For-Profit Colleges Called Into Question by Senate Report

Enrollment is rising, but a new report highlights weak retention and high student loan default rates.
by | July 31, 2012

Enrollment at for-profit colleges skyrocketed over the last decade, but their students don't attain the same level of success after graduation as their nonprofit peers and are more likely to default on their student loans, according to a new report released by U.S. Sen. Tom Harkin (D-Iowa), who chairs the Senate Health, Education, Labor and Pensions Committee. Meanwhile, states are still trying to figure out their role in regulating this emerging industry.

Harkin's investigation, which included five Congressional hearings and a review of internal documents from 30 for-profit colleges, found that enrollment at those schools had more than tripled from 1998 to 2008, from 553,000 to 1.8 million. Yet, there's little evidence, according to Harkin's report, that these students are finding much success. More than half of students who had enrolled at a for-profit school during the 2008-2009 school year had withdrawn by summer 2010. At Ashford University, run by Bridgepoint, the withdrawal rate was 84 percent.

A for-profit education seems to be exorbitantly more expensive than a traditional one, the investigation found. Harkin's staff drew several specific comparisons to illustrate their point: The cost of an associate degree at the Community College of Denver is $7,048, while the same degree at the nearby for-profit Westwood College costs more than $35,000. An associate degree costs $6,453 at Miami-Dade College, but its for-profit neighbor, Everest College, charges $46,792.

Those factors combined have led to for-profit students, who make up only 13.2 percent of all higher education enrollment, to account for nearly 47 percent of all student loan defaults. Despite this fact, the for-profit model remains a profitable one, according to Harkin's investigation. The combined profits of the 16 largest for-profit colleges in the United States were $2.7 billion in 2009.

"Real, bold legislative reforms are critical. We need to know how every student is faring. We need to ensure that resources intended for education are spent productively," Harkin said in a statement accompanying the report's release. "We need colleges to provide the services that students need to succeed. And for companies so reliant on taxpayer revenues, we need to start requiring they demonstrate results for students, not just shareholders.”

Despite their status as private businesses, for-profit schools are still given a substantial amount of taxpayer dollars. According to a April 2012 review by the American Association of State Colleges and Universities (AASCU), for-profit colleges received $640 million (almost equal to the amount received by public colleges) in federal funding to help military veterans get a college degree.

Congress isn't the only one investigating for-profit colleges -- states are doing the same. According to AASCU, at least 31 inquiries have been initiated by 11 states. Kentucky Attorney General Jack Conway, who is heading a multi-state investigation of for-profit colleges, has filed at least two lawsuits against schools in his state, claiming they deceived and misled students in numerous ways. Twenty-two state attorneys general have joined his effort.

With a recognition that more oversight is needed, states and the federal government are now figuring out what an effective regulatory system for for-profit colleges would look like. According to AASCU, which compiled information from the National Conference of State Legislatures, at least 37 bills in 17 states were introduced during the 2011-2012 legislative session to strengthen state regulations of for-profit colleges.

In Georgia, for example, the Legislature approved a bill that sets strict criteria for for-profit schools to be authorized by the state. They must have operated in the state for 10 years, be accredited with an independent organization and have operated without any complaints or penalties for the previous years. In West Virginia, Gov. Earl Ray Tomblin signed a bill last year requiring for-profit schools to disclose specific information to consumers, such as graduation and retention rates and details of the college's financial operations.

Given that state interest and the findings of Sen. Harkin, more action seems likely. As Kentucky's Conway wrote in an editorial for the New York Times in June 2011,  "Not all for-profit schools are bad, but too many abuse the public trust by showing greater interest in profiting from student loan money than educating students."

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