For-profit higher education in the United States (known as for-profit college or proprietary education in some instances) refers to higher education educational institutions operated by private, profit-seeking businesses. Historically, most colleges and universities in the US have been non-profit, but for-profit institutions rapidly grew in number and size from 1972 to 2009. Although supporters of for-profit higher education have argued that the profit motive encourages efficiency, the for-profit educational industry has received severe negative criticism because of its sales techniques, high costs, and poor student outcomes. In some cases operators of for-profit colleges have faced criminal charges or other legal sanctions.
Since 2010, for-profit colleges have received greater scrutiny and negative attention from the US government, state Attorneys General, the media, and scholars.
In 2016, research by Treasury Department economist Nicholas Turner and George Washington University economist Stephanie Riegg Cellini found that students who attended for-profit colleges would have been better off not going to school, or attending a community college. The National Bureau of Economic Research paper was based on an analysis of 567,000 students who attended for-profit colleges from 2006 to 2008. More than 80% carried student loan debt.
The Department of Veterans Affairs has also reported that veterans using the GI Bill for education submitted more complaints about for-profit colleges, particularly University of Phoenix, ITT Technical Institute, Devry University, and Colorado Technical University, than their public or private non-profit counterparts.
The advocacy group the Debt Collective has created its own, unofficial "Defense to Repayment App" that allows former students of schools accused of fraud to pursue debt cancellation. The applications generated through the Debt Collective's online form was cited by the Department of Education in a Federal Register notice, which said that "a need for a clearer process for potential claimants" arose due to the submission of over 1000 defense to repayment claims by "a building debt activism movement."
Maps, Directions, and Place Reviews
List of for-profit corporations and their brands
According to the National Center for Education Statistics, there were approximately 3,200 for-profit institutions in the US in 2015.
Many for-profit institutions are subsidiaries of larger companies. The following is a list of for-profit companies in the higher education sector:
- Apollo Education Group
- American Public Education
- Bridgepoint Education
- Capella Education
- Career Education Corporation
- Corinthian Colleges
- DeVry Education Group
- Education Affiliates
- Education Corporation of America
- Education Management Corporation
- Educational Credit Management Corporation
- Global University Systems
- Graham Holdings
- International Education Corporation
- Laureate Education
- Lincoln Group of Schools
- Linden Education Group
- Premier Education Group
- Quad Partners
- Strayer Education
- Universal Technical Institute
Laureate Education and Apollo Education Group have become powerful international education corporations.
Laureate, the largest US-based for-profit higher educator, is reported to have more than 1 million students worldwide, in North America, Latin America, Europe, the Middle East, Africa, and Asia Pacific. Former President of the United States Bill Clinton has been an honorary Chancellor of the for-profit enterprise.
Politics and political lobbying
Politics and lobbying play a significant part in the history of US for-profit school growth. The for-profit education industry has spent more than $40 million on lobbying since 2007 and $36 million since 2010.
For-profit education lobbying grew from $83,000 in 1990 to approximately $4.5 million in its peak year of 2012.
The most significant industry lobby is Career Education Colleges and Universities (CECU), previously known as The Association of Private Sector Colleges and Universities (ASPCU). Before 2010, the organization was known as the Career College Association.
The Cato Institute's Center for Educational Freedom also supports for-profit higher education.
Political operatives who have had close ties to for-profit education include Bill Clinton, Lanny Davis, Heather Podesta, Urban League President Marc Morial, former Ted Kennedy aide Jane Oates, former Defense Secretary Leon Panetta, and National Action Network's civil rights activist Al Sharpton. In 2014, APSCU hired Michael Dakduk, former head of Student Veterans of America.
From 2010 to 2015, Bill Clinton received at least $17.5 million from Laureate Education, the parent company of Walden University.
Recruiting, advertising, and lead generators
The for-profit college industry has spent billions of dollars on student recruiting, advertising, and buying leads for recruitment. In 2011, for example, University of Phoenix, ITT Tech, Devry, and Capella together spent more than $100,000,000 on Google Ads. Several Wall Street-backed schools spend large amounts on advertisements on day time and late night television. In 2012, Apollo Group, the parent company of University of Phoenix, reportedly spent $665,000,000 on advertising and marketing. Lead Generators are companies that find potential students ("leads") and provide the consumer's personal information and preferences to for-profit schools.
