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As Congress Investigates For-Profit Colleges, Students Face Risky Choices

4 years ago
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Are rising college enrollment numbers a bad thing? In October 2008, the share of 18- to 24-year-olds attending college in the United States hit an all-time high. According to a Pew Research Center analysis of the most recent U.S. Census data available, just under 11.5 million students, or 39.6 percent of all young adults ages 18 to 24, were enrolled in a two- or four-year college in October 2008.

Cynical views of these numbers stem from the fact that most of the growth is from for-profit colleges. The increased interest in post-secondary education has increased demand and competition for federal student aid, particularly Title IV aid, at public, private, and for-profit colleges.

Title IV aid is a combination of grants and low-interest loans available in limited quantity to students enrolled at any type of college. Between 2000 and 2009, the amount of Pell grants, Stafford loans, and other Title IV aid packages given to for-profit institutions grew from $4.6 billion to $26.5 billion. Enrollments at for-profit institutions nearly tripled from 673,000 in 2000 to 1.8 million in 2008. As unemployment rates have climbed, so too have these numbers.

Ten percent of the total post-secondary student population is enrolled in for-profit colleges, yet these students receive 23 percent of Title IV federal aid. On June 15, the U.S. Department of Education released a proposed set of rules intended to prevent abuses of federal financial aid programs by establishing new eligibility standards both for students and the colleges they attend.

The Department of Education's proposed rules were conspicuously missing a full set of regulations for evaluating whether a program prepares students for "gainful employment," the category under which most for-profit institutions and non-degree vocational programs qualify for federal aid. Education Secretary Arne Duncan and education department officials said they wanted to delay consideration of this crucial element of the proposal to make sure they "get it right" before the November 1 deadline.

Disappointed by the proposal's indecision, Congress has responded with a more stringent investigation of private sector education. The Senate's Health, Education, Labor, and Pensions committee began a series of oversight hearings last Thursday that will examine the flow of federal education dollars to students through for-profit colleges.

Additionally, committee chairman Sen. Tom Harkin (D-IA) said in a written statement that the hearings will examine whether the knowledge and skills students acquire at a for-profit school sufficiently compensates for the debt accrued by tuition and expenses. They will also coincide with an effort by the House Education and Labor committee to challenge the legitimacy of for-profit institutions by questioning their tendency toward high-limit credit extensions.


The Debt Trap

At the first Senate hearing on June 24, Harkin released his report, "Emerging Risk? An Overview of the Federal Investment in For-Profit Education," which found that most for-profit schools are not only heavily dependent on federal grants and low-interest loans, but that they also have tremendous student turnover and high dropout rates. The result is that a sizable population circulates through these schools each year, accruing significant debt without earning any degrees or certifications that will help them more easily repay it.

Furthermore, many for-profit schools spend the same amount of money, and occasionally more, on recruiting and marketing. One school allocates as little as 32 percent of its total budget to education-related spending.

One of the primary concerns of the hearings are the financial well being of students in the for-profit college system. With a substantial percentage taking out loans to fund their education, these students are eight times more likely than their more traditional counterparts to leave with a loan larger than $20,000. According to a recent analysis by the U.S. Department of Education, for-profit colleges accounted for only 10 percent of enrolled students but 44 percent of defaults.

While the flexibility of the for-profit model works well for some students who can more easily incorporate post-secondary education into their family and job responsibilities, these schools can do an equally great disservice to students who do not graduate or who were misled about the value of the certification they can receive.

Yasmin Issa, who testified at the June 24 committee hearing, is one such victim. She spoke of undue pressure from a for-profit school to enroll quickly, with the promise of multiple, concrete job opportunities and access to a certification exam after 12 months of accelerated classes.

After investing her savings, child support, $15,000 in loans and a year of her time, she found herself trapped in a Catch-22: cyclically limited by her lack of experience and her lack of official certification. Her limitations stemmed from incomplete accreditation within the for-profit school she attended. While the school as a whole was accredited, their ultrasound program was not, and she was thus restricted from access to the American Registry for Diagnostic Medical Sonoraphers certification exam.

"Five months after finishing the program, I had no prospects for employment, but still had a family to take care of, rent, bills, and now the outstanding student loans," Issa said in her testimony. "I felt like I wasted my time and money on a phony school."

The House of Representatives surreptitiously approached this issue during their June 17 hearing examining recent reports from the Inspector General of the U.S. Department of Education. The reports assessed how higher education accrediting agencies review institutions' policies on credit hours and program length. Education and Labor Committee Chairman George Miller (D-CA) explained the significance of this seemingly obscure investigation while questioning the witnesses.

