to obtain from 
completion of any given program, including whether the program is 
likely to lead to employment. However, we have concerns that students 
are unable to effectively use the information already provided to 
them--due primarily to how many disclosures are required but also due 
to inconsistencies in how disclosed data is collected, verified and 
reported. We believe the most relevant data for students includes 
information on the percentage of graduates from a program that get jobs 
in the field(s) associated with the program. More students will make 
smart choices about enrolling in programs if we have uniform 
disclosures of placement rates and these disclosures are not lost in a 
sea of other data that is difficult to interpret.
    Specifically with respect to accreditation, the current complexity 
in the accreditation system is a formidable barrier to providing clear, 
consistent and meaningful disclosures about accreditation that enable 
students to make informed choices. One reason is that there are two 
types of accreditation (institutional and programmatic) and 
accreditation, including programmatic accreditation, is not uniformly 
related to a student's ability to obtain State-required licensure or 
certification to work in a field across States and professions. 
Similarly, the degree to which employers will require completion of an 
accredited program as a job condition varies by profession and by 
geography. Additionally, specific program accreditation may be either a 
pathway or a requirement to sit for examinations by nongovernmental 
groups that certify proficiency in a vocational field.
    Because there is significant variability in the strength of the 
link between programmatic accreditation and employment, we believe that 
accreditation status is not a good proxy for employability, which is 
what students really want to understand. Accordingly, we favor uniform 
disclosures of placement rates, which speak directly to employability, 
rather than accreditation as a proxy. One exception to this 
recommendation is applicable in circumstances where programmatic 
accreditation is an absolute prerequisite for getting a license that is 
needed to work in the State where the student is taking the program. In 
such a case, we recommend that schools be required to provide a clear 
warning of this gap to the student during the admissions process.
    A look at one vocational field helps to illustrate the variety of 
the relationships between accreditation and each of: eligibility to 
administer title IV funds; minimum qualifications for State licensure; 
minimum qualifications for industry certification; and jobs. Our 
understanding of these relationships follows.
                          title iv eligibility
    In the field of dental assisting the Commission on Dental 
Accrediting (CODA), an affiliate of the American Dental Association 
(ADA), accredits dental assisting programs. CODA is a ``specialized'' 
or programmatic accreditor and accreditation of a program by CODA does 
not authorize the school offering the program to administer title IV 
funds on behalf of students--such a school must have institutional 
accreditation. A school could be institutionally accredited by ACICS, 
for example, and may or may not have CODA accreditation for its dental 
assisting program. In either case, it has established eligibility for 
title IV funding.
                   qualifications for state licensure
    State requirements for dental assistants vary widely. The attached 
document is an effort by the Dental Assisting National Board, Inc. 
(DANB), a non-profit national credentialing organization in the dental 
assisting field, to map the various State dental assistant credentials 
to the DANB credentials. The complexity of the credentialing system at 
the State level and the existence of a parallel national credentialing 
system exacerbate confusion about the meaning of accreditation in 
dental assisting programs.
    At the State level and in many States (one example is Ohio) there 
are no State licensing requirements. Many other States have no 
educational or licensing prerequisites for entry-level dental assisting 
jobs but draw a distinction between a dental assistant that performs 
routine support tasks and one that performs ``expanded'' functions and/
or dental assistants that take x rays. For example, Michigan does not 
require licensure for dental assisting but requires that Registered 
Dental Assistants (who perform expanded functions) become registered 
with a State agency. To qualify for registration, an applicant must 
have graduated from a CODA accredited program and must pass a State-
administered examination. (However, Michigan is also currently 
experimenting with programs that permit dental assistants to qualify 
for the RDA exam through continuing education and job experience.) 
Other States have similar requirements but instead of administering an 
exam to applicants they rely on national credentialing examinations 
offered by DANB. DANB is affiliated with the ADA and CODA.
               qualifications for industry certification
    DANB is a non-profit organization that identifies itself as the 
national certification board for dental assistants. It offers 
certification as a Certified Dental Assistant (CDA), Certified 
Orthodontic Assistant (COA) and Certified Preventive Dental Assistant 
(CPDA) to candidates who meet eligibility and examination requirements. 
To obtain CDA status, an applicant must pass a Radiation Health and 
Safety (RHS) exam, an Infection Control (ICE) exam and a General 
Chairside (GC) exam. There are no eligibility requirements for the 
first two exams. To qualify for the GC exam an applicant must have 
graduated from a CODA accredited institution or meet work experience 
requirements.
                        qualifications for jobs
    Based on job listings posted on the Internet, it is our belief that 
the marketplace does not demand completion of an accredited dental 
assisting program as a job requirement. However, in some markets 
employers favor (and in some cases strongly favor) a registration or 
credential that may be more easily attained because of graduation from 
a program that is not only institutionally accredited but also 
programmatically accredited by a separate specialized accreditor. Thus 
attending such a program may be a marketplace advantage. In addition, 
in some States it is a requirement to achieve the status needed to 
perform expanded functions or to take x rays.
    Despite these complexities, and in addition to our above 
recommendations, we believe that there may be additional ways to 
reduce, to some degree, the complexities of the current accreditation 
system and to provide more clarity about the value of an accreditation 
status to students considering educational programs. While programmatic 
accreditation does not apply to cosmetology and our students are 
therefore not affected by the dynamics described herein, we would 
welcome the opportunity to participate in discussions of steps that may 
advance these goals.

