Confronting the For-Profit Conundrum

Amid numerous efforts to increase college-going and completion rates among minority students, for-profit institutions stand out as a leader. Class flexibility for working and non-traditional students, online courses and corporate partnerships to reimburse employees are all contributing factors to their appeal.

However, along with those attributes are a host of challenges and criticism facing some for-profit institutions including high tuition, misrepresentation in college recruiting and job prospects, claims of targeting low-income students who are more likely to qualify for federal aid, and high dropout rates leaving students with large student loans. 

These issues have reached a feverish pitch after Sen. Tom Harkin, D-Iowa, and the Senate Health, Education, Labor and Pensions Committee released the long-awaited report on the for-profit college industry last month.

Results of the two-year investigation by the committee led by Harkin shined a harsh spotlight on the for-profit sector following six congressional hearings, three previous reports and broad document requests. The resulting 249 pages and accompanying in-depth profiles of 30 for-profits largely questions whether federal investment through aid and loans is worthwhile in many of the examined colleges.

The report finds that 62.9 percent of students who enrolled in an associate degree program at a for-profit college in the 2008-09 school year left before earning a degree, and that the median student lasted only four months. A smaller majority — 54.3 percent — left bachelor’s programs before graduating, and 38.5 percent left certificate programs.

Also, the Harkin report found that 22.7 percent of revenue at for-profits goes to marketing and recruitment, and for-profits have an average profit margin of 19.7 percent, and pay an average of $7.3 million a year to their chief executives. According to the report, such expenditures drive up tuition at the expense of educational programming. Actual instruction made up a paltry 17.2 percent of expenses.

The report found that the vast majority of for-profit college revenue comes from the federal government in the form of subsidized loans, Pell Grants, veteran and military benefits and other aid. In the 2009-2010 school year, $7.5 billion in Pell Grants, 50 percent of Defense Department education aid and 37 percent of GI bill aid went to for-profits.

The Association of Private Sector Colleges and Universities, the for-profit college industry trade group, rebutted the report stating that it “twists the facts to fit a narrative, proving that this is nothing more than continued political attacks.”

Just the Facts

Amid political wrangling over for-profit institutions, students are feeling the pinch, as 96 percent of for-profit students have taken out student loans, according to the most recent U.S. Department of Education data. In comparison, 13 percent of students at community colleges, 48 percent at 4-year public colleges and 57 percent at 4-year private non-profit colleges borrow money to pay for school. The report takes aim at Apollo Group’s University of Phoenix, Education Management Corp., Washington Post Co.’s Kaplan Higher Education and other for-profit colleges, which together spend more on marketing than instruction, while relying on federal aid for as much as 90 percent of the revenue.

Some are firing back at the report. In a minority report, Senate Republican staff members criticized the report’s findings, saying that Democrats repeatedly refused to work in a bipartisan manner and expand the scope of the investigation to include nonprofit and state universities, raising “substantial doubt about the accuracy of the information.”

Some specific for-profit program criticisms have included Apollo Group recruiters being trained to avoid direct answers and creating a sense of urgency to sign up. Education Management’s Art Institutes have been criticized for offering recruiter incentives such as trips and prizes for meeting enrollment targets. Kaplan recruiters are reported to have been told to enroll as many students as possible by stirring up emotions. The report noted, as an example of “significant reforms,” a Kaplan program that lets students try out classes before committing to take out loans.

According to reports, students complained that ITT Educational Services Inc. recruiters misled them about the cost of programs, their access to loans, and whether credits would be able to transfer to traditional programs.

 

ITT has sent a letter to Harkin stating the complaints in the report, “are not representative of typical student experiences.” In addition to the Harkin report, the industry has come under scrutiny following a congressional investigation of executive pay at for-profit educational institutions, which receive a majority of their funds from taxpayers in the form of financial aid to students. Rep. Elijah E. Cummings, D-Md., the ranking member of the Committee on Oversight and Government Reform, is conducting his own study on for-profit colleges.

The report from Cummings found that publicly traded college corporations calculate executive compensation “predominantly on the profitability of their companies rather than the success of their students.”

According to the Cummings report, “This is especially troubling given the billions of taxpayer dollars flowing into these institutions and the serious financial risks to students who go through these programs.”

Also, a federal judge recently overturned federal regulations that would have denied federally backed loans to those attending colleges that graduated students with substantial debt and no job. The regulations, put forward by the Department of Education, were intended to lower costs and increase educational value for students.

According to the U.S. Department of Education, students at for-profit institutions represent 12 percent of all higher education students, 26 percent of all student loans and 46 percent of all student loan dollars in default. The median federal student loan carried by students earning associate degrees at for-profit institutions was $14,000, while the majority of students at community colleges do not borrow. On average, students at four-year public and private institutions graduate earning higher wages than those at for-profit institutions.

Attracting Minority Students

Despite federal and state investigations of the for-profit college industry, one thing is clear — over the past decade, proprietary institutions have notably increased their market share for all students, especially for underrepresented minorities: African-Americans, Hispanics and American Indians.

Diverse’s Top 100 Degree Producers list ranked University of Phoenix at the top for African-American bachelor’s degrees, and second as a top producer among American Indians. 

While there are many factors contributing to the growing interest in for-profit institutions, Dr. Michael Plater, president of Strayer University, attributes the draw to for-profit institutions as one that meets the needs of non-traditional students. 

“We do our job and the numbers are what they are,” said Plater, who joined Strayer in 2010 as provost and chief academic officer and was named president this May. “We are totally focused on the adult students. Those students are a part of our mission that we revolve everything around. Minority students certainly look at that model and in many cases find that it meets their needs as nontraditional students.”