U.S. Sen. Tom Harkin hopes to see for-profit colleges change their business model and federal representatives and senators working together to find a solution to America’s failing retirement program.
Harkin, D-Iowa, sat down with the Courier’s editorial board Monday morning to discuss recent findings on for-profit colleges and his idea for a hybrid retirement program.
After conducting a two-year investigation of America’s for-profit schools, the Senate Health, Education, Labor and Pensions (HELP) Committee, which Harkin chairs, found that enrollment skyrocketed in the past 10 years, and so did revenues.
“And yet there were disturbing reports about kids dropping out, not getting a good education,” Harkin said.
The HELP Committee received internal documents from the colleges and found that due to the high cost of for-profit colleges, 96 percent of their students take out student loans to cover the cost and more than one in five will default on those loans within three years.
“The industry is going to have to make some changes,” Harkin said. “Some of the for-profit schools are already starting to change. Some out there were doing a good job. Not all of them are real bad. But the business model is bad because it rewards the bad and punishes the good.”
In 1992, U.S. Sen. Sam Nunn, D-Ga., head of the Senate’s Permanent Subcommittee on Investigations, found at that time that many military were using the G.I. Bill for distance learning, which has since morphed into online learning at for-profit colleges.
Three amendments to the Higher Education Act of 1965 followed: Only 85 percent of for-profit college’s money could come from federal aid programs (the other 15 percent they had to acquire privately or through student dollars); they were not allowed to give bonuses to recruiters; and 50 percent of their students had to be campus-based.
“Right away the industry came in and started nibbling away at it,” Harkin said. “In the late ’90s, they got rid of 85/15 and made it 90/10.”
And if any military enrolled, that didn’t count toward the 85 or 90 percents, Harkin said, instead counting toward the 15 or 10 percents.
“So for every military person they get, they can go out and get nine more people,” he said.
In 2002, new legislation meant recruiters could get financial rewards. Then in 2006, on the Higher Education Reconciliation Act, the “final ax” was that 100 percent of students could be online.
“These schools are charging sky-high tuition,” he said. “In one year, more than 50 percent of the students dropped out. That means the for-profit school got the PELL grants, the direct loans, the student drops out, then the student has the debt around his neck.”
The most under-reported story in America today, Harkin said, is the retirement program.
“Everybody focuses on Social Security’s got a problem, Medicare’s got a problem,” he said. “Nobody focuses on the retirement gap.”
In order for people to have 70 percent of their pre-retirement income by the time they retire, Harkin said, America is $6.6 trillion short, “which means a lot of people are going to retire, and they aren’t going to have enough money.”
According to the report, 30 percent of people scheduled to retire in 2009 were not able to because they did not have enough money to live on.
“They may have retired, but they went to work being a greeter at Walmart or doing something else to supplement their income,” Harkin said.
And today, two out of five Americans have no savings, 401k or pension, he said, compared to one out of two Americans who had a pension 30 years ago.
“All they have is Social Security, and that’s not enough,” he said. “We always said retirement was a three-legged stool. It’s Social Security, savings and pension.”
What’s necessary now is a “hybrid” retirement program, Harkin said, something with the benefits of a pension (you can’t touch it until you retire) and the benefits of a 401k (you can take it wherever you go).
His proposal is the Universal, Secure and Adaptable (USA) Retirement Funds program.
“If you work for a company, that company would automatically take money out of your check — just like they do for withholding now — and they send it, at no risk to the employee, to Principal, which has a fiduciary duty to invest these funds in long-term assets,” Harkin said, though employees would be allowed to opt out. “So that means that at any point in time, like Social Security, you would know what your annuity was going to be based upon what you’ve put in.
“The longer you pay in, the higher your annuity goes, the goal being that you have at least 70 percent of pre-retirement income by the time you retire.”
Web extra: Sen. Harkin’s recent reports on for-profit schools and retirement programs can be found at harkin.senate.gov.