History of for-profit higher education
Origins
For-profit colleges in the US have their origins in the Colonial Era.
1940s to mid 2000s
In the 1940s, "fly-by-night commercial vocational 'schools' often sprang up to collect veterans' tuition grants" due to the newly created GI Bill's then-lax requirements and limited oversight to prevent such abuses.
For-profit colleges grew significantly from 1972 to 1976, after the Higher Education Act of 1965, part of President Lyndon Johnson's "Great Society" of progressive reforms, was amended so that for-profit colleges could receive US government funds, to include Pell Grants and federal student loans.
From 1974 to 1986, for-profit colleges share of Pell Grants rose from 7 percent to 21 percent, even though for-profit colleges only enrolled 5 percent of all higher education students.
In the late 1980s, Secretary of Education William Bennett hired an outside firm, Pelavin and Associates, to investigate the problems with for-profit higher education. The investigators found widespread abuses across the industry.
From 1989 to the mid-1990s, Stephen Blair, a former Department of Education official, led for-profit college industry's aggressive lobbying campaign in Washington, DC. Blair gathered funds to combat the Pelavin report and to maintain for-profit education's position. Blair also recruited politicians Bob Beckel, Patty Sullivan, and Haley Barbour to sell their cause to Democrats and Republicans.
1992, the Higher Education Act was amended to include the 85-15 rule, which limited federal funding to 85 percent of a school's funding. Supporters of the 85-15 rule argued that the measure was necessary to stem fraudulent and abusive practices at for-profit colleges, and that it might restore some market incentive to education. At the time, former Career College Association lobbyist Patty Sullivan estimated that 35 or 40 percent of for-profit colleges engaged in fraud.
In 1993, the 85-15 rule was shelved after complaints were made to the Department of Education.
In 1994, the US House of Representatives voted to allow a one-year delay in regulations scheduled to halt federal student aid for many trade schools. Tony Calandro, vice president of government affairs for the Career College Association (CCA), said that enforcement of the 85-15 rule would have forced 30 percent of the nation's 4,000 private trade schools to close.
For-profit college enrollment grew again between 1998 and 2009, after the 1998 reauthorization of the Higher Education Act resulted in more deregulation. Secretary of Education Richard W. Riley also appointed former Career College's Association President Stephen J. Blair as the Liaison for Proprietary Institutions.
The for-profit college industry also grew in the wake of state budget cuts, stagnation, and austerity in higher education funding that grew more visible in the 1980s and 1990s.
In the wake of deregulation and the growth of for-profit colleges, initial public offerings of Devry, ITT Educational Services, Apollo Education Group, Corinthian Colleges, and Career Education Corporation occurred between 1991 and 1998. For-profit colleges had become "the darlings of Wall Street."
According to the US Department of Education, the number of for-profit colleges rose from approximately 200 in 1986 to nearly 1000 in 2007. From 1990 to 2009, for-profit colleges gained significant ground over public colleges, growing to 11.8 percent of all undergraduates.
From the late 1980s to the mid-1990s, Senator Sam Nunn led for more scrutiny of for-profit colleges. The General Accounting Office also found that 135 for-profit colleges contributed to 54% of all student loan defaults.
In 2005, Department of Education Inspector General John B. Higgins reported that 74% of all institutional fraud investigations were for-profit colleges.
The Los Angeles Times briefly described the role of Wall Street money in the growth of for-profit colleges. Increased capitalization of for-profit colleges occurred after banks such as Goldman Sachs and Wells Fargo and investment firms and hedge funds such as Blum Capital Partners and Warburg Pincus became large institutional investors in this industry.
