For-Profit Colleges

Whose needs do most publicly traded for-profit higher education companies put first? If you have any doubt, look no further than what Gary McCullough, the president and chief executive officer of Career Education Corporation, had to say when he met recently with the editorial board at The Wall Street Journal.

In comments he made to the newspaper’s reporters and editors, McCullough complained that recent efforts by the U.S. Department of Education to rewrite its student aid regulations to better protect students from unscrupulous schools had spooked Wall Street, driving down the share prices of his company’s stock and those of its competitors. “There’s a pall that hangs over the education space right now,” he stated.

Of particular concern, he said, is a proposal that the Education Department has floated that seeks to prevent proprietary schools from saddling their students up with unmanageable levels of student loan debt. Under the plan, the amount of debt that most for profit college students (as well as those enrolled in other types of job training programs) could take on would be directly tied to the annual starting salaries in the fields for which they sought training. According to the Department (see p. 58), the goal would be to ensure that “a student’s starting annual income is adequate to repay the average debt service obligation for someone completing a specific program, while still having an adequate amount available to meet living expenses.”

If the Education Department moves forward with such a proposal, McCullough warned, it “would change the whole landscape” of higher education. But what would the ramifications be for the tens of thousands of students who attend Career Ed schools throughout the country? According to the newspaper:

“McCullough said that if the proposal is implemented, Career Education may have to lower prices so as to limit the debt load its students take on, or even cut some programs in which students graduate into low-paying jobs.” [emphasis added]

Oh, the horror! Lower prices, less debt, and the elimination of programs that do not provide students with enough income to cover their loan bills -- what could the Department possibly be thinking?

As many Higher Ed Watch readers know, I worked at The Chronicle of Higher Education for 15 years before joining New America. For that reason, I find it difficult to criticize the Chronicle and my former colleagues who work there. However, after reading the publication’s recent series on the for-profit higher education industry, I felt that I needed to speak out.

Last week, the Chronicle ran a series of articles focused on the enormous growth of the for-profit college sector over the past three decades. Throughout the series, which includes three articles (see here, here, and here) and a Q&A with a senior vice president at Kaplan Higher Education, readers are told over and over again how “nimble” and “robust” these colleges are in comparison to the rest of higher education. While public colleges and universities tend to be “large and impersonal,” for-profit colleges like the University of Phoenix “promise students smaller classes, more personal attention, and a clear path to degrees and jobs,” one article states. [The Chronicle fails to note that all of that “personal attention” doesn’t pay off for many of their students. In fact, less than one third of first-time, full-time students who attend the University of Phoenix graduate within six years.]

According to the lead article in the series traditional colleges cater first and foremost to the needs of their faculty members, while “students are the No. 1 concern” of proprietary institutions. How do we know this? Current and former officials at Devry University and Education Management Corporation’s Argosy University tell us so. “We have crafted our entire world around students,” says Donna Loraine, Devry’s vice president for academic affairs. “We are here to improve their futures, not make it more convenient for us.” [As if the leaders of other types of colleges, particularly small liberal arts ones, wouldn’t say the exact same thing.] There are plenty of former career college students -- stuck with unmanageable loads of debt for training that has left them stranded -- who would beg to differ. One wonders how the article would read with some input from these students.

Now it is certainly true that for-profit colleges like the University of Phoenix are popular with working adult students because they tend to offer more flexible class schedules and a more streamlined vocational-oriented curriculum than traditional colleges do. It is also true, however that there have been widespread allegations of fraud and abuse throughout the sector, particularly at the nation’s largest chains of proprietary schools. But you wouldn’t know it from reading the Chronicle stories. The only place where these charges come up is in the Q & A with Kaplan’s senior vice president, who predictably dismisses them.

Shortly before Christmas, the U.S. Department of Education’s Inspector General called on the Department to consider terminating the authority of the nation’s largest regional accreditation agency because it had accredited a major for-profit university despite knowing that the institution had potentially skirted the law and harmed students.

At issue in this case is the fact that the Higher Learning Commission of the North Central Association of College and Schools gave full accreditation to the Career Education Corporation’s American Intercontinental University (AIU) even though it had found serious problems with the way in which the school was awarding credits for classes taken by its large population of online students. The nature of those problems is still not exactly clear because the IG’s alert memo was heavily redacted. But even the commission’s president, Sylvia Manning, has acknowledged that they were “egregious.”

Over the last several weeks, supporters of the for-profit higher education sector have been working overtime to try and downplay the significance of the issues raised by the I.G. In a blistering response to a blog post we ran last month, Harris Miller, the president of the Career College Association, wrote that the case revolves around “a single accreditation issue affecting one college at one time that is based on a debate, as important as it is, between bean counters and academics.” While there have long been disputes “among academic specialists” about “what constitutes a credit hour” in nontraditional higher education programs, he said, “reasonable people should be allowed to disagree without government investigators jumping into the mix.”

At Higher Ed Watch, we wish we could agree with Miller’s characterization of the case as simply being a dispute “between bean counters and academics.” In reality, the issues that the IG raises in its alert memo and in recent reviews it has conducted of other accreditation agencies’ policies (see here and here) bring up much more fundamental concerns -- about the quality of education being provided by some of the country’s largest chains of proprietary schools and the ability of accreditation agencies to assess these programs and hold them accountable.

Dear Readers,

We hope you had a very nice winter break. Now that the holidays are over, get ready to brace yourself because the beginning of this New Year promises to be a very busy one for those who care about higher education policy.

Over the next several weeks, Congress and the Department of Education are expected to resume their efforts to try and reform the federal student loan programs, strengthen the integrity of the federal student aid programs, and safeguard students from predatory private student loan practices.

