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California Association of Private Postsecondary Schools

The Bane and the Boon of For-Profit Colleges

03/04/2014

The New York Times.  Feb 25, 2014.

Marc Jerome, the executive vice president of Monroe College, says his business is being unfairly targeted as corrupt.

The graduation rate at Monroe’s two New York campuses, in the Bronx and New Rochelle, is much higher than those at nearby community colleges. More than nine out of 10 of recent graduates tracked by the school in its latest survey either continued their education or found jobs; the survey was responded to by about 70 percent of graduating students, most of whom are low-income blacks and Latinos. And Monroe students have a lower default rate on student loans than the national average for public schools.

And yet, a frustrated Mr. Jerome told me, the college founded by his grandfather 80 years ago is being singled out as one of the bad guys: private, for-profit universities that lure poor, unprepared students with misleading ads that promise good jobs on graduation but discharge them with limited employment prospects and a crushing burden of debt.

For-profit colleges have come under a barrage of negative publicity, beentargeted by government investigators and been dragged into congressional hearings. They are on notice from the Education Department, which is expected to issue specific new regulations for them later this year.

“That is not good public policy,” Mr. Jerome said. “Targeting only for-profit institutions and exempting public or nonprofit institutions with poor outcomes is ultimately more harmful to the students the administration is seeking to protect and could ultimately drive them to schools with lower graduation rates, higher default rates” and weaker potential for future earnings, he said.

For-profit colleges in many states are lightly regulated, and some haveengaged in egregious fraud, including deceptive marketing. They tend to charge higher tuition than community colleges, which get direct funding from states. Their students take on more debt, have a tougher time repaying it and suffer higher unemployment rates. Still, Mr. Jerome makes an important point: Private for-profit institutions are indispensable players in American higher education, filling a gap that other schools neglect. The goal should be to improve the sector, not shrink it.

For-profits make up the fastest-growing segment of higher education, accounting for 20 percent of the two-year associate’s degrees granted in the United States, up from 8 percent two decades ago. Their share of bachelor’s degrees has risen to 7 percent, from virtually nothing.

They have achieved these gains even though their students are poorer and more diverse than those attending state institutions and private nonprofit colleges, according to research by David Deming, Lawrence Katz and Claudia Goldin of Harvard University.

They are better than community colleges at graduating students from two-year programs. And they are more nimble at tailoring their courses to the shifting realities of the job market.

“They can very quickly develop a curriculum and hire faculty to offer a credential in, for instance, how to work in a clean room in a nanotech facility,” John D’Agati, deputy commissioner for higher education at the New York State Education Department, told me. “In traditional colleges you have an internal process that is very slow.”

For-profits, Mr. D’Agati added, will also take a chance that many other schools won’t on older students who might have had poor grades in high school but are now more mature and ready to advance their education.

Most important, nobody else is stepping up to fill the growing demand for a higher-education degree. “They are adding to the supply,” said Mr. Deming, an assistant professor of education and economics at Harvard’s Graduate School of Education. “They are reaching students in a different way, opening in places where there are no community colleges. They are filling in the cracks.”

Between 1995 and 2011 the share of Americans who earned a bachelor’s degree rose to 39 percent, from 33 percent. But the jump was much greater in the industrial nations of the Organization for Economic Cooperation and Development as a whole, where the share increased to 40 percent, from 20 percent.

But American graduation rates from two-year colleges have grown faster than in other industrial countries, jumping to 12 percent, from 9 percent, over the same period to exceed the O.E.C.D.’s 11 percent. Schools pursuing the profit motive account for much of that increase.

The Education Department hopes to regulate the sector as vocational education. Under federal law, all programs offered by for-profits — like nondegree certificate programs at other institutions — must prepare students for “gainful employment in a recognized occupation” to remain eligible for federal aid.

Until the Obama administration took office, nobody had bothered to codify what “gainful employment” meant. But proposed new rules that the Education Department submitted to the White House in January, after months of debate with both advocates for and critics of the sector, will define it in terms