Late 2000s and beyond
For-profit school enrollment reached its peak in 2009 and was showing major declines by 2011. Two companies, Corinthian Colleges and Education Management Corporation faced enrollment declines and major financial trouble in 2014 and 2015; Corinthian is out of business (closed) and Education Management has closed many of its campuses. University of Phoenix, a subsidiary of Apollo Group, has also seen more than a 50% drop in enrollment since its peak.
According to the 2012 Harkin Report and the NY Times, students at for-profit colleges made up "13 percent of the nation's college enrollment, but account for about 47 percent of the defaults on loans. About 96 percent of students at for-profit schools take out loans, compared with about 13 percent at community colleges and 48 percent at four-year public universities."
A 2014 report by The Institute for College Access and Success showed that the likelihood of a student defaulting was three times more likely at a for-profit college than a 4-year public or non-profit college and almost four times more likely than a community college.
According to data provided by colleges and universities to the National Center for Education Statistics, enrollment in for-profit institutions declined 21% between 2010 and 2013. Student enrollment declined an additional 10% from 2014 to 2015. More than 200 for-profit college campuses and learning sites have closed since 2012, including more than 100 University of Phoenix campuses and most Everest College campuses.
In 2015, Corinthian Colleges filed for bankruptcy and all of its Heald College campuses were closed. In 2016, all Westwood College campuses were closed. Le Cordon Bleu is also in the process of closing all of its campuses. ITT Technical Institute and Devry have also closed multiple campuses.
In 2016, the Wall Street Journal reported that more than 180 for-profit college campuses had closed between 2014 and 2016. For-profit college enrollment dropped about 15% in 2016, a 165,000 decline. Enrollment at University of Phoenix chain fell 22%, which was a 70% loss since 2010. DeVry University reported a 23% percent in 2016. Hondros College, a nursing school chain, dropped 14%. In June 2016, Education Management announced that it was planning to close all 25 Brown Mackie College campuses. In September 2016, ITT Technical Institute closed all of its campuses. In September 2016, the US Department of Education stripped ACICS of its accreditation powers.
In 2017, all Cordon Bleu schools are expected to close. At least 19 Art Institutes are also expected to close. Education Management Corporation sold its remaining schools to the non-profit Dream Foundation and Purdue University proposed purchasing Kaplan University
Structure of for-profit education
Sources of capital and cash flow
The main sources of initial capital for public for-profit colleges are institutional investors: international banks, hedge funds, institutional retirement funds, and state retirement funds.
Wells Fargo was a major funder of Corinthian Colleges and Goldman Sachs provided a significant amount of capital to Education Management Corporation.
The main source of cash flow consists of US Department of Education Higher Education Act Title IV funds. Title IV funds include Federal Family Education Loans (FFEL), direct loans, Federal Perkins Loans, Federal Pell Grants, Academic Competitiveness Grants (ACG), National SMART Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), and Federal Work-Study (FWS). In the 1990s, Congress began requiring that for-profit schools receive at least 10% of their revenues from non-federal student aid sources, which include the GI Bill.
In the 2009-2010 academic year, for-profit higher education corporations received $32 billion in Title IV funding--more than 20% of all federal aid. For-profit colleges get approximately 70% of their funds from Title IV programs. However, some colleges get more than 80% of their funds from Title IV.
The for-profit education industry also receives billions of dollars through VA benefits also known as the GI Bill. In the 2010-2011 school year, more than $1 billion went to eight for-profit schools. In the 2012-2013 academic year, 31 percent of GI Bill funds went to for-profit colleges. Veteran participation in these schools, in effect, transferred $1.7 billion in post-9/11 GI Bill funds to these schools.
These corporations also obtain cash flow through student private loans, corporate loans, and the selling of assets. Problems with high-interest private loans to students at Corinthian Colleges (Genesis loans) and ITT Tech (PEAKS and CUSO loans) have gained scrutiny from the Consumer Financial Protection Bureau and the Securities and Exchange Commission.
Benefits
Historically, for-profit education has offered open admissions to non-traditional students, convenience of schedule and location, instructors with workplace knowledge, and real world vocational training rather than traditional training. Critics of Wall Street-backed for-profit educators, however, have questioned these perceived benefits.