    Question 2. I would also like to learn what your thoughts are on 
the role that State licensing boards must play in ensuring that program 
quality is clearly defined and communicated to schools, students, and 
State regulators.
    Answer 2. In our industry it is common for State cosmetology boards 
to perform the task of licensing and monitoring both practitioners in 
the industry and schools training these practitioners. As outlined in 
my remarks during the roundtable, these boards heavily regulate many 
aspects of our program in an effort to ensure that minimum standards of 
various types are met. Generally speaking, however, State boards do not 
have consumer disclosure requirements that relate to these standards. 
We believe that consumer disclosure requirements should be focused at 
the Federal, not the State, level to maximize the comparability of the 
data disclosed across schools.

    Question 3. The Department of Education recently released new 
regulations on misrepresentation that require disclosure of 
accreditation status of programs. My understanding is that the 
regulations affect programs that lead to occupations that require 
licensure or certification.
    This committee has been concerned about reports that until now 
students have not been getting such information. What recommendations 
do you have for institutions and the Department as each works to 
improve student access to such information?
    Answer 3. As outlined in my remarks during the roundtable, we think 
it is important to deliver information that should influence a 
student's choice of school in a simple and consistent format and 
location, across programs and across schools. So, clear definitions of 
the information that is required is key, as is clear guidance on the 
specific details of how and where to disclose that information. We 
think these definitions and disclosure requirements should be outlined 
in statute. In addition, if statutory requirements for the disclosure 
of information do not cause schools to act in ways that are uniform, it 
may be necessary for the Department to create forms that will be used 
to present the information. This is the approach that the Department is 
taking for the new gainful employment consumer disclosures. Based on 
the disclosures that were made when the rule became effective on July 
1, the release of the form will be a helpful step in moving toward 
disclosures that students can actually compare. In addition, active 
supervision and enforcement of the statutory requirements will be 
required.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



         Response to Questions of Senator Merkley by Jose Cruz
    An issue which has been brought to the forefront at several of the 
HELP Committee hearings is programmatic or ``specialized'' 
accreditation, and who is responsible for informing a student about a 
particular program's status.
    There is no doubt that a contributing factor to the failure of some 
students to complete their education and in many cases having high 
default rates is that they find out too late that the program they are 
enrolled in doesn't have the necessary specialized or programmatic 
accreditation. However, it is important to point out that programmatic 
accreditation is not available for many academic programs, including 
many online programs.
    On May 20, I sent a letter to the Department of Education urging 
that they consider review of the false certification regulations as 
part of the upcoming negotiated rulemaking process. It is my view that 
expanding the false certification discharge provisions of the Higher 
Education Act would protect students from incurring student loan debt 
for enrolling in programs that are title IV-eligible and accredited by 
a primary accrediting agency, but that are not recognized by a 
programmatic accrediting body. This would encourage institutions to 
correctly represent their programs from the outset, rather than force 
students like Yasmine Issa (who testified at the June 24, 2011 HELP 
Committee hearing) to try and decipher through the complicated maze of 
institutional vs. programmatic accreditation or find out too late that 
the program they are enrolled in doesn't have programmatic 
accreditation, if available.
    The Department has issued new regulations on misrepresentation, 
however these rules provide no relief for the borrower/retroactive 
relief for someone in Yasmine's situation.
    Question 1. I would like to ask the panelists for their thoughts on 
this issue, including the need for schools to clearly communicate the 
accreditation status of individual programs to potential students 
before they enroll, and whether taxpayers should be subsidizing 
programs that do not have the requisite programmatic accreditation.
    Answer 1. At the HELP Committee's roundtable, I presented a six-
element framework for improving for-profit education in America to 
ensure students get the education that they are promised, and that 
taxpayers make a worthwhile investment. The framework requires:

    1. For-profit colleges, Federal and State regulators, accrediting 
bodies, and advocacy organizations to embrace the country's economic 
competitiveness as the strategic context in which all higher education 
sectors operate.
    2. Policymakers to address the misguided K-12 and higher education 
policies and practices that have led to the disparities that gave rise 
to the current state of for-profit college education.
    3. Policymakers and for-profit colleges to level the playing field 
by eliminating the most toxic academic programs, and by strengthening 
consumer information and protections.
    4. Policymakers to incentivize investments in student success and 
controlling the student debt burden.
    5. Policymakers, regulators and accrediting bodies to contain risk 
by implementing effective quality controls, and by strongly enforcing 
the corresponding laws and regulations.
    6. Policymakers to encourage disruptive innovations in the for-
profit college sector--innovations that will transform the dismal 
student outcomes that currently plague the sector and cause the most 
harm to the most vulnerable students who, because of demographic 
shifts, could in fact contribute the most toward our collective 
aspirations.

    To contain risks through effective quality controls requires that 
accreditors and States carry their weight. The transfer of 
accreditation with a change of ownership should be banned. Institutions 
should not be allowed to offer programs that require specialized 
accreditation for licensure purposes unless they have the required 
specialized accreditation. If they do offer such programs, they 
certainly should not be eligible for title IV financial aid. And 
accreditors should certainly be measuring student success. States 
simply need to start regulating beyond the absolute minimum, which is 
what many do today.

    Question 2. I would also like to learn what your thoughts are on 
the role that State licensing boards must play in ensuring that program 
quality is clearly defined and communicated to schools, students, and 
State regulators.
    Answer 2. Our higher education regulatory structure is built upon 
three pillars: Federal regulation, State regulation, and accreditation. 
These pillars were designed to distribute the load of the many forces 
that put undesirable pressure on higher education institutions, to 
mitigate any long-term damage to the structure itself. Most State 
higher education agencies and licensing boards focus primarily on 
ensuring that students receive accurate information about each 
institution and its programs. If the State agencies do not fulfill this 
role, or do so in a perfunctory manner then students do not receive 
accurate information about the programs they are considering attending. 
That, in turn, leads to students attending programs that do not meet 
their needs or do not properly prepare them for the career path they 
have selected. Hence, it is imperative that State higher education 
agencies and the licensing boards maintain laser like focuses on 
ensuring students have accurate information about both the quality of 
programs as well as whether the programs satisfy the necessary 
requirements for licensure in the State.
    Further, State agencies should be encouraged not to approve 
programs that require specialized accreditation for licensure purposes, 
but which fail to obtain that accreditation.

    Question 3. The Department of Education recently released new 
regulations on misrepresentation that require disclosure of 
accreditation status of programs. My understanding is that the 
regulations affect programs that lead to occupations that require 
licensure or certification.
    This committee has been concerned about reports that until now 
students have not been getting such information. What recommendations 
do you have for institutions and the Department as each works to 
improve student access to such information?
    Answer 3. Institutions that offer un-accredited programs should be 
required to display a clear, conspicuous warning on all recruitment, 
admissions, and financial aid materials distributed to students, as 
well as on their Web page. The Department should develop a standard, 
eye-catching warning that must be prominently displayed and which all 
institutions use--like warnings on other dangerous products, such as 
cigarette cartons.
    Further, accreditation status is not the only piece of information 
that students need to make an informed decision. Students need to be 
able to identify and easily compare information on data points such as 
graduation rates, default rates, average debt, job placement rates, and 
licensure pass rates. Again, the Department should develop a standard 
template containing a few of these key pieces of information, and 
institutions should be required to display this information on all 
recruitment, admissions, and financial aid materials provided to 
students. Currently, students need to dig through cumbersome Web sites 
to locate this information, making it difficult to identify comparable 
data points for different institutions. A standard set on information 
that appears on all materials--just as credit card mailings contain 
standard disclosures--could help students make more informed decisions.
      Response to Questions of Senator Merkley by Daniel Hamburger
    An issue which has been brought to the forefront at several of the 
HELP Committee hearings is programmatic or ``specialized'' 
accreditation, and who is responsible for informing a student about a 
particular program's status.
    There is no doubt that a contributing factor to the failure of some 
students to complete their education and in many cases having high 
default rates is that they find out too late that the program they are 
enrolled in doesn't have the necessary specialized or programmatic 
accreditation. However, it is important to point out that programmatic 
accreditation is not available for many academic programs, including 
many online programs.
    On May 20, I sent a letter to the Department of Education urging 
that they consider review of the false certification regulations as 
part of the upcoming negotiated rulemaking process. It is my view that 
expanding the false certification discharge provisions of the Higher 
Education Act would protect students from incurring student loan debt 
for enrolling in programs that are title IV-eligible and accredited by 
a primary accrediting agency, but that are not recognized by a 
programmatic accrediting body. This would encourage institutions to 
correctly represent their programs from the outset, rather than force 
students like Yasmine Issa (who testified at the June 24, 2011 HELP 
Committee hearing) to try and decipher through the complicated maze of 
institutional vs. programmatic accreditation or find out too late that 
the program they are enrolled in doesn't have programmatic 
accreditation, if available.
    The Department has issued new regulations on misrepresentation, 
however these rules provide no relief for the borrower/retroactive 
relief for someone in Yasmine's situation.
    Question 1. I would like to ask the panelists for their thoughts on 
this issue, including the need for schools to clearly communicate the 
accreditation status of individual programs to potential students 
before they enroll, and whether taxpayers should be subsidizing 
programs that do not have the requisite programmatic accreditation.
    Answer 1. We agree that schools should clearly communicate 
programmatic accreditation status to prospective students, most 
importantly when such accreditation affects eligibility for 
professional licensure and employment opportunities. Schools should 
also disclose any alternative paths to licensure or employment. 
Taxpayers should expect that federally funded programs in higher 
education disclose accreditation information in a transparent and 
understandable manner.

