Student Lending Analytics Blog

What The Senate HELP Committee Wants To Know About For-Profit Educators?

From Apollo Group's (University of Phoenix) 8K filed today: 

Item 8.01 Other Events.
Today, Apollo Group, Inc. (the "Company") announced that it has received a request for information from the U.S. Senate Committee on Health, Education, Labor and Pensions relating to the Committee's ongoing hearings relating to for-profit colleges receiving Title IV student financial aid. The request seeks information to more accurately understand how the Company uses Federal resources, including how it recruits and enrolls students, sets program price or tuition, determines financial aid including private or institutional loans, tracks attendance, handles withdrawal of students and return of Title IV dollars and manages compliance with the requirement that no more than 90% of revenues come from Title IV dollars. The request also seeks an understanding of the number of students who complete or graduate from programs offered by the Company, how many of those students find new work in their educational area, the debt levels of students enrolling and completing programs and how the Company tracks and manages the number of students who risk default within the cohort default rate window.
In furtherance of this, the Committee has requested that the Company provide information about a broad spectrum of the Company's business, including detailed information relating to financial results, management, operations, personnel, recruiting, enrollment, graduation, student withdrawals, receipt of Title IV funds, institutional accreditation, regulatory compliance and other matters. The Company intends to cooperate with the Committee and to work with the Committee to provide the requested information in a manner that does not compromise the Company's sensitive proprietary operating and other information.

The Committee has requested that the Company produce a portion of the specified information by August 26, 2010 and the remainder of the information by September 16, 2010.

The Difference Five Weeks Makes

June 23, 2010:  President and CEO of Career College Association, A Response to Steve Eisman, at National Press Club

"It is no secret that the career education sector is under attack by short sellers, trial lawyers, self-styled consumer advocates, and some traditional academics. Although they should know better, these critics use anecdotes to generalize and to make sweeping condemnations of our sector. They seize on admittedly flawed government data to make the most extreme statistical arguments. They exploit the same small cadre of so-called third party experts to generate critical comments. And they recycle old news to give currency to new allegations. In short, they twist the truth to serve their self-interest."

August 4, 2010:  From Career College Association press release "GAO Report Deemed Deeply Troubling:"

Wondering What Happened When Incentive Compensation Rules Were Tightened in 1992?

From SLA post in November 2009 (which includes a table showing the percentage of student loans coming from students at for-profit institutions:

• At 22.1% in 2008-09, the proprietary sector is nearing their two decade high of 24.2% share of federal student loan volume which they reached in 1990, just prior to the Nunn report and the ban on incentive compensation in 1992. 

• In the decade where this ban on incentive compensation was weakened through the introduction of twelve "safe harbors" in 2002, the percentage of federal loans going to proprietary schools has grown from 12% in 2000 to 22.1% in 2008-09.  I can't prove causality, but it is interesting to note that in the period following the ban from 1993 to 2000, the proprietary sector's share of the federal loan market, despite annual gyrations, remained almost unchanged from 11.5% in 1993 to 12.0% in 2000.   

Pell Grants Rise 61% in 2009-10 Academic Year; 45% of Students Now Receiving Pell Grants

I might have titled this post:  A Sign of the Times...

The Federal Student Aid Data Center site updated figures last month for Pell Grants.  Here are stats on recipients, grants and average grant size for the past four years with annual changes in the right hand columns:

	Recipients	Grants	Average				Avg
Acad. Yr.	(in millions)	(In $MM)	Grant Size		Recipients	Grants	Grant Size
06-07	5.29	$12,792	$2,419
07-08	5.69	$14,675	$2,580		8%	15%	7%
08-09	6.32	$18,284	$2,892		11%	25%	12%
09-10	8.23	$29,361	$3,566		30%	61%	23%

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Observations:

• The 61% growth in Pell Grants to an annual figure of $29.4 billion was driven by both a 30% increase in recipients to 8.23 million and a 23% increase in average grant size to $3,566.  The maximum Pell Grant for the 2009-10 academic year was $5,350.  The maximum grant is $5,550 for the 2010-11 academic year.

• With NCES estimating that 18.4 million students would attend two year and four-year institutions in fall 2009, that would mean almost 45% of those in attendance received a Pell Grant for 2009-10.  If you assume 100% of students at proprietary schools are Pell-eligible, that suggests that about 1 in 4 students at public and private non-profits are Pell-eligible. 

What's Happening In Private Student Loan Land?

