Assistant Director, Office of Servicemember Affairs
Consumer Financial Protection Bureau
Subcommittee on Federal Financial Management, Government Information, Federal Services and International Security
U.S. Senate Committee on Homeland Security and Governmental Affairs
September 22, 2011
Chairman Carper, Senator Brown, and distinguished members of the Committee: thank you for the opportunity to provide testimony to you today concerning higher education for our nation’s servicemembers and their families. As I’m sure you know, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was signed into law on July 21, 2010, established the Consumer Financial Protection Bureau (CFPB) as an independent bureau within the Federal Reserve System and charged it with ensuring that consumers have timely and understandable information to make responsible decisions about financial transactions. In addition, the law assigns my office, the Office of Servicemember Affairs (OSA), the responsibility to “educate and empower service members and their families to make better informed decisions regarding consumer financial products and services,” and I am happy to take part in a dialogue like this one to ensure that military families have all the information they need to make sound decisions about where and how they spend their military education dollars.
As I believe many of you know, I come from a military family. My husband just retired from the Army after 37 years of service, and I’m a military daughter and mother, as well. So I’ve been around the military community my entire life, and I’ve seen the evolution of the military education benefits that are being discussed today. When my husband first entered the service in 1974 officers were expected to have a bachelor’s degree but it was unusual for enlisted servicemembers to have a two-year or especially a four-year college diploma. That has changed over the years and now the expectation is that officers who desire to advance will earn a graduate degree, and that enlisted personnel who want to advance to senior noncommissioned officer status will earn a bachelor’s degree.
The government has provided two important benefit programs to assist in that educational process: first, the Military Tuition Assistance (TA) program that is designed to be used to take courses while on active duty; and second, the GI Bill which may be used mostly after military service in pursuit of a college or technical degree. These are valuable benefits and I think we would all like to see them replicate the success story that happened after World War II, when a generation of veterans came home, went to college on the GI Bill, and became the engine that drove our economy to tremendous success.
I think it’s accurate to say that holding at least a bachelor’s degree is a “must” for many jobs in today’s economy. We’re also seeing a new generation of servicemembers and veterans who are eager to earn bachelors and advanced degrees, hoping to give themselves the best possible chance for success—both in the military and beyond. To meet this demand, there are an increasing number of for-profit colleges eager to enroll them as students, due in large part to the “90-10 rule” created by the 1998 amendments to the Higher Education Act (HEA). Put simply, the 90-10 rule says that a for-profit college has to obtain at least 10 percent of its revenue from a source other than Title IV federal education funds. It is my understanding that this rule is designed to ensure that a for-profit college does not support itself solely with federal Title IV money, but offers an education valuable enough that people are willing to pay for it through other means.
Although TA and the GI Bill are certainly federally funded, they are not Title IV student aid funds administered by the Department of Education, putting them squarely in the 10-percent category of the 90-10 rule. And therein lies a problem. For every servicemember that a for-profit college recruits who will be using TA or GI Bill funds (and the spouse or child of a servicemember, in the case of the Post 9-11 GI Bill), the college can then go out and enroll nine other students who are using Title IV funds. This has given to some for-profit colleges an incentive to see servicemembers as nothing more than dollar signs in uniform, and to use some very unscrupulous marketing techniques to draw them in. A particularly egregious example was featured in a “Bloomberg Business Week” article in 2010, concerning a Marine Corps Corporal with traumatic brain injury. A college recruiter from a for-profit university had visited the Wounded Warrior Battalion barracks at Camp Lejeune, North Carolina, to sign up military personnel for college courses. As the article put it: “US Marine Corporal James Long knows he’s enrolled…he just can’t remember what course he’s taking.” The for-profit institution involved in that instance has been reported as having 77,000 students and 1,700 recruiters, yet only one full-time employee tasked with job placement for its graduating students.
According to the Department of Defense (DoD), for-profit colleges’ share of TA dollars has soared in recent years. These colleges have taken pains to advertise themselves as military-friendly and, in particular, have adapted their programs to cater to servicemembers’ desire to be able to take courses online. Online education fits well with the military lifestyle of deployment, military training, and frequent moves. DoD’s FY2010 Voluntary Education Report showed that 71 percent of TA-funded courses are now being delivered online. A recent study in the “Military Times Edge” magazine used publicly-available data to determine where active-duty troops were using their TA benefits in FY2010. Six of the top ten colleges on its list, ranked by number of enrolled military students using TA benefits, were for-profit colleges.
Given the higher costs of many for-profit colleges as compared to public colleges, the increased enrollment in for-profit colleges has been a major factor in the exponential growth of TA costs in the last ten years, on what I have heard described as an unsustainable upward trajectory. If, in order to get TA costs under control, the benefit is cut back at a future date and servicemembers are asked to pay a greater share of the cost of courses taken under the TA program, for-profit colleges may encourage servicemembers to use loans to fill the gap. And with the 90-10 rule as it now stands, a for-profit college is apt to drive servicemembers not to a Title IV loan, but instead to the school’s own private student loan arrangement – even though it is likely to be more expensive – in order to keep those revenues in the ten percent category for purposes of the 90-10 rule.