For-profit schools like University of Phoenix are said to be more inclusive, recruiting and graduating more African Americans than public higher education. The Journal of Blacks in Higher Education has called University of Phoenix "a pillar of African American higher education." Through the Thurgood Marshall fund, students at 47 publicly supported historically Black colleges and universities, may supplement their on-campus course loads with course programs using the University of Phoenix online platform.
For-profit colleges have also been seen as a second chance for students who have performed poorly in the past.
It may be argued that for-profit colleges also created innovations that would force public higher education to be more responsive to student needs
For-profit colleges have been compared favorably to community colleges in regards to graduation rates, but these comparisons may be offering misleading statistical comparisons
Drawbacks
A 2010 report by the Government Accountability Office (GAO) documented misleading sales and marketing tactics used by several for-profits. Critics have also pointed out that more than half of for-profits' revenues are either spent on marketing or extracted as profits, with less than half spent on instruction.
A 2011 study by the National Bureau of Economic Research, in Cambridge, Massachusetts, reported that students who attend for-profit education institutions are more likely to be unemployed, earn less, have higher debt levels, and are more likely to default on their student loans than similar students at non-profit educational institutions. Although for-profits typically serve students who are poorer or more likely to be minorities, these differences do not explain the differences in employment, income, debt levels, and student loan defaults. The Government Accountability Office has also found that graduates of for-profits are less likely to pass licensing exams, and that poor student performance cannot be explained by different student demographics.
An 2011 investigation by the New York Times suggested that for-profit higher education institutions typically have much higher student loan default rates than non-profits. Two documentaries by Frontline have focused on alleged abuses in for profit higher education.
Compared to community colleges, some for-profits may have higher completion rates for certificates and associate degree programs, but higher drop out rates for four-year bachelor's degrees. However, studies suggest that one- and two-year programs often may not provide much economic benefit to students because the boost to wages is offset by increased debt. By contrast, four-year programs provide a large economic benefit.
For-profits have been sued for allegedly using aggressive and deceptive sales and marketing practices. Holly Petraeus, wife of retired General David Petraeus and a high-ranking official at the Consumer Financial Protection Bureau, has accused for-profits of preying on vulnerable military personnel. Petraeus wrote:
Opponents say that the fundamental purpose of an educational institution should be to educate, not to turn a profit. In 2000, Bob Chase, president of the National Education Association, stated that "educating children is very different from producing a product".
Certain postsecondary education programs at institutions of higher education are eligible for participation in the federal student aid programs, known as Title IV of the US Higher Education Act (HEA). These programs, which are offered by public and private not-for-profit institutions, postsecondary vocational institutions, and by for-profit proprietary institutions, should prepare students for gainful employment. For decades, the U.S. Department of Education (ED) had not established regulations that explicitly outlined what it means for a program to be properly preparing students for gainful employment. As pressing concerns about the quality of programs at for- profit institutions began to arise, the concerns about the level of student loan debt assumed by students did as well. Such issues led to new initiatives and rules to be set in place outlining the parameters for what should be mandated to help ensure gainful employment.
The 2011 Senate HELP committee released data showing one in every four students who enroll at a for-profit school default on their loans within three years of leaving, with for-profit students accounting for almost half of all loan defaults. Most for-profit colleges charge enrollees much higher tuition rates than analogous programs at community colleges and state public universities despite credits being likely not eligible to be transferred to other institutions. In fact, 96% of students attending for-profit college apply for federal student loans compared to 13% at community colleges. During the 2009-2010 school years, for-profit colleges received almost $32 billion in grants and loans provided to students under federal student aid programs. This staggering number means nearly all students at for-profit institutions acquire student loan debt, even when they do not earn the end product of a degree or accumulate increased earning power through their studies (Sessions, 2011). These statistics represent a large portion of for- profits, uncovering the serious need for greater accountability in ensuring students are making sound investments in such institutions.
