Do For-Profit Schools Pass the Test?: June 2011

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The growing popularity and criticism of these universities have caught lawmakers’ attention.

By Michelle Camacho Liu

Undercover investigations, congressional hearings, advertising campaigns, lawsuits, blocked funding, new federal regulations, public service announcements, and too many newspaper opinion pieces to count. For-profit colleges and universities are clearly in the spotlight.

Today these institutions enroll some 3.2 million people in everything from small vocational programs to traditional degree programs, with flexible schedules and online options.

Budget cuts to state and community colleges that have triggered higher tuition, larger classes and limited class selection in states across the country make for-profit colleges increasingly attractive to nontraditional students looking for programs that better meet their needs.

The popularity of these proprietary schools grew from a mere 2 percent of students in 1986 to more than 10 percent in the 2008-2009 school year. But this growth has raised concerns—at both the state and federal levels—about the quality of education these institutions offer, the amount of money in scholarships and loans they receive, the tactics they use to attract students and the success of their graduates in finding jobs.

Lawmakers in 18 states have considered at least 30 bills this year, many of which would increase oversight and regulation, as well as establish additional consumer protections. So far, seven of these bills have become law, with provisions varying from restricting recruiting practices to requiring schools to pay into a student protection fund, to limiting eligibility of state student aid programs.

States should ensure that “students know, with clear definition, the expectations placed on them and those placed on the institution,” says Minnesota Representative Peggy Scott, who introduced a bill to research graduate education in the for-profit sector.

Officials at the U.S. Department of Education also have concerns. “For-profit institutions can and should be important contributors” in reaching President Obama’s goal of having the highest proportion of college graduates in the world by 2020, says James Kvaal, deputy undersecretary at the department. “They have been innovative pioneers in delivering online education, and thoughtful of meeting the needs of older students, parents, and others who are not on the traditional academic calendar.”

There are, however, concerns about disproportionately high default rates, student loan debt and questionable recruiting practices at these institutions, he says, coupled with substantial growth in federal grants and loans. “It is incumbent on us to make sure every penny is well spent,” Kvaal says. “Our view is we need to strike the right balance to make sure the strengths of the sector are enhanced while making sure students are not being taken advantage of.”

An executive with the organization that represents the schools maintains they are an “important alternative channel, that takes into account the fact that incoming students are not on the college track, and have certain issues that need to be addressed, whether academic or something to do with individual circumstances.” Bob Cohen, senior vice president of the Association of Private Sector Colleges and Universities (APSCU), a membership organization of more than 1,500 private, postsecondary institutes, adds that these for-profit institutions are specifically designed to “provide the counseling and support services that are really needed to help the students succeed.”

APSCU President Harry Miller says inconsistent policies in how states deal with for-profit schools “make it difficult to keep a focus on what is best for the students.”

Federal Scrutiny

The for-profit sector also has come under the scrutiny of Congress and the U.S. Department of Education. Federal concern centers on the fact that the schools, through their students, received $4.3 billion in Pell grants and $20 billion in federal loans during the 2008-09 school year, an increase in federal student aid funds of 109 percent between 2005 and 2009.

Students who attend for-profit schools carry more debt than those at public schools and are more likely to default on student loan repayments. According to the Government Accountability Office (GAO), students from low-income families and whose parents don’t have college degrees are more likely to default on their loans. And data show they are the types of students who, in large part, attend proprietary schools.

Students who do not complete school also have high default rates. The National Center for Public Policy and Higher Education found they are 10 times more likely to default on loans. A report issued by U.S. Senator Tom Harkin, looking at 16 for-profit schools, found that 57 percent of students who entered these schools between June 2008 and June 2009 withdrew before completing their programs.

“Ultimately, when student loan defaults occur, both taxpayers and the government, which guarantees the loans, are left with the costs,” according to a 2009 study by the GAO. “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 [the U.S. Department of] Education’s oversight of these requirements place students and federal funds at risk of potential fraud and abuse at proprietary schools.”

The student loan default rate for those attending for-profit institutions is 25 percent, compared with 10.8 percent at public colleges and 7.6 percent at private nonprofit institutions, according to recently released data from the Education Department.

Between June 2010 and March 2011, the Senate Committee on Health, Education, Labor and Pensions conducted four hearings and one subcommittee hearing on the high dropout rates, student loan debt and default rates, use of military tuition assistance funds, and lack of data on graduation and job placement rates for propriety schools. Lawmakers at the hearings called for increased regulation to address concerns that range from recruitment practices to national accreditation standards.

According to a report released by the GAO at one of the hearings, investigators visited 15 different for-profit schools posing as students, and at all the institutions were given “deceptive or otherwise questionable statements” regarding accreditation, guarantees of employment and financial aid.

