For-Profit Colleges Face Curbs on U.S. Aid in New Veterans Bill

For-profit colleges would be forced to rely less on federal money under a bill aimed at curbing the marketing of degrees to soldiers and veterans.

The proposed legislation, to be introduced tomorrow by Senate Democratic leaders, would require for-profit colleges to get no more than 85 percent of their revenue from federal programs, according to a summary from the office of Illinois Senator Richard Durbin, a co-sponsor. Colleges now can receive as much as 90 percent. They would lose federal funding for exceeding the cap for one year, instead of the current three.

Colleges solicit the military because their government tuition programs are excluded from the cap on federal money, said Senate education committee Chairman Tom Harkin, the other sponsor. The bill would eliminate that incentive by counting military money, according to Christina Mulka, a spokeswoman for Durbin, the majority whip, or No. 2 Senate Democrat.

The legislation “will close a loophole that has made veterans and active duty military major targets of deceptive marketing and aggressive recruitment, rather than students treated with the respect their service deserves,” Harkin, who represents Iowa, said in a statement.

Eight for-profit college companies received about $626 million in veterans’ education benefits in the most recent academic year, the Senate education committee said in a November report. The eight include Apollo Group Inc. (APOL), which owns University of Phoenix, the largest chain by enrollment; and Education Management Corp. (EDMC), the second-biggest.

Apollo, based in Phoenix, rose 2.1 percent to $54.61 at the New York close on Jan. 20. Pittsburgh-based Education Management rose less than 1 percent to $25.60.

‘Skin in the Game’

Congress enacted the cap on federal aid to for-profits as an anti-fraud provision, so that students -- or employers who paid for their continuing education -- had “skin in the game,” not just the federal government, Mulka said. Before 1998, the law had an 85 percent cap, as the bill now proposes.

Congress, the Education Department, the Justice Department and state attorneys general are scrutinizing the sales practices and student-loan default rates of for-profit colleges, which received almost $32 billion in federal grants and loans in the 2009-10 school year.

In articles in 2009 and 2010, Bloomberg News detailed complaints about the recruiting of soldiers and veterans by for- profit colleges.

The legislation will create “barriers to critical job- training and educational programs for veterans,” Brian Moran, interim president of the Washington-based Association of Private Sector Colleges and Universities, which represents for-profits, said in a statement last week, when Durbin announced his intention to introduce legislation on the recruiting of the military by for-profits. At that time, he provided no details. He will speak about the issue tomorrow at a Chicago forum.

The industry will lobby against the bill as it did last year when it successfully pushed to ease proposed regulations that cut off aid to for-profits whose students struggle the most to repay their loans, Mulka said.

To contact the reporter on this story: John Hechinger in Boston at jhechinger@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net.

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