Following New GAO Report, Schatz, Durbin, DeLauro Call On Education Department To Strengthen Financial Oversight Of Colleges To Better Identify Financially Risky Schools, Protect Students And Taxpayers

WASHINGTON – Following a newly released report from the Government Accountability Office (GAO), U.S. Senators Brian Schatz (D-Hawai‘i) and Dick Durbin (D-Ill.), and U.S. Representative Rosa DeLauro (D-Conn.), who made the joint request for the study in October 2015, called on the Department of Education to strengthen its oversight of the financial health of colleges and better assess the risk of school closures. The abrupt financial collapse of the predatory Corinthian Colleges and ITT Tech within the last two years left tens of thousands of students with an incomplete education and unable to repay their student loans. These closures are costly for the federal government as well—the closure of Corinthian Colleges alone has cost taxpayers over $550 million in student loan relief thus far and is expected to grow. 

“This report confirms our suspicions: the federal government must do more to protect students and taxpayers from schools that are in bad financial health,” said Senator Schatz said. “The GAO has laid out clear steps we can take to prevent another school from throwing the education of thousands of students off track while leaving taxpayers with the check. There is no excuse for inaction. The Department of Education and Secretary DeVos need to take this issue seriously.” 

“The implications of GAO’s findings in this report are clear. If Secretary DeVos continues her assault on protections for students and taxpayers by failing to strengthen or taking steps to weaken the Department’s financial monitoring of for-profit institutions, she will be putting students and taxpayers at risk of another Corinthian-style catastrophe,” said Senator Durbin.

“The GAO report released today highlights that poor oversight at the Education Department over financially unstable institutions puts billions in federal student aid dollars at risk every year,” said Representative DeLauro. “The financial collapse of high-risk colleges often leaves working class students with an incomplete education, course credits that frequently do not transfer to other institutions, and no clear path to the middle class. Our government faces a crisis of public trust because it has too often failed to uphold an essential compact to protect working people and taxpayer dollars. The Department of Education must rebuild trust through immediate action to improve oversight, accountability, and transparency that ensures students and taxpayers are not defrauded by colleges that cook their books.”

More than 13 million students and their families rely on Department of Education federal student aid programs, which in 2016 provided $125 billion in financial assistance. To ensure that schools receiving these funds able to fulfill their obligations to students and to protect taxpayer investments, the Department has a variety of tools it uses to monitor institutions’ financial health and determine which are financially responsible enough to receive these funds. GAO noted positively the work of the Multiregional and Foreign Schools Participation Division, established in 2014, to centralize monitoring of large school groups with campuses in more than one region, like major for-profit chains. But, in addition to maintaining key improvements, GAO warned that more must be done. The report’s main findings are below.

• Update the methods the Department uses to measure schools’ financial risks – GAO found that accounting standards allow some institutions to manipulate their score to overstate their financial health.  GAO notes that between 2010 and 2016, half of the institutions that closed had a passing financial composite score, making it “an imprecise predictor of school closures” and hampering the Department’s ability to seek a Letter of Credit to protect taxpayers against loss. In its response to the report, the Department disagreed with this recommendation.
• Provide public data on final composite scores for all schools – The Department publishes composite scores on its website, which allows current and prospective students a better understanding of an institutions’ future stability.  GAO notes that “even if a school is not at immediate risk of closure, public information on its financial condition is important since research has indicated that a school’s financial struggles can have negative effects on its operations.” Unfortunately, GAO found that scores for hundreds of schools are missing. Of nonprofit and for-profit schools participating in federal student aid programs between 2014-15, GAO found that “17 percent are missing composite scores in Education’s annual public disclosures including many large, for-profit schools” and collectively account for $8 billion in federal student aid.

In February, the Department’s own Office of Inspector General (OIG) also criticized the Department’s financial oversight of institutions, citing the Department’s failure to accurately identify the financial risk posed to students and taxpayers by Corinthian. In addition to other recommendations, OIG noted that the borrower defense regulation, finalized in November 2016 but now thrown out by Secretary DeVos, would have improved the Department’s processes for “identifying Title IV schools at risk of unexpected or abrupt closure” and “mitigating potential harm to students and taxpayers.”

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