The most recent committee hearing looked at Bridgepoint Education’s Ashford University. While the hearing was highly critical of the university’s large profits compared with its per-student spending and high dropout and loan default rates, it also focused on the regional agency that accredited the school. Questions were posed about current accrediting agencies’ abilities to adequately assess the viability and quality of these rapidly growing, multi-state corporations.

The senators suggested an overhaul of the federal, state and regional systems to increase oversight of these schools and eliminate “the bad apples” of the industry. The U.S. House Committee on Education and the Workforce, on the other hand, has questioned whether increased regulations will hurt student choice and job growth.

“What’s lost in the conversation [regarding default and graduation rates] is the fair comparison of like students,” says Miller of APSCU.

Rather, criticisms focus on “apples and oranges comparisons of nontraditional students [attending for-profit institutions] with traditional students at traditional colleges and universities.” The for-profit schools, Miller says, “have similar default rates to traditional institutions with similar student demographics, and have higher graduation rates than traditional institutions with similar student demographics.”

Nevertheless, the U.S. Department of Education in July 2010 proposed several regulations to “protect students from aggressive or misleading recruiting practices and to provide consumers with better information about the effectiveness of career college and training programs.” The regulations would apply to programs at public and private nonprofit institutions that do not lead to a degree, and to all programs at for-profit, proprietary institutions, except those that lead to a degree in liberal arts.

In October 2010, the Education Department issued final regulations that require institutions to report to the department certain information on students and release information on completion and job placement rates, median student loan debts, and program costs to prospective students. These regulations become effective in July.

The most contested regulation requires programs to meet benchmarks for loan repayment and debt-to-earnings ratios in order for students to be eligible for certain federal student aid. The department received about 90,000 comments regarding this regulation and has postponed a final decision on these performance measurements until later this year.

Kvaal stresses the regulations are not meant to target any specific sector. In discussing this final regulation he highlights that “it applies to occupational programs at all institutions. But, it is fair to say that for-profit programs are overrepresented in the worse performing under these metrics.”

Minority groups are split on the issue. The NAACP says certain rules will protect students from high debt and low-quality programs. The National Black Chamber of Commerce, however, argues the regulations will limit access to programs that better fit the needs of minority and low-income students already struggling to find options to further their education.

In an attempt to block the new regulations, APSCU sued the Education Department, arguing the rules are unfairly biased against for-profit schools and are “vague and poorly written,” exposing their member institutions to frivolous lawsuits at the expense of students. APSCU’s Miller believes the regulations “would end higher education opportunity for hundreds of thousands of students, primarily low income individuals and working adults.”

The U.S. House of Representatives attempted to block funding for the department to implement final gainful employment rules. The funding remains intact, however, because the provision blocking the money was not included in the final fiscal year 2011 spending bill.

State Concerns

State lawmakers are paying particular attention to a new regulation from the Education Department that sets minimum requirements for approving and monitoring for-profit colleges and universities that operate within a state.

Some see this as an opportunity to support for-profit schools within their state. Mississippi Senator Perry Lee sponsored a bill that passed this session allowing proprietary schools to qualify for state licenses if they have proof of national accreditation from an agency designated by the U.S. Department of Education.

These schools “provide a great avenue for a lot of our young men and women, giving them skills necessary in the workforce,” Lee says. His bill will simplify the state authorization process and “make it easier for [proprietary schools] and students to make sure they get the quality of education they pay for.”

Kentucky Representative Reginald Meeks sees a need for additional regulation and protection for students. His bill, which failed to pass, would have shifted oversight of for-profit schools that offer associate degrees or higher from the State Board for Proprietary Education to the state’s Council on Postsecondary Education. It also would have required for-profit schools to pay into a student protection fund that would refund students if a school closed, lost its license or accreditation or discontinued a program.

Maryland passed a comprehensive law this session that increases regulation of for-profit schools in many areas. It prohibits deceptive recruiting practices, bans incentives for recruiting students, requires disclosure of student data to the state, sets requirements for a state license, and requires schools to contribute to a student protection fund. In 2009, North Carolina passed a similar bill focused on protecting students from losing tuition and fees when schools close.

Also in 2009, California lawmakers created a new governing board to oversee for-profit educational institutions. This session, legislators passed a law under which measures of student success, such as default rates and debt-to-income ratios, will determine an institution’s eligibility for CalGrant, the state student aid program. Under the law’s provisions, an estimated 50 schools in the state would lose their eligibility for CalGrant money, 48 of which are for-profit schools.

Utah Senator Curtis Bramble wants to be sure that, “when students pay tuition, they are going to be delivered the education as promised.” Bramble’s bill, passed this session, amends Utah’s proprietary school regulations, including what information schools must provide to show they are financially viable.
While Bramble agrees there can be resistance to federal mandates, he sees his bill as “a cooperation with the federal government, rather than a top-down mandate” since it makes “good business and policy sense in Utah and at the same time meets federal regulations.”

Michelle Camacho Liu tracks postsecondary issues for NCSL.