    Question 2. I would also like to learn what your thoughts are on 
the role that State licensing boards must play in ensuring that program 
quality is clearly defined and communicated to schools, students, and 
State regulators.
    Answer 2. State licensing boards play a critical oversight role in 
postsecondary education. They publish minimum standards that 
postsecondary institutions must meet to operate and grant degrees, and 
conduct periodic assessments to ensure that minimum requirements 
continue to be met. However, State higher education authorizing agency 
requirements vary widely; many conduct a robust evaluation of 
institutional policies and outcomes to determine that State academic 
standards have been satisfied, while others perform less rigorous 
evaluations or grant exemptions from licensure based upon an 
institution's attainment of institutional accreditation. For this 
reason, we believe the primary role of program quality assurance lies 
with institutional and programmatic accreditors. The in-depth 
accreditation process, along with program-specific accreditations, 
provides assurance to both students and our State licensing agencies 
that rigorous standards of quality have been met.

    Question 3. The Department of Education recently released new 
regulations on misrepresentation that require disclosure of 
accreditation status of programs. My understanding is that the 
regulations affect programs that lead to occupations that require 
licensure or certification.
    This committee has been concerned about reports that until now 
students have not been getting such information. What recommendations 
do you have for institutions and the Department as each works to 
improve student access to such information?
    Answer 3. The new rules require institutions to disclose 
programmatic accreditation status for each of its programs, including 
the fact that a non-accredited program has accreditation options 
available. We understand the Department and consumer advocates' 
concerns relative to programmatic accreditation. However, we believe 
that merely disclosing programmatic accreditation status does not 
sufficiently address the concerns. Students want to know if an 
individual program prepares and qualifies them for entry into specific 
fields of work. In many cases, licensure is a mandatory condition to 
working in a specific field and programmatic accreditation may be a 
condition for a program's graduates to qualify for licensure. In many 
other cases, programmatic accreditation and licensure might enhance 
employment prospects, but are not prerequisites for employment. 
Students also want to know to what extent an institution's programs 
qualifies them for prevailing jobs in their area. Students should be 
informed in clear, direct language:

     Whether licensure is required to enter employment in their 
field of study;
     If yes, does an institution's program qualify a student 
for licensure without any further study;
     If no, to what extent do non-licensed employment 
opportunities exist in the geographical area in which they are 
studying;
     The licensure outcomes of a program's graduates, and;
     The employment outcomes (rate, common position titles) of 
a program's graduates.
      Response to Questions of Senator Merkley by Barmak Nassirian
    An issue which has been brought to the forefront at several of the 
HELP Committee hearings is programmatic or ``specialized'' 
accreditation, and who is responsible for informing a student about a 
particular program's status.
    There is no doubt that a contributing factor to the failure of some 
students to complete their education and in many cases having high 
default rates is that they find out too late that the program they are 
enrolled in doesn't have the necessary specialized or programmatic 
accreditation. However, it is important to point out that programmatic 
accreditation is not available for many academic programs, including 
many online programs.
    On May 20, I sent a letter to the Department of Education urging 
that they consider review of the false certification regulations as 
part of the upcoming negotiated rulemaking process. It is my view that 
expanding the false certification discharge provisions of the Higher 
Education Act would protect students from incurring student loan debt 
for enrolling in programs that are title IV-eligible and accredited by 
a primary accrediting agency, but that are not recognized by a 
programmatic accrediting body. This would encourage institutions to 
correctly represent their programs from the outset, rather than force 
students like Yasmine Issa (who testified at the June 24, 2011 HELP 
Committee hearing) to try and decipher through the complicated maze of 
institutional vs. programmatic accreditation or find out too late that 
the program they are enrolled in doesn't have programmatic 
accreditation, if available.
    The Department has issued new regulations on misrepresentation, 
however these rules provide no relief for the borrower/retroactive 
relief for someone in Yasmine's situation.
    Question 1. I would like to ask the panelists for their thoughts on 
this issue, including the need for schools to clearly communicate the 
accreditation status of individual programs to potential students 
before they enroll, and whether taxpayers should be subsidizing 
programs that do not have the requisite programmatic accreditation.
    Answer 1. Senator Merkley, I completely agree with your 
observations on this issue. First, dead-end, toxic programs that lack 
the programmatic or specialized accreditation required for licensure or 
employment in the applicable field should simply not be eligible for 
Federal financing. This fairly basic and commonsensical first-step 
would ensure that, at the very least, all graduates of title IV-
eligible programs would have a theoretical chance of actual licensure 
and employment in the profession that they (and the taxpayers) spent 
thousands of dollars to be trained for.
    Second, for those individuals, like Ms. Issa, who were misled into 
programs that lack the necessary programmatic or specialized 
accreditation, the false certification discharge would be a reasonable 
remedy that the Department should provide. Providing this relief to 
students should be combined with vigorous legal pursuit of the 
operations that deceived them into enrolling in unaccredited programs.
    Finally, even after ensuring that unaccredited programs are not 
provided easy access to Federal financing, appropriate, plain-language, 
standardized disclosures should be mandated for participating schools. 
At a minimum, these disclosures should not only articulate all 
applicable requirements for licensure and employment in the field in 
question, but also the actual audited statistics for licensure pass-
rates and placement rates for the specific program in question.