According to the Government Accountability Office, enrollment in such institutions has increased faster than traditional higher-education institutions in recent years. With the student and federal interest in such programs growing, so has the concern with their productivity. Regrettably, this is not a simple matter to address, as the issue is multidimensional. For-profit institutions have become an increasingly visible portion of the U.S. higher education sector. For-profits also acquire the largest percentage of their overall revenue from federal student aid programs, highlighting tax dollars are potentially not being used efficiently.
Federal regulatory actions by the ED have attempted to address these issues in the Title IV of the Higher Education Act of 1965, as amended. These efforts were very contentious. For-profit institutions argue their sector is unfairly targeted and believe the Department of Education over stepped its boundaries in 2010 by implementing regulations specifying requirements for Gainful Employment. These rules outlined in a report by Congressional Research Service (CRS), aimed to hold for-profits accountable by creating standards which must be upheld and followed, which will in turn attempt create more opportunity for gainful employment amongst enrollees. Through these regulations the ED believed that institutions will reinforce their educational programs to meet these higher standards, and relatively few programs will fail. Programs that offer a rewarding education at a reasonable price will succeed, and institutions will continue to innovate to assist students and taxpayers.
The regulations mandated by the ED were to help regulate the for-profit sector and to combat the issue of gainful employment. However, the Association of Private Sector Colleges and Universities, which endorses for -profits, challenged these regulations in court. On June 30, 2012 the U.S. District Court for the District of Columbia decided to vacate most aspects of the regulations. The court sustained that the ED had the authority to regulate gainful employment, yet it cited the ED had not provided rationale metrics or measures in the debt measures. At present, only the disclosure requirements of providing prospective students with placements rates, on time graduation rates and other similar information remain. On March 19, 2013 the judge ruled again in response to the ED's motion to reinstate the reporting requirements in order that it could implement the disclosure requirements of Gainful Employment. The judged denied the motion of the ED on the basis that the reporting requirements would violate the federal ban on the student unit record system. It is strongly debatable that the court's ruling negates the small amount of transparency and accountability mandated by the disclosure requirements, leaving the policy issue of for-profits being accountable for Gainful Employment unattended.
Some former students claim that for-profit colleges make them feel like they went to the flea market and bought themselves a degree.
According to James G. Andrews of the American Association of University Professors, corporate models of education harm the mission of education.
Some critics have called for-profit education "subprime education", in an analogy with the subprime mortgages bubble at the heart of the Great Recession - finding uninformed borrowers and loading them with debt they cannot afford, then securitizing and passing the loan onto third-party investors. Activist short seller Steve Eisman (famous for being a character in Michael Lewis's The Big Short) has described the accreditation situation regarding for-profits like ITT as follows: "The scandal here is exactly akin to the rating agency role in subprime securitizations."
A two-year congressional investigation report--from a committee chaired by Senator Tom Harkin, D-Iowa--examined enrollment numbers in selected for-profit higher education institutions. The committee found that $32 billion in federal funds were spent in 2009-2010 on for-profit colleges. The majority of students enrolled in the institutions left without a degree and carried post-schooling debt. Regarding the dropout rates, the report said 54% of students in bachelor's degree programs dropped out before degree completion and 63% of students in associate degree programs dropped out.
Accreditation and transfer-of-credits
Many for-profit institutions of higher education have national accreditation rather than regional accreditation. Regionally accredited schools are predominantly academically oriented, non-profit institutions. Nationally accredited schools are predominantly for-profit and offer vocational, career, or technical programs. Many regionally accredited schools will not accept transfer credits earned at a nationally accredited school even if the curriculum and content of the course are similar.