"As much as we talk about [credit hour] units changing . . . what has also changed is that institutions now have requirements to shareholders, to profit margins, to the stock market, and to others," Miller said. "This is a matter of serious concern."

The reports compiled by Inspector General Kathleen Tighe found that some accrediting agencies do not have established definitions of what constitutes a credit hour. This can lead to inflated credit hours and misappropriation of student aid. Overestimating student aid allocations can have tremendous costs, most of which are absorbed by students and taxpayers.


Finding a Balance

Amid efforts to root out "bad" for-profit schools, the investigation does highlight several examples where the for-profit model works.

Sharon Thomas Parrott, Senior Vice President of Government and Regulatory Affairs and Chief Compliance Officer of DeVry Education, a private sector school, spoke to the role for-profit institutions can play in augmenting the country's education goals.

In his efforts to close educational gaps by 2020, President Obama has set his sights on educating an additional 8.2 million post-secondary graduates. Yet many private and public colleges have seen their capacity cut, affording for-profit institutions an opportunity to help, Parrott said. Their independence from taxpayer subsidies and their growing enrollment rate carves out a niche for the for-profit model.

At the same time, rising concern about the $8 billion shortfall entering fiscal year 2011 may put the Pell grant on the chopping block; it's facing a proposed $800 cut to the maximum per student allowance. And with for-profit institutions absorbing much of this funding ($4.3 billion in Pell grants and $19.6 billion in federal loans according to Department of Education data) with more mixed results than traditional colleges, they're at risk of being represented as a threat.

Advocates for private sector education object to this "us versus them" mentality. While Parrott acknowledged that, in this new sector, there is less oversight and thus more opportunities for impropriety, she urged in her testimony that the many effective for-profit schools not be punished for the poor quality at a few, or restricted from experimenting with educational models, one of their most notable differences from non-profit colleges.

"Institutions must remain capable and emboldened to act nimbly and with quality to address society's education needs," Parrott said at the hearing. "This includes allowing for innovation like blended onsite learning and year-round study."

Yet there's some concern that the growth of for-profit colleges may come at the price of hindering community colleges. In a speech to the National Press Club June 30, Senator Dick Durbin (D-IL) pointed out that many community colleges are being forced to cut classes in spite of a growing demand for education as a result of competition from for-profit schools. And with for-profit tuition averaging five-and-a-half times higher than tuition at more-often-accredited community colleges, many students could be missing out on a much more affordable and reliable alternative.


Confounding Variables

What the comparison of for-profit and traditional private and public schools often fails to acknowledge is the significant role played by demographic differences between student bodies. Some studies suggest that it is not it is not the difference in policy, structure or business models that cleaves the rates of for-profit and non-profit school loan defaults, but rather the wide disparity in student body characteristics.

A recent student aid policy analysis by FinAid.org publisher Mark Kantrowitz found that for-profit colleges tend to enroll a significantly greater percentage of "higher risk" students, which contributes to 60 percent of the difference in default rates between students at for-profit and non-profit schools. The risk factors he identified include delayed and part-time enrollment, working full-time while enrolled and single parent status, among others.

Differences in parent educational status contributed to 18 percent of the difference in loan default rates, with socioeconomic status contributing 14.5 percent to the gap and race prompting an almost 11 percent divergence.

The report also found that almost 80 percent of students at non-profit schools had no risk factors, while for-profit schools had a higher percentage of their student body facing one or more risk factors in every category but delayed enrollment.

Kantrowitz concluded that since non-profit schools have the luxury of selective admissions policies, their preference for no-risk students contributes greatly to their higher success rate and fewer instances of student loan defaults. On the other hand, the need for revenue generally prohibits for-profit schools from turning away students who are already at a high risk for defaulting on any loans before they even apply for admission.


Looking Ahead

The investigation and hearings addressing where for-profit institutions fit into the national post-secondary education landscape call for assessment of these programs now, as well as the construction of regulatory bodies and policies that enable effective for-profit schools to continue.

The trade-offs that plague private sector institutions are significant. One school reported an operating profit of $489 million, a 37 percent profit margin from their $1.3 billion revenues. At the same time, 23 percent of students defaulted on their loans within three years of leaving for-profit schools offering certificates and associate's degrees.

While the future of for-profit education may be unclear as this investigation continues (the next hearing has yet to be scheduled), representatives from all sides agree that more supervision of the business realm of education is likely a necessary step in solving the problems.

"For profit schools are an important part of the mix of post-secondary institutions," Harkin said as he opened the first hearing. "[But] this data begs for oversight of this industry, which will begin . . . today."
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