On many of my trips to military communities, I’ve heard stories that raise concerns about unscrupulous marketing by for-profit colleges – and poor service and treatment once servicemembers are enrolled. On a recent visit to Fort Campbell, Kentucky to hear about the financial concerns of servicemembers there, I heard from both the on-post Education Counselor and a military spouse about the aggressive marketing techniques of for-profit colleges. The counselor said that if you indicate an interest online or fill out a card provided by a local recruiter, you will be called immediately and repeatedly. The spouse said that after filling out an interest card she got seven to nine phone calls a day until she enrolled in what she, interestingly, called a “military-affiliated” for-profit college. The college actually had no official military affiliation, but had obviously marketed itself to her in such a way that she received that impression. Although they were on the phone with her repeatedly during the recruitment process, after the first day of classes the shoe was on the other foot. When she had connectivity problems that made it impossible for her to sign on to her online class, she found it difficult to get anyone to return her calls or do anything other than blame her computer for the problem. She was unable to complete the coursework that semester because she couldn’t log on consistently, but got billed for the full tuition regardless.
Support problems can be a serious challenge for troops on combat deployments overseas. When a unit has a casualty the military “locks down” all internet communications for that unit to prevent rumors from spreading before the official casualty notifications are made to family members. This obviously prevents the soldier from logging onto the online school, but I have heard about instances where no flexibility was shown by the college and the student received an “F” for failure to submit the work on time. The tuition bill, of course, was still expected to be paid.
On the Web, online marketing by for-profit colleges has increased dramatically. For-profit colleges have bought a number of URLs to use as lead generators, with names that use “GI Bill” or “Military” – or both – in their titles. Although they present themselves as offering unbiased, helpful advice on GI Bill benefits, I took a look at one of these sites and found that the schools listed on the home page as “GI Bill Schools” all happened to be for-profit colleges. When I clicked on the link “More GI Bill Schools” it led me straight back to the home page. A member of my staff went on another of these sites and filled out an application to see what course of study they would recommend for him. He put on the form that he had a law degree and a post-doctoral degree in physics. Their suggestion: that he consider getting a vocational certificate at a local for-profit college!
I should mention that the OSA is not the only office at the CFPB interested in these issues. CFPB has an Office of Students and, in time, will have a Private Education Loan Ombudsman focused on private student loans. And CFPB will have reporting requirements to Congress on the topic of student loans. Some of the issues that must be addressed in these reports include: the private education loan indebtedness of borrowers; whether they exhaust their Federal loan options before taking out a private loan; whether the private educational lenders are for-profit or non-profit, and whether the lenders are themselves colleges or other institutions of higher education; the terms, conditions, and pricing of private education loans; and whether Federal regulators and the public have access to sufficient information to determine lender compliance with fair lending laws.
Private loan issues are a military issue according to a number of sources, including the Senate Committee on Health, Education, Labor and Pensions, who have reported that for-profit colleges are encouraging military students to take on private loan debt in order to pay for courses that cost more than the GI Bill or TA will pay. (And, as I mentioned earlier, if the TA benefit is cut the situation will only get worse.) Unfortunately, in a number of instances an unscrupulous college recruiter has told a prospective military student that the GI Bill or TA will pay for everything, so there will be no extra cost to the student. But often the story changes after enrollment when a confusing array of paperwork is presented by the financial aid office. Before the student knows it, he or she not only has used up military education benefits, but also is locked into a private loan that may not be the best deal – or make sense at all – for that individual.
These problems in the marketing of private student loans are compounded by the fact that, although there are some for-profit colleges with solid academic credentials and a history of success for their graduates, as a group and compared with other institutions, for-profit colleges have low graduation rates and a poor gainful employment history. They also tend to have a higher-than-average student loan default rate, which can be an indicator that students are being recruited with little concern for their ability to do the coursework. And there are a number of for-profit colleges with questionable academic credentials, with accreditation that is not accepted by other institutions, which makes it very difficult to transfer credits.
In brief, the real and growing concern is that, just as in the days of unchecked payday lending before the implementation of the Military Lending Act, military communities are once again under siege by a group that sees big money to be made off the military: for-profit colleges. The richness of the military education benefits is a big draw, with the 90-10 rule adding a significant extra incentive. To give an example of the explosive growth in the amount of military benefit money that is now flowing from the government to for-profit colleges: between 2006 and 2010, combined VA and DoD education benefits received by just 20 for-profit education companies increased from $66.6 million in 2006 to an estimated $521.2 million in 2010, a 683 percent increase!
The well-being of our military personnel is, of course, not just an issue of dollars and cents. Financial problems and paperwork hassles can be a dangerous distraction for the troops, who need to focus their attention on the difficult and dangerous missions they are asked to perform. Piling private student loan debt on top of an already stretched family budget can be a major stressor. And unique to the military is the fact that financial problems can lead military personnel to lose their security clearances, which may mean that they are no longer permitted to do the job for which they have been trained.
For veterans, the GI Bill should be the opportunity to build a better future. We all want our veterans to become successful, productive contributors to our society. Education can be the key to success, and the wonderful education benefits provided to our military and their families should not be wasted on programs that do not promote – and may even frustrate – this outcome.
In conclusion, the CFPB and the Office of Servicemember Affairs are already working hard to ensure that servicemembers, who devote their lives to protecting our nation, will have a strong advocate to help protect them and their families from financial threats. We will work with the Congress, the Department of Defense, the Department of Veterans Affairs, the Department of Education, the rest of the public sector, and the non-profit and business communities towards the goal of every military family being a well-educated family, armed with the knowledge of how to avoid poor financial decisions, and willing and able to invest towards long-term goals that lead to a successful future.
Thank you for the opportunity to testify to the Committee.