May 18, 2021

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A Poison Pill for For-Profit Colleges

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Colleges for years have justified charging exorbitant tuition by offering what they claim is an immersive education. But many closed their campuses during the pandemic and didn’t discount tuition. Now Democrats plan to shower them with more money while punishing vocational schools.

Congress allocated colleges $14 billion from the Cares Act and $23 billion in the December relief bill on top of the $125 billion in federal student aid they soak up annually. The new $1.9 trillion bill would hand them another $40 billion regardless of whether they open or need the money. The December bill at least reduced aid to colleges with enormous endowments.

Democrats have also cut the share of money going to proprietary schools to 1% from 3%. For-profits will have to distribute 100% of their federal relief to students, which is fair enough. But nonprofit and public colleges only have to spend 50% on student aid. They can spend the rest on diversity coordinators and higher salaries for tenured professors.

The distinction between nonprofit and for-profit colleges is becoming increasingly tenuous. Four years of tuition at many nonprofits now costs more than a new home. Yet colleges aren’t accountable for student outcomes, and many graduate with enormous debt and degrees that don’t help them get high-paying jobs.

At least the pandemic forced some to tighten their belts. Consider the University of Southern California, which is trading its president’s colonial seven-acre estate for $24.5 million for a more modest $8.6 million mansion. Tough living. For-profit enrollment has shrunk by half over the last decade due to the Obama regulatory assault and improved job market. Several large chains have closed, and many surviving schools are small businesses that offer training in fields like welding, cybersecurity and nursing—skills in high demand.

Yet Democrats have slipped a provision into their bill that would force many of these to close. A 1998 law known as the 90/10 rule requires for-profits to derive at least 10% of their revenue from non-federal student aid. The rule doesn’t apply to nonprofit and public colleges, which generate much of their revenue from state aid, federal research grants and private donations.

Democrats have long complained about a “loophole” in the 90/10 rule, which excludes veterans benefits from the federal revenue calculation. This isn’t a loophole. GI Bill benefits are delayed compensation for military service, not federal handouts or loans. For-profits are popular among veterans because they offer vocational training and flexible schedules.

The Democratic bill aims to drive more proprietary schools out of business by counting veterans benefits as federal revenue in the rule. An analysis by an American Enterprise Institute fellow this month estimated this would cause 87 for-profit institutions to fall out of compliance, including many that are popular among military students.

As the report notes, hundreds of public institutions “report student outcomes as weak, or weaker, than those of the for-profit colleges failing a 90/10 rule.” For-profits might be forced to turn away veterans to avoid losing access to all federal aid. Some veterans might end up at community colleges, and others might not avail themselves of their GI benefits.

The Congressional Budget Office estimates that the 90/10 rule change would reduce federal spending by $124 million over 10 years, allowing Democrats to claim savings in budget reconciliation. Behold another example of how Democrats are using pandemic relief to jam through their progressive agenda, which includes hostility to private education.

Journal Editorial Report: Chuck Schumer signs on with the free-lunch left. Image: Drew Angerer/Getty Images

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Appeared in the February 26, 2021, print edition.



2021-02-25 18:38:00

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