    Question 2. I would also like to learn what your thoughts are on 
the role that State licensing boards must play in ensuring that program 
quality is clearly defined and communicated to schools, students, and 
State regulators.
    State licensing boards should independently inform the public of 
licensure requirements and statistical reports on pass rates of 
applicants from various programs. This would enable prospective 
students to evaluate various schools and programs on the basis of their 
graduates' success. Schools should be required to include the address, 
phone number and Web address of the appropriate licensing board in any 
advertising for programs that may reasonably be perceived as training 
students for careers that require the applicable licensure. This 
mandate should be carefully constructed to include the many confusing 
programs that are carefully designed to suggest future lucrative 
professional employment in licensed professions, but that are only 
simulacra of real fields intended to deceive applicants.

    Question 3. The Department of Education recently released new 
regulations on misrepresentation that require disclosure of 
accreditation status of programs. My understanding is that the 
regulations affect programs that lead to occupations that require 
licensure or certification.
    This committee has been concerned about reports that until now 
students have not been getting such information. What recommendations 
do you have for institutions and the Department as each works to 
improve student access to such information?
    Answer 3. The real challenge with these disclosures is to prevent 
unscrupulous providers from confusing prospective students. As Ms. 
Issa's case amply demonstrated, the school misled her (and continues to 
mislead other cohorts of students to this day) into enrolling in a 
dead-end unaccredited program by disclosing the (institutional) 
accreditation it does have, rather than the (programmatic) 
accreditation it doesn't have. As mentioned above, the best solution of 
all would be to ensure that only fully accredited programs are eligible 
for title IV financing in the first place. Short of that, the 
accredited disclosure mandate should be crafted in a manner that forces 
schools to disclose that certain programs do not, in fact, have the 
programmatic or specialized accreditation needed for suggested or 
cognate professions. Again, this mandate would need to be very broadly 
applied not only to programs that are specifically advertised as 
leading to a profession in a licensed career, but also to any programs 
that are advertised or portrayed as leading to employment in a 
confusingly similar unlicensed field.
     Response to Questions of Senator Merkley by Holly K. Petraeus
    Thank you for the opportunity to respond to your questions 
regarding accreditation. Unlike others who participated in the 
roundtable discussion on July 21, I cannot claim to be an expert on the 
intricacies of higher education regulation. Moreover, the matters you 
inquire about are largely outside the primary focus of the Consumer 
Financial Protection Bureau (CFPB), as they do not relate directly to 
consumer financial products or services. However, the three questions 
you raise are critical to servicemembers and their families, and 
related to their informed choice and use of student loans.
    Your first question relates generally to accreditation and 
communication of accreditation. Since joining the CFPB as the head of 
the Office of Servicemember Affairs, I have heard from a number of 
servicemembers concerning their disappointment and frustration with 
certain educational institutions that recruit heavily in the military 
community. Nearly all of these schools have some sort of accreditation, 
and the servicemember thus assumes that a reliable and impartial third 
party has validated the program's quality, only to find out later that 
the program has serious deficiencies. These experiences have informed 
my views on your first question. Although it's certainly important for 
schools to communicate accreditation status to prospective students, 
additional information (e.g., whether credits earned are transferable 
to other institutions) can often help prospective students determine 
whether or not a program is appropriate for them.
    Regarding your second question on the role of State licensing 
boards, my prior experiences also have informed my views. State 
licensing boards can play an important role in communicating their 
requirements for licensure. One step such entities could take that 
would be particularly helpful to servicemembers would be to have 
requirements for licensure prominently displayed on their Web sites, 
together with information about what specific training programs are 
accepted by that State licensing board. Such easily accessible and 
clearly stated information is vitally necessary to military personnel 
and their family members, who move continually across State lines and 
may well be coming from a different State, or even overseas. (I am a 
prime example, having moved 24 times during my husband's 37 years in 