If lawmakers and Department officials are successful, 2010 could be a banner year for both students and taxpayers. But as we’ve said all along, achieving these goals will not be easy as there are powerful industries with deep pockets and plenty of friends on Capitol Hill that are doing all they can to derail these reform efforts.

For years, for-profit colleges have pointed to the fact that they are accredited by independent agencies recognized by the U.S. Department of Education as proof that they provide a quality education. Why should they be subject to additional regulation when they have received the seal of approval from the august bodies that the federal government relies upon to ensure that students are being well served?

At Higher Ed Watch, we wish we could share the schools’ faith in the accreditation process. The truth is that accreditors have long had a dismal record of policing the proprietary schools they count as members. In case after case, these agencies have failed to take action against unscrupulous schools even when it is clear that abuses are occurring and students are being harmed.

On Thursday, the Education Department’s Inspector General sent a shot across the bow of the accreditors, warning that the government may no longer tolerate such lax oversight. In a move that sent shockwaves throughout the higher education establishment, the IG called on the Department to consider terminating the authority of the nation's largest regional accrediting agency over its decision to accredit a major for-profit university despite knowing that the institution had potentially violated the law and harmed students.

A day after the U.S. Department of Education released three-year cohort default rates for federal student loans, for-profit college leaders and lobbyists are breathing a sigh of relief. Apparently their investors are too, judging by the rise in some of the education companies' stock prices yesterday. While the news was certainly not good, it wasn’t as bad as most of them had feared. After all, few of the largest publicly traded for-profit school chains (besides Corinthian Colleges, Kaplan University, and a couple of others) had campuses with default rates high enough to eventually put them in jeopardy of losing access to federal student aid.

But policy makers should not take false comfort in these numbers, as they clearly show the serious risks that many low-income and working-class students are taking by enrolling in for profit colleges. As we have seen, many of these students are left with little to show for their effort but a heap of debt that they can’t pay off.

Here’s a look at some of the most disturbing default rate numbers that were revealed yesterday:

At Higher Ed Watch, we have repeatedly called on federal policymakers to strengthen regulations that aim to prevent unscrupulous for-profit colleges and trade schools from taking advantage of financially needy students. Our calls, however, have gone largely unheeded as Congress, under both Republican and Democratic leadership, has continued to weaken these rules. At the same time, the Department of Education has long coddled the for-profit higher education sector by continually turning a blind eye to widespread allegations of fraud and abuse at some of the nation’s largest chains of proprietary schools.

But this week, the Obama administration let the sector know, in no uncertain terms, that those days are over.

[Editor's Note: A version of this post ran yesterday in the Albany Times Union]

The College Board reports tuition is up nine percent this year in inflation-adjusted terms, despite declining prices throughout the economy and stagnant median family income. Parents want to know why the sharp increase and why college costs so much in the first place.

The answer, in a word, is demand. Until we channel higher education demand in a more rational direction, tuition will continue to outpace inflation, grant aid, and family income.

Higher Ed Watch readers know that demand isn't the only factor driving tuition. College supply is relatively limited. Higher education is slow to embrace productivity gains seen elsewhere in the economy. Most important, states cut higher education funding to balance budgets, and colleges backfill those cuts by hiking tuition. Banks act as enablers, supplying big student loans to anyone willing to borrow.

But at its base, tuition rises because suppliers, including those who finance them, take advantage of high, under-informed, and often irrational consumer demand. As families shop colleges this fall, they would be well served to focus on value. The Department of Education can help by protecting consumers from the worst deals. We need a lemon law for colleges that cost too much and deliver too little.

Testifying yesterday at a House of Representatives hearing on alleged admissions abuses at several for-profit colleges, Harris Miller, the president of the Career College Association (CCA), said that his organization doesn't have any tolerance for "schools that violate the rules and regulations" that govern the federal student aid programs.

"Let me say up front: there is no room for cheating in the process of higher education, whether by students, teachers, administrators, other school personnel, or outside testers and evaluators," Miller (pictured on the left) stated, adding "We share the government's interest in eliminating any form of fraud and abuse associated with the Title IV [student aid] program."

These are very good sentiments. But at Higher Ed Watch, we are unaware of any role CCA, the national lobbying group for proprietary colleges, has played in ferreting out fraud and abuse among its members.

Over the last decade, some of the largest publicly-traded for-profit higher education companies have come under scrutiny from federal and state regulators and have faced numerous lawsuits by former employees, shareholders, and students over allegations that they have engaged in misleading recruiting and admissions tactics to inflate their enrollment numbers.

The General Accounting Office (GAO) recently released a report revealing that some publicly traded for-profit colleges have been pumping up their enrollment numbers by deliberately admitting unqualified students.

Federal law requires that students who have neither a high-school diploma nor its equivalent must pass a government approved "ability to benefit" (ATB) test before becoming eligible to obtain federal financial aid to pay for college. But during an undercover investigation it conducted at a local branch campus of a large proprietary school chain, the GAO discovered that the school helped prospective students cheat on the ATB test. In addition, while conducting site visits at for-profit colleges around the country, the accountability identified incidents at "two separate publicly traded proprietary schools" in which recruiters "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."

Such abuses are serious, the GAO writes, because they can be very damaging to the students involved. "Unqualified students who receive federal financial aid for higher education programs are at a greater risk of dropping out of school, incurring substantial debt, and defaulting on federal student loans," the report states.

The accountability office goes out of its way, however, to emphasize that its findings "do not represent nor should they be interpreted as implying widespread problems at all proprietary schools." Proponents of the for-profit higher education industry have jumped on that statement to downplay the abuses and say that the incidents the GAO uncovered were isolated cases.