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Report finds for-profit colleges serve shareholders over students

07/30/2012

The Washington Post - July 29, 2012

A Senate committee that successfully pressed for tighter regulation of the for-profit higher-education sector published a report Sunday that said the business had put shareholders before students.

As of 2009, the report said, three-quarters of students in for-profit colleges attended institutions owned either by publicly traded companies or private equity firms. It said the schools excelled at recruiting students, but not necessarily at retaining them: More than half of students at for-profit schools who enrolled in the 2008-09 academic year left without a degree, the report found. Half of all non-finishers ended their studies within four months.

The findings are in line with concerns voiced last year when the Education Department imposed stricter rules on for-profit schools that benefit from federal student loans.

The new report is titled “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success.” It concludes a two-year investigation by Sen. Tom Harkin (D-Iowa), chairman of the Senate Committee on Health, Education, Labor and Pensions. Including appendixes, the document totals about 800 pages.

Investigators studied operations at 30 for-profit higher-
education companies, including industry leaders Apollo Group, Education Management, DeVry and Kaplan. Kaplan is owned by The Washington Post Co.

“We uncovered two very big problems in for-profit higher education,” Harkin said in a statement. “One, billions of taxpayer dollars are being squandered. And two, many for-profit schools are doing real, lasting harm to the students they enroll.”

“Unfortunately, Senator Harkin’s report continues in the tradition of ideology overriding reality,” Steve Gunderson, a former congressman and president of the Association of Private Sector Colleges and Universities, said in a statement.

In a statement, Kaplan said the report “repeats previous criticism of the sector, and suffers from the same flaws, relying on dated and isolated situations to characterize current practices across many schools and programs.”

The report acknowledges that for-profit colleges “have an important role to play in higher education.” They have proven adept at serving the burgeoning population of nontraditional students with careers and families.

But for-profit colleges have failed to support those students, the report states, by prizing recruitment over retention. The colleges studied spent 23 percent of their revenue on marketing and recruiting, the report found, and 17 percent on instruction.

The publicly traded companies that operate for-profit colleges yielded an average profit margin of 20 percent in 2009 and paid an average $7.3 million to their chief executives, the report found.

The companies are successful largely because they charge high tuition. Associate-degree programs at for-profit colleges cost at least four times as much as comparable programs at public community colleges, $34,988 vs. $8,313, the report found. Internal company documents showed tuition hikes were enacted “to satisfy company profit goals,” rather than to cover increased costs of educating students, the report states.

Company documents reveal the recruitment effort at for-profit colleges as “essentially a sales process,” the report found; at many companies, everyone from the CEO to junior recruiters “was rated at least in part based on the number of students enrolled.”

As of 2010, the for-profit colleges studied employed 35,202 student recruiters, far more than the staff charged with supporting the students who had already enrolled.

Recruiters were trained to make a hard sell on potential students, the report found, pushing “on the pain in students’ lives” and creating “a false sense of urgency to enroll” as a path to a better life.

Some recruiters focused on society’s most vulnerable, the report found, including wounded soldiers at veterans hospitals. An internal Kaplan e-mail showed a recruiter left business cards at a public housing office.

For-profit colleges have grown dramatically over the past decade and now consume one-quarter of all federal student aid; for-profit students represent about half of all federal student-loan defaults.

The Obama administration moved in 2010 and 2011 with new regulations that, among other things, barred colleges from compensating recruiters on the basis of how many students they signed up, and required vocational programs to yield “gainful employment” for their graduates. Several large for-profit companies responded with internal reforms. But institutions continue to defy some of those regulations, the report found.