the Army!) Because of these geographical considerations, military 
family members must do much of their research online. If the pertinent 
information is not readily available, they may find out too late that 
they have enrolled in a training program that does not qualify them to 
take a particular State licensing exam.
    Your third question--on the best way for students to receive 
sufficient disclosure on accreditation status--is of particular 
interest to the Consumer Financial Protection Bureau. Creating useful 
disclosures (and not excessive fine print) is good for responsible 
providers and good for consumers. This is a central goal of the CFPB, 
and we are already working hard to achieve this goal in the realm of 
consumer financial products and services. For example, we have already 
engaged the public in our work to combine two complicated mortgage 
disclosure forms into a single, simpler form that will both help 
prospective homeowners make better decisions and reduce burden on 
industry. While disclosures about a school's accreditation status and 
related matters is not a topic within the CFPB's focus on consumer 
financial products or services, I believe that useful, easy-to-
understand disclosures would provide value both to servicemembers and 
to the student population writ large.
    Thank you again for the opportunity to participate in the 
roundtable discussion, and to provide this additional information. The 
CFPB's Office of Servicemember Affairs and Office of Students will 
continue to focus our efforts on ensuring that servicemembers and 
students have the information they need to make smart choices about 
consumer financial products and services, including the student loans 
they use to pursue their dream of higher education.
      Response to Questions of Senator Merkley by Robert Shireman
    An issue which has been brought to the forefront at several of the 
HELP Committee hearings is programmatic or ``specialized'' 
accreditation, and who is responsible for informing a student about a 
particular program's status.
    There is no doubt that a contributing factor to the failure of some 
students to complete their education and in many cases having high 
default rates is that they find out too late that the program they are 
enrolled in doesn't have the necessary specialized or programmatic 
accreditation. However, it is important to point out that programmatic 
accreditation is not available for many academic programs, including 
many online programs.
    On May 20, I sent a letter to the Department of Education urging 
that they consider review of the false certification regulations as 
part of the upcoming negotiated rulemaking process. It is my view that 
expanding the false certification discharge provisions of the Higher 
Education Act would protect students from incurring student loan debt 
for enrolling in programs that are title IV-eligible and accredited by 
a primary accrediting agency, but that are not recognized by a 
programmatic accrediting body. This would encourage institutions to 
correctly represent their programs from the outset, rather than force 
students like Yasmine Issa (who testified at the June 24, 2011 HELP 
Committee hearing) to try and decipher through the complicated maze of 
institutional vs. programmatic accreditation or find out too late that 
the program they are enrolled in doesn't have programmatic 
accreditation, if available.
    The Department has issued new regulations on misrepresentation, 
however these rules provide no relief for the borrower/retroactive 
relief for someone in Yasmine's situation.
    Questions 1. I would like to ask the panelists for their thoughts 
on this issue, including the need for schools to clearly communicate 
the accreditation status of individual programs to potential students 
before they enroll, and whether taxpayers should be subsidizing 
programs that do not have the requisite programmatic accreditation.
    Answer 1. If a profession requires licensing, and a student is 
entering a program aimed at that profession, then the school absolutely 
has a responsibility to aggressively and prominently warn the student 
if the program does not qualify the student to take the licensure 
examination. However, I would be careful about going too far in having 
the government highlight or endorse programmatic accreditation in other 
situations. By definition, accreditation is always an effort to create 
barriers of entry in a field, but it is only sometimes an important 
element in ensuring quality. Putting government power behind 
programmatic accreditation skews the market test of the value of the 
accreditation, creating an excessive barrier-to-entry and/or leading to 
an inadequate measure of quality.
                                 ______
                                 
                                       DeVry, Inc.,
                                         Downers Grove, IL,
                                                    August 4, 2011.
Hon. Tom Harkin, Chairman,
Committee on Health, Education, Labor, and Pensions,
428 Dirksen Senate Office Building,
Washington, DC 20510.

