U.S. Representatives John Tierney (D-Mass.) and George Miller (D-Calif.), the senior Democrat on the House Education and the Workforce Committee, introduced legislation this week that would ensure the tuition dollars students and taxpayers invest in higher education at for-profit institutions are spent on educating students, not marketing or advertising.
The College Student Rebate Act would safeguard student and taxpayer investment in for-profit institutions of higher education by requiring colleges that spend less than 80 percent of their revenue on educational and related expenses to provide students, taxpayers or both with financial rebates.
While for-profit colleges have an important role to play in higher education, they have not lived up to their full potential. For-profit colleges take an overwhelming portion of their revenue from taxpayers in the form of federal financial aid dollars, including Pell grants, student loans, GI Bill funds and Department of Defense Tuition Assistance benefits.
According to a July 2012 Senate Health, Education, Labor and Pensions (HELP) Committee report, for-profit colleges received $32 billion in federal taxpayer investment in 2009-10. The report also found that of the 30 for-profit education companies examined, on average they spent more revenue on marketing and advertising (23 percent) than on instruction (17 percent). Further, on average, students at for-profit colleges have higher default rates (15 percent, compared to the national average of 8.8 percent) and lower graduation rates than their peers at non-profit institutions.
"Modeled after provisions I authored in the Affordable Care Act to ensure health care consumers are getting the most value out of their premium dollar, this bill holds for-profit institutions accountable and requires they appropriately invest in education. If they don't meet the bill's reasonable requirement, rebates must be provided. Students and taxpayers deserve nothing less," said Congressman John Tierney.
"It is completely reasonable to expect institutions of higher education profiting from federal taxpayer money to have a standard to meet in terms of the quality of education they provide their students," said U.S. Rep. George Miller. "Students and taxpayers footing the bill for tuition should be confident that their money is going toward providing a world-class education, not lining pockets or filling flashy advertising accounts. This bill rightly holds for-profit institutions accountable and helps ensure that students and taxpayers are getting what they are paying for -- an education that is necessary to succeed in today's economy."
Tuition at many for-profit institutions is much higher than at public institutions, forcing many enrolled students, including active duty members, veterans and low-income students, to take on significant student loan debt in order to attend school. According to the HELP report, 96 percent of for-profit students take out student loans in order to attend school. Students who attend for-profit institutions account for 47 percent of all federal student loan defaults, most defaulting within three years of entering repayment on their student loans.
The College Student Rebate Act is modeled after provisions in the Affordable Care Act, which were proposed and championed by Rep. Tierney, providing for rebates to Americans when an insurance company fails to use a sufficient percentage of premium revenues on providing health care. This year it is estimated that the medical loss ratio will provide more than $1 billion in rebate checks to more than 12 million Americans.