In the 2005 congressional discussions concerning reauthorization of the Higher Education Act and in the U.S. Secretary of Education's Commission on the Future of Higher Education, there were proposals, ultimately unsuccessful, to mandate that regional accrediting agencies bar the schools they accredit from basing decisions on whether or not to accept credits for transfer solely on the accreditation of the "sending" school. They could still reject the credits, but they would have to have additional reasons. The American Commission of Career Schools and Colleges (ACCSC), a nonprofit accreditor for-profit schools, supported the proposed rule. The ACCSC claims regionally accredited schools will not accept nationally accredited schools credits for purely arbitrary, prejudicial and/or anti-competitive reasons. It further stated that, since the Department of Education recognizes both national and regional accreditation, there is no reason for regionals to differentiate between the two and to do so amounts to an unwarranted denial of access. The position of the American Association of Collegiate Registrars and Admissions Officers (AACRAO) was that national accrediting standards were not as rigorous and, though they might be well-suited for vocational and career education, were ill-suited for academic institutions. AACRAO alleged that this proposed rule was unnecessary and unjustified, could threaten the autonomy and potentially lower the standards of regionally accredited schools, and drive up their costs. Furthermore, it stated the proposed rule was an attempt by the for-profits' "well-funded lobbyists" to obscure the difference between for-profits' "lax academic criteria for accreditation" and non-profits' higher standards.
Some for-profit schools have received regional accreditation, including American InterContinental University, American Public University System, The Art Institutes, Capella University, DeVry University, Kaplan University, National American University, Post University, San Joaquin Valley College, Strayer University, University of Phoenix, Universal Technical Institute, and Walden University.
Accrediting agencies have gained some scrutiny and criticism for conflicts of interest. Because these agencies receive their funding from the institutions themselves, they may have a vested interest in not aggressively supervising these for-profit colleges.
According to Chris Kirkham and Kevin Short: "Two accrediting bodies...collectively monitor nearly 60 percent of all American for-profit colleges. They preside over almost half of those schools with the nation's worst student loan default rates....Ten of the 15 board members supervising the ACICS are drawn from the industry, including executives from Corinthian, Education Corporation of America and ITT Technical Institute. On the ACCSC board, industry executives fill eight of the 13 slots, representing publicly traded companies such as Universal Technical Institute and Kaplan Higher Education."
In 2016, 12 Attorneys General asked the US Department of Education to stop the renewal of ACICS, the Accrediting Council for Independent Colleges and Schools
In June 2016, the Department of Education deliberated on the fate of ACICS and its power to accredit schools for Title IV government funds. On June 23, 2016, The National Advisory Committee on Institutional Quality and Integrity (NACIQI), voted to revoke ACICS's power to accredit schools.
Business failures
Notable failures include Corinthian Colleges, ITT Technical Institute, and Education Management Corporation. In 2010, Trump University was closed by the State of New York for operating without a license. In 2014, FastTrain college closed after being raided by the FBI. In 2016, all campuses of Westwood College closed.
In 2016, the US Department of Education stripped ACICS, the accreditor of ITT Tech and many more colleges, of its accrediting power.
Government scrutiny, criminal and civil investigations
According to A.J. Angulo, for-profit higher education in the US has been the subject of government scrutiny from the mid-1980s to the 2010s.
For-profits topped the Department of Education's list for the 2005-2007 cohort default rates, with campuses at ATI and Kaplan reporting default rates far above 20%. Most of the for-profits' expansion has been in the states of California, Arizona, Texas and Florida, with the metro areas of Los Angeles, Phoenix, Dallas and Miami-West Palm Beach being centers of their growth. For comparison, in Miami, Everest Institute reports a default rate for two of its campuses to be 18% and 20%; Miami Dade College, the district's community college, which serves as a primary channel for local beginning students, reports a default rate of roughly 10%; Florida International University, a public university serving the Miami metropolitan area, reports approximately 5%.
In August 2010, the Government Accountability Office reported on an investigation that randomly sampled student-recruiting practices of several for-profit institutions. Investigators who posed as prospective students documented deceptive recruiting practices, including misleading information about costs and potential future earnings. They also reported that some recruiters had urged them to provide false information on applications for financial aid. Out of the fifteen sampled, all were found to have engaged in deceptive practices, improperly promising unrealistically high pay for graduating students, and four engaged in outright fraud, per a GAO report released at a hearing of the Health, Education, Labor and Pensions Committee held on August 4, 2010. Examples of misconduct include:
- offering commissions to admissions officers,
- employing deceptive marketing tactics by refusing to disclose total tuition cost to prospective students before signing a binding agreement,
- lying about accreditation,
- encouraging outright fraud by enticing students to take out student loans even when the applicant had $250,000 in savings,
- promising extravagant, unlikely high pay to students,
- failing to disclose graduation rate, and
- offering tuition cost equivalent to 9 months of credit hours per year, when total program length was 12 months.