    Dear Chairman Harkin: Thank you again for inviting me to 
participate in the Senate Committee on Health, Education, Labor, and 
Pensions forum on ``Improving For-Profit Higher Education: A Roundtable 
Discussion of Policy Solutions.'' I believe we had a productive 
discussion and made progress toward addressing issues facing higher 
education.
    I would like to elaborate on some of the topics addressed at the 
forum, specifically comments on the percentage of government loans 
taken out by private-sector college students, the perceived lack of 
oversight of higher education, the 90/10 requirement, and DeVry's 
marketing spend as a percentage of revenue, and the cost of a private-
sector education.
            percentage of students taking out federal loans
    During the roundtable, Mr. Cruz stated that ``94 percent of the 
students enrolled in for-profits take out Stafford Loans.'' Students at 
private-sector schools rely heavily on Federal student loans because 
they are typically independent and have no family financial support. In 
fact, I would argue that the sign of a good financial aid office at any 
college or university is its ability to help students find the best 
financing possible. Typically, that means Federal student loans and 
grants. This is a positive benefit to students--both financially and 
for their chances to graduate. One need only look at FAFSA completion 
rates to see the positive impact on students.
    Private-sector colleges and universities, including those at DeVry, 
are typically very proficient at helping students complete their FAFSA 
form. Financial aid expert Mark Kantrowitz states in his October 14, 
2009 study, ``FAFSA Completion Rates by Level and Control of 
Institution'' \1\ that 95.4 percent of students at ``for-profit'' 
colleges and universities complete their FAFSA form, compared to 71.7 
percent and 52.1 percent of students at private non-profit and public 
schools, respectively. We would be more than willing to share best 
practices in this regard.
---------------------------------------------------------------------------
    \1\ http://www.finaid.org/educators/20091014afsacompletion.pdf.
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    And Kantrowitz points out another, even more significant benefit to 
these high FAFSA completion rates: they are directly correlated to 
increased graduation rates. He states that if public colleges would 
increase their FAFSA completion rate to the level of ``for-profit'' 
schools, ``public colleges could potentially increase 6-year graduation 
rates by as much as 5.2 percent and Bachelor's degree attainment rates 
by as much as 4.3 percent.'' \2\
---------------------------------------------------------------------------
    \2\ Ibid.
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    That's an astonishing potential improvement in graduation rates for 
what is purely an administrative, non-academic task. Kantrowitz goes on 
to state that the increase in graduation rates would translate to an 
increase in Associate's degrees ``by more than 200,000 per year and the 
number of students graduating with Bachelor's degrees by more than 
50,000 per year.'' \3\ Those numbers would go a long way toward helping 
us reach the President's college attainment goals.
---------------------------------------------------------------------------
    \3\ Ibid.
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                           lack of oversight
    Mr. Nassirian commented during our panel on a ``complete lack of 
oversight'' of private-sector schools. On the contrary, private-sector 
education is very highly regulated. In addition to the U.S. Department 
of Education, State licensure agencies and accrediting bodies, the 
sector is regulated by other Federal and State agencies including, for 
DeVry, the SEC. The question is whether the regulation adequately 
ensures that institutions are effectively delivering a quality product 
and service that meets the student and taxpayer's expectations. This is 
not a question just for the private sector, but for all of higher 
education. In calling for an increase of 8.2 million college graduates, 
the President is not just telling us to throw open our doors and add 
more seats. He is telling us we need to first offer programs and 
services that meet the needs of the un-enrolled, and second, do a 
better job at seeing them through to graduation.
    The Triad, consisting of the Department of Education, State 
licensing entities and accrediting bodies, needs to work effectively 
and cohesively to enable this expansion while at the same time being 
able to better measure individual institutional performance towards 
those goals. While none of these entities operates in a silo, they each 
bring different strengths and responsibilities to the table. They each 
must be accountable to increasing the level of execution of their own 
responsibilities. For example, if it is the State's role to ensure that 
institutions are responsive to student consumers, then they need to 
have a rapid response process that assures complaints are not only 
resolved for an individual student, but that the institution ``learns'' 
from the resolution and will advance its product and services as a 
result. The Department currently has the authority to spearhead this 
effort within its existing enforcement authority. It also has the 
authority and resources to gather and report on meaningful qualitative 
results.
    Similarly, the Federal Negotiated Rulemaking process provides a 
meaningful opportunity for community input and serves as an integral 
part of engaging not only the Triad but the higher education community 
at large. As members of this community, DeVry staff has served as 
Federal trainers, chairmen of Department of Education (USED) task 
forces, on the National Academy Foundation student aid research 
projects, on USED focus groups to simplify student aid and the steering 
committee of NCES's National Postsecondary Education Cooperative which 
promotes better data for better decisionmaking. We have also 
participated on boards and as members of associations including the 
American Council of Education, The College Board, and the National 
Association of Student Financial Aid Administrators and the National 
Student Loan Clearinghouse. Most recently DeVry staff served as 
negotiators in negotiated rulemaking and has provided recommended 
regulatory language to USED aimed at strengthening student disclosures. 
DeVry has and will continue to engage with members of Congress on ways 
to improve educational opportunity and success for all students.
                                 90/10
    Several comments were offered during the roundtable relative to the 
private sector's reliance on Federal funding, the 90/10 requirement, 
the sufficiency of that requirement, and the historical purpose for 
that requirement. As Mr. Shireman explained, the 90/10 requirement 
(then 85/15) was established as a proxy for an independent valuation of 
an institution's quality. That is, if 15 percent of an institution's 
revenue was derived from some other source, the Federal Government 
could rely on the derivation as an indicator that someone else had 
``inspected'' the institution and found it of merit.
    This requirement is problematic on two fronts. First, it has 
outlived its usefulness. The use of a proxy makes sense only when the 
use of actual data is either impossible or impractical. That is not the 
case in measuring institutional quality. The need for a third party 
validation of an institution's merit has been replaced with an ability 
to measure institutional outcomes. At the time the law was enacted, we 
were not able to measure outcomes on a mass and timely scale. The 
development of standards and technology has enabled us to do so and we 
should now replace the use of a proxy with the measurement of actual 
outcomes as I proposed in my original submission.
    The second problem with this requirement is that there is no 
evidence that it actually relates to institutional quality. The 90/10 
ratio is entirely based on inputs--that is, the financial condition of 
the students an institution serves. Using this proxy, an unaccredited 
institution would qualify as one of the top institutions in the 
country. The maximum thresholds are also entirely arbitrary and 
prejudicial in their application to only one sector. Indeed, many 
public and independent institutions rely significantly on Federal 
student aid and other forms of governmental (State) funding for payment 
of tuition and fees. The different financial structures (for example, 
only 30 percent of public 4-year operating revenues are derived from 
tuition and fees) and limitations on what is counted towards the 90 
percent requirement mask the comparability among institutions. DeVry 
University provided more than $27 million in scholarships last year--
almost all of which met the needs of low-income students--that was not 
included in the 10 percent calculation, despite an analogous scheme 
that occurs within the discounting policies of many 4-year public and 
independent institutions. We understand why this rule was initially 
enacted, but believe it is time to move on to absolute measures of 
quality--student outcomes.
         department of defense tuition assistance and g.i. bill
    I want to clarify a point offered during our session by Mrs. 
Petraeus relating to the timing of funding for Tuition Assistance 
(active duty) versus the G.I. Bill (VA). Mrs. Petraeus indicated that 
there was likely greater incentive to enroll veterans versus active 
duty students because institutions had to wait on the funding for 
active duty students until the end of the term. While I am unaware of 
the policies under which Mrs. Petraeus made her determination, I wanted 
you to know that DeVry University generally receives funding for active 
duty students before it receives funding for veterans. The processing 
of enrollment certification records in order to fund students typically 
takes until the 2d month for funding to be released to both the 
institution and the veteran.
                               marketing
    During the roundtable you noted that some private-sector schools 
may spend ``60 to 70 cents'' out of every dollar on marketing and ``30 
to 40 percent'' on education. While we cannot speak for other schools'' 
marketing expenditures, DeVry's marketing expenditures are much less 
than the sector-wide statistics you cited.
    DeVry Inc. advertising expenses represented 12.3 percent of total 
revenues versus 45.8 percent for educational services. Advertising 
expense represents about 14.6 percent and educational services 
represent about 54.6 percent of total operating costs.
                           cost to taxpayers
    There were several comments about the cost of private-sector 
education to taxpayers, and I would like to elaborate on the answer I 
provided at the forum.
    Private-sector schools actually cost less than public or 
independent institutions when one includes the cost to taxpayers. 
Tuition at a school like DeVry University costs about $15,000 per 
academic year. The average tuition of a 4-year public university is 
about $7,000. However, public university tuition is highly subsidized 
by taxpayers. Federal and State subsidies and grants add over $15,000 
to that total, making the true cost for a public university tuition 
over $22,000 (see chart below). One can more easily see this true cost 
when comparing in-state v. out-of-state tuitions. For example, the 
University of Illinois charges $13,000 for in-state tuition, $27,000 
for out-of-state.
    It is important to keep these numbers in mind when thinking of our 
future educational capacity needs. The President has called for an 
additional 8.2 million postsecondary degrees by 2020. Public sector 
schools, constrained by State budget shortfalls, cannot meet that goal 
alone. The private sector can add capacity without taxpayer subsidies 
and at less cost than public or independent schools.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Thank you again for the opportunity to discuss ways in which we can 
together improve higher education opportunities for our students. I 
look forward to working with you and the rest of the committee as your 
efforts continue this fall.

            Sincerely,
                                          Daniel Hamburger,
                                     President and CEO, DeVry, Inc.

    [Whereupon, at 4:57 p.m., the hearing was adjourned.]