Special Report
College & Workforce Readiness

Harsh Spotlight Shines on Fast-Growing For-Profits

By Caralee J. Adams — May 31, 2011 5 min read

While overall enrollment in higher education has grown from about 15.3 million to 20.4 million, or by 33 percent, from 2000 to 2009, the for-profit sector has grown by 311 percent from 450,000 full-time students to 1.9 million, according to the National Center for Education Statistics.

Yet, while students are drawn to institutions such as the University of Phoenix or Kaplan Higher Education, which offer online and traditional classes, they come at a price—often a comparatively high one. The average cost for tuition and fees at a four-year, for-profit college is $13,935 a year compared with an average of $7,605 at an in-state, public four-year college and $2,713 at a public two-year college, according to the College Board. Tuition and fees average $27,293 at a private nonprofit.

In the past year, for-profits have come under intense scrutiny for questionable recruiting and marketing tactics. The U.S. Government Accountability Office, the investigative arm of Congress, issued a report in August 2010 unveiling aggressive and misleading sales practices at several institutions. New federal “gainful employment regulations” being considered by the U.S. Department of Education would require for-profits to link future eligibility for federal financial aid to performance of students after graduation.

See Also

The final federal “gainful employment regulations” were released June 2, 2011. View the new regulations (PDF) and read more about them here:
‘Gainful Employment’ Rules Leave Many Disappointed

The for-profit industry has lobbied hard to block the proposed rules, claiming they go beyond the Department of Education’s authority and are not workable. Harris Miller, president and chief executive officer of the Association of Private Sector Colleges and Universities, whose members are private occupation-oriented schools, says schools have to advertise and recruit aggressively to reach students because they don’t have football teams and scholarships to lure students. But they are required to disclose the risks and rewards—that there are no guarantees of graduation or a job and that loans must be repaid, he says.

“There is this myth that critics try to create that it’s in our interest for students to fail. Nothing could be further from the truth. It’s in our best interest for students to succeed,” he says.

In the past year, many schools have ended practices of paying recruiters based on enrollment. Miller says many are looking closely at compliance and, rather than relying on self-reporting, many schools are monitoring phone calls, doing mystery shopping, and sitting in on interviews to make sure protocol is being followed. “One or two mistakes can taint the whole school or the whole sector with a bad name so they have to increase their focus on compliance,” says Miller.

Whether the regulations come to pass in the midst of heavy lobbying is unknown, but for-profits are realizing that they likely need to adjust their business plan of relying heavily on students funding tuition through federal financial-aid grants and loans, says Kevin Kinser, an associate professor in the school of education at the University of Albany, State University of New York.

“While there are a few bad actors out there who are actually violating the law and being fraudulent, that’s not the majority of the for-profits,” says Kinser.

In many cases, for-profits have innovative academic programs that are closely connected to industry needs. Yet, just as completion is a challenge throughout higher education, it is at for-profits. When the U.S. Senate committee on Health, Education, Labor, and Pensions analyzed 16 for-profit schools in its report, 57 percent of students who entered those institutions between July 2008 and June 2009 had withdrawn. Over a three-year period, an estimated 1.9 million students had left the 16 for-profit schools.

Miller notes figures from the National Center for Education Statistics that show two-year for-profits have an average graduation rate of 61 percent compared with 22 percent for two-year public colleges. However, with some two-year for-profits offering one-year degrees, some researchers say these numbers don’t provide a clear comparison.

Students who leave without a degree often still face a heavy debt burden. In the for-profit sector more than 95 percent of students at two-year schools and 93 percent at four-year schools took out student loans in 2007, compared to 17 percent of students attending community colleges and 44 percent at public four-year schools, according to the Senate report. For-profits market to low-income students who rely on loans to pay tuition. And students at for-profit colleges default on college loans at twice the rate of other students.

Because for-profit institutions are so expensive, students need to be clear about the debt they will incur and whether they can get a job that is worth the investment, says William Tierney, the director of the Center for Higher Education Policy Analysis at the University of Southern California, in Los Angeles. “The consumer needs to make a serious commitment that he or she wants to do this,” he says.

Kinser notes the risk dynamic at for-profits differs from that at community colleges. When community college students don’t graduate, the impact isn’t as great. At a for-profit, students can be worse off for trying because of the debt they may incur.

Statistics show consumers are seeking advice about their postsecondary choices with regard to for-profit schools. In 2010, the Better Business Bureau received 180,000 inquires about for-profit universities and about 1,400 complaints, says Sheila Adkins, a spokeswoman for the BBB, in Arlington, Va. The consumers complained about being misled on costs, the quality of education, and purported guarantees of jobs when their programs ended. “It’s become a very popular avenue because of the high unemployment rate and people changing career paths,” Adkins notes.

She says it’s important for consumers to do research and ask for information about for-profit schools’ claims of employment and income. Be skeptical if the company does not disclose freely and turn away from high-pressure sales tactics, she adds. “A reputable company will not try to push you,” Adkins says.

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