Characteristics of Students Attending Proprietary Schools

Students who attend proprietary schools generally have characteristics  that differ from students at public and private non-profit schools. ATB Test

Generally, students without a high school diploma or GED can qualify for  Title IV loans, grants, and campus-based aid if they pass an independently  administered test of basic math and English skills, called an “ability-to- benefit” or ATB test. Consequences of Student Loan Defaults

When students do not make payments on their federal loans and the loans  are in default, the federal government and taxpayers assume nearly all the  risk and are left with the costs. Education’s Analysis Shows That Default Rates Are Higher at Proprietary Schools than at Public and Private Non-Profit Schools and Studies Link High Default Rates to Borrowers’ Characteristics

		Default Rates of Borrowers from Proprietary Schools Are Higher than Those of Borrowers from Other Schools and Increase over Time

Default rates measured 2 years after students begin repaying their loans  show that students from proprietary schools have higher default rates than  students from public and private non-profit schools. Among 4-year schools, the default rates at 2,  3, and 4 years into repayment are higher among proprietary schools than  other schools. In several of the studies, two borrower characteristics closely linked to  higher default rates are low family income and parents who lack a higher  education degree. Weaknesses in Education’s Oversight of Federal Aid Eligibility Requirements Place Students and Title IV Funds at Risk of Potential Fraud and Abuse at Proprietary Schools

		Education’s Weak Oversight of ATB Test Requirements Allows Ineligible Students to Receive Federal Aid

Through separate investigations at proprietary schools, we, along with  other federal and state investigative agencies, found test administrators or  school officials violating rules to ensure prospective students without high  school diplomas passed required tests and obtained access to Title IV aid. Each analyst was sent separately to the school and on both  occasions, the independent test administrator gave them and all the test  takers in the room–about 20 in total–answers to some of the test  questions. We later obtained copies of the analysts’ test forms and found  that they had been tampered with–their actual answers had been crossed  out and changed–to ensure the analysts passed and would become eligible  to receive Title IV funds. As a result, prospective students who are academically  unqualified are more likely to be admitted to a school and receive federal  student aid. Through one of our site  visits and interviews with students and student interest groups, we learned  of cases where recruiters at two separate publicly traded proprietary  schools referred students to diploma mills for invalid high school diplomas  in order to gain access to federal loans without having to take an ATB test. In addition, taxpayers and the government,  which guarantees the loans, are left with the cost when students default on  their school loans. While our findings  do not represent nor should they be interpreted as implying widespread  problems at all proprietary schools, our work has identified significant  vulnerabilities in Education’s oversight that should be addressed. Unqualified students  who receive federal financial aid for higher education programs are at  greater risk of dropping out of school, incurring substantial debt, and  defaulting on federal loans. Appendix I: Objectives, Scope, and Methodology

This appendix discusses in detail our methodology for addressing two  research questions: (1) How does the student loan default profile of  proprietary schools compare with that of other types of schools? Analysis of Education Policies and Records

To determine the extent to which Education’s policies and procedures for  monitoring student eligibility requirements for federal aid at proprietary  schools protect students and the investment of Title IV funds, we reviewed  Education’s policies and procedures for monitoring the administration of  ability-to-benefit (ATB) tests and high school diploma requirements.
Why GAO Did This Study

For-profit schools-also known as proprietary schools-received over $16 billion in federal loans, grants, and campus-based aid under Title IV of the Higher Education Act in 2007/08. GAO was asked to determine (1) how the student loan default profile of proprietary schools compares with that of other types of schools and (2) the extent to which Education's policies and procedures for monitoring student eligibility requirements for federal aid at proprietary schools protect students and the investment of Title IV funds. To address these objectives, GAO analyzed data and records from Education, examined Education's policies and procedures, reviewed relevant research studies, conducted site visits and undercover investigations at proprietary schools, and interviewed officials from Education, higher education associations, and state oversight agencies.

What GAO Found

The Department of Education makes loans available to students to help them pay for higher education at public, private non-profit, and proprietary schools, and the students who attend proprietary schools are most likely to default on these loans, according to analysis of recent student loan data. Students from proprietary schools have higher default rates than students from other schools at 2, 3, and 4 years into repayment. Academic researchers have found that higher default rates at proprietary schools are linked to the characteristics of the students who attend these schools. Specifically, students who come from low income backgrounds and from families who lack higher education are more likely to default on their loans, and data show that students from proprietary schools are more likely to come from low income families and have parents who do not hold a college degree. Borrowers who are not successful in school and drop out also have high default rates. Ultimately, when student loan defaults occur, both taxpayers and the government, which guarantees the loans, are left with the costs. Although students must meet certain eligibility requirements to demonstrate that they have the ability to succeed in school before they receive federal loans, weaknesses in Education's oversight of these requirements place students and federal funds at risk of potential fraud and abuse at proprietary schools. Students are required to pass a test of basic math and English skills or have a high school diploma or GED to qualify for federal student aid. Yet, GAO and others have found violations of these requirements. For example, when GAO analysts posing as prospective students took the basic skills test at a local proprietary school, the independent test administrator gave out answers to some of the test questions. In addition, the analysts' test forms were tampered with-their actual answers were crossed out and changed-to ensure the individuals passed the test. GAO also identified cases in which officials at two proprietary schools helped prospective students obtain invalid high school diplomas from diploma mills in order to gain access to federal loans. GAO's findings do not represent nor imply widespread problems at all proprietary schools. However, GAO's work has identified significant vulnerabilities in Education's oversight. Education's inadequate monitoring of basic skills tests and lack of guidance on valid high school diplomas enables unqualified students to gain access to federal student aid. Unqualified students are at greater risk of dropping out of school, incurring substantial debt, and defaulting on federal loans.