The four for-profit colleges found to be engaging in fradulent practices were:
- Westech, California: Encouraging undercover applicant with falsified $250,000 in savings to falsely increase the number of dependents in the household in order to qualify for a Pell Grant, as well as take out the maximum amount in student loans;
- Medvance Institute in Miami, Florida: Financial aid representative told an applicant not to report $250,000 in savings, comparing student loans to a car payment in that, "no one will come after you if you don't pay". In fact, a student loan default may remain in the debtor's credit history, prevent them from taking out a car loan, mortgage or rent, and may have their pay garnished up to 15%, until the student loan is paid in full. Another admissions officer at Kaplan College in Pembroke Pines, Florida, alluded to fraudulent behaviour stating to the applicant when inquiring about the repayment of loans, "You gotta look at it ... I owe $85,000 to the University of Florida. Will I pay it back? Probably not ... I look at life as tomorrows never promised ... Education is an investment, you're going to get paid back ten-fold, no matter what.";
- Anthem Institute in Springfield, Pennsylvania: Financial aid representative editing applicant's FAFSA form by omitting $250,000 in savings;
- Westwood College in Dallas, Texas: Admissions representative telling applicant to falsely add dependents to qualify for Pell Grants, assuring the applicant that the dependents would not be verified through previous income tax returns nor Social Security numbers, and financial aid representative encouraging applicant not to report the $250,000 in savings, stating that "it was not the government's business how much money the undercover applicant had in a bank account.", when the Department of Education requires students to report such assets, along with income, to determine how much and what type of financial aid will be awarded.
It was found that 14 out of 15 times, the tuition at a for-profit sample was more expensive than its public counterpart, and 11 out of 15 times, it was more expensive than the private counterpart. Examples of the disparity in full tuition per program include: $14,000 for a certificate at the for-profit institution, when the same diploma cost $500 at a public college; $38,000 for an Associate's at the for-profit institution, when the comparable program at the public college cost $5,000; $61,000 for a Bachelor's at the for-profit institution, compared to $36,000 for the same degree at the public college. This is counter to International Education Corporation CEO Fardad Fateri's claims of the lack of use of unorthodox recruiting practices and a for-profit's "value" in an IEC open letter to Congress, the tuition cost of certificates and associate degrees being 28 and 6 times more than at a public college, respectively; Fateri writes, "Credit should be given to non-profit universities that have been able to convince students and their sophisticated parents to pay approximately $400,000.00 for an undergraduate degree that will seldom lead to an academically related career." However, the most expensive college in the United States, Sarah Lawrence College in Bronxville, New York, had a tuition cost of $41,040 for 2009 fiscal year, bringing the tuition of a four-year bachelor's degree to just above $160,000.
The institutions identified in the Committee hearing in respect to the GAO report numeration were:
- University of Phoenix - Phoenix, Arizona
- Everest Institute - Mesa, Arizona
- Westech College - Victorville, Ontario, Moreno Valley, California
- Kaplan - Riverside, California
- Potomac College - Washington, D.C.
- Bennett Career Institute - Washington, D.C.
- Kaplan - Pembroke Pines, Florida
- College of Office Technology - Chicago, Illinois
- Argosy University - Chicago, Illinois
- University of Phoenix - Philadelphia, Pennsylvania
- Anthem Institute - Springfield, Pennsylvania
- Westwood College - Dallas, Texas
- Everest Institute - Dallas, Texas
- ATI Career Training - Dallas, Texas
In 2010, students at for-profit institutions represented about 12% of all college students, but receive roughly 25% of all Federal Pell Grants and loans. They were also responsible for approximately 44% of all student loan defaults. University of Phoenix topped this list with Pell Grant revenue of $656.9 million with second and third place held by Everest Colleges at $256.6 million and Kaplan College at $202.1 million for the 2008-2009 fiscal year, respectively. In 2003, a Government Accountability Office report estimated that overpayments of Pell Grants were running at about 3% annually, amounting to around $300 million per year. Some of the universities that were top recipients of Pell Grants had low graduation rates, leaving students degreeless, and many graduating alumni found it excessively difficult to find gainful employment. with their degrees, leading some former students to accuse recruiters of being "duplicitous", and bringing into serious question the effectiveness of awarding Pell Grants and other Title IV funds to for-profit colleges. University of Phoenix's graduation rate is 15%. Strayer University, which reports its loan repayment rate to be 55%, only has a repayment rate of roughly 25%, according to data released by the U.S. Department of Education on August 13, 2010. The low repayment rate made Strayer ineligible for receiving further Title IV funds in accordance with new "Gainful employment" regulations brought forth by the Department of Education, which were to take effect in July 2011. If passed, the minimum loan repayment requirement for any institution receiving Title IV funds, subject to suspension and expulsion if not compliant, will be 45%.
In an August 4, 2010 Health, Education, Labor and Pensions Committee hearing, Gregory Kutz of the GAO stated that the fraudulent practices may be widespread in the For-Profit industry, noting a University of Phoenix executive chart that encouraged deceptive practices. Joshua Pruyn, a former admissions representative, disclosed to the committee hearing several internal emails distributed among admissions officers in March 2008 which encouraged applications and enrollments through the use of a commissions reward system. During a congressional hearing to present the report, Pruyn's testimony was disproven by tapes of conversations, and it was reported that Pruyn's comments were written by attorneys who were suing Westwood, and inappropriately coached by Chairman of the committee Senator Thomas Harkin staffers who organized the hearing. Sen. Harkin noted the conflict of interest due to the ACCSC, a national accrediting agency that accredits many for-profit colleges nationwide, receiving compensation directly from the institutions to which it awards accreditation. The Inspector General issued an assessment in late 2009 recommending the limiting and possible suspension or expulsion of the Higher Learning Commission of the North Central Association of Colleges and Schools due to conflicts in the manner in which the accrediting agency reviews credit hours and program length for online-colleges, specifically American InterContinental University, a for-profit college. The NCA HLC accredits the University of Phoenix and Everest in Phoenix, Arizona.
On November 30, 2010, the GAO issued a revised report, softening several examples from an undercover investigation and changing some key passages, but stood by its central finding that colleges had encouraged fraud and misled potential applicants.
In 2014, a criminal investigation of Corinthian Colleges was initiated.
Until 2015, The US Attorney General and at least eleven states maintained an $11 billion lawsuit against Education Management Corporation The US Consumer Financial Protection Bureau also has a suit against ITT Educational Services, parent company of ITT Tech. In 2016, Alejandro Amor, the founder of FastTrain, was sentenced to eight years in federal prison for fraud.
Attempts to regulate the industry
The US Department of Education (DoED) has proposed rules, "gainful employment regulations", that would provide more transparency and accountability to institutions that offer professional and technical training. According to DoED, this regulation is an attempt to "protect borrowers and taxpayers."
In his 2015 budget proposal, President Obama recommended greater regulation of for-profit education, including a closure of the loophole that exempted GI Bill money from being used in the 90-10 formula.
For-profit college lobbyists promote deregulation
Lobbyists for the for-profit higher education industry have taken several steps to stop regulation and to fight against transparency and accountability. They have also supported at least two lawsuits to squash gainful employment regulations.
For-profit colleges transitioning to nonprofit colleges
At least four colleges or universities have transitioned to nonprofit status: Keiser University, Stevens-Henager College, Remington College, and Herzing University. Journalists argue that these transitions are strategies to reduce state and federal regulations and to obtain more Title IV funds.
In 2014 Grand Canyon University considered a transition to nonprofit status. In March 2016, Grand Canyon's regional accreditation body, The Higher Learning Commission, formally rejected the university's petition for conversion to non-profit status. The commission's board of directors stated that the school did not meet all five criteria for "such a conversion".
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