I thought I would provide a brief update of several new developments with private student loans:

Two states have formalized their fixed-rate private student loan products for 2010-11:

• Vermont Student Assistance Corporation (VSAC) is offering a private student loan with fixed rates ranging from 6.9% to 7.75% [dependent on repayment option selected] and fees ranging from 0% to 5% [dependent on credit scores].  Applications will be available in early August. 

• Maine Educational Loan Authority (MELA) is offering a private student loan with a fixed rate of 7.75% and a 4% guarantee fee.  Interest payments are required during the in-school period.

Several lenders have recently tweaked (or announced an upcoming change) the range of interest rates on their private loan products (each dropping below the 4.0% level as the minimum or "as low as" interest rate on their loans):

• Discover reduced the minimum starting interest rate on their variable-rate private loans to 3.75% (from 4.25%).  This is Discover's first change to interest rate ranges since June 1st of last year.

• Chase will be reducing their minimum starting interest rate on their variable-rate private loans to 3.94% (from 4.14%).  Chase has changed their interest rate ranges on several occasions this year (note that some of the changes were driven by an increase in LIBOR during the year):
• • Pre-March 1st:  4.40% to 9.75%
  • March 1st:  4.15% to 8.75%
  • July 1st:  4.14% to 9.79%
  • As of August 6th:  3.94% to 9.79%

And in other news...

In late July, the New York Post reported that Sallie Mae had hired Goldman Sachs to help it explore "options."  The company has made no secret that they are carefully evaluating their restructuring options (from New York Times):

"According to The New York Post the student lender hired Goldman Sachs to advise on a sale or spinoff of its student-loan servicing business and its $145 billion government-subsidized loan portfolio.  The company is also mulling the possibility of converting part if its platform into a traditional deposit-taking bank, The Post said."

Citibank's Student Loan Corporation reported a 40% decline in private loan originations in the quarter ending June 30, which is traditionally a seasonally slow quarter.  For 2009-10 academic year, Student Loan Corporation originated close to $900 million in private loans, a 47% reduction from the 2008-09 academic year.  I also came across an article citing a banking analyst, Dick Bove, who expressed this opinion of whether Student Loan Corp. would be sold:

"The ability to sell Student Loan at this time is nil," he said, noting that perhaps in two or three years, after the financial markets settle, a sale may occur."

Reactions to Senate Hearing on For-Profit Marketing Practices

US Names Apollo, Corinthian, Kaplan In For-Profit Probe (Wall Street Journal) includes company and the career college association's reactions to the GAO report and Senate hearing:

Highlights from Hearing on For-Profit Marketing Tactics

Just finished watching a few hours of the Senate HELP committee hearing:  For-Profit Schools: The Student Recruitment Process. 

Highlights:

• The first half of the hearing focused on the GAO report which hit yesterday and included videotape (here is a link to the video) demonstrating the fraudulent and deceptive marketing practices uncovered.

• Senator Harkin will be sending an information and document request to 30 for-profit schools tomorrow.  He is planning on holding another hearing in September to "get to the bottom of this."  He seemed most interested in graduation rates and churn rates but I would be surprised if he didn't ask about recruitment practices also. 

• Harkin also seemed interested in finding a legislative solution to this issue.  He described the Dept. of Education regulations on program integrity to be a good "first step" but expressed concern that regulations can be changed too easily by future administrations, using the "safe harbors" of incentive compensation as an example. 

• The accreditation process also will be coming under additional scrutiny too with Senator Franken, in particular, focusing his line of questioning on the issue of how well accreditors are ensuring that their rigorous standards are being adhered to.  

• I missed the first 30 minutes of the hearing but the committee "named names" of the colleges investigated in the GAO report (from Barrons): 

Ahead of the Hearings On For-Profit School Marketing....Here's The Report

The Senate Committee on Health, Education, Labor and Pensions has a hearing scheduled for tomorrow, August 4th at 10 am ET.  The topic:  For-Profit Schools:  The Student Recruitment Experience.  

The witness list for the hearing include:

Panel I

• Gregory Kutz , Managing Director, Office of Forensic Audits and Special Investigations, U.S. Government Accountability Office, Arlington, VA

Panel II

• David Hawkins , Director of Public Policy and Research, National Association for College Admission Counseling, Arlington, VA
• Michale McComis , Executive Director, Accrediting Commission of Career Schools and Colleges, Arlington, VA
• Joshua Pruyn , former Admissions Representative, Alta College, Inc., Denver, CO

Ahead of the hearing, the Government Accountability Office released this report today:  Download GAO_ForProfits_Marketing

Here is a summary of their findings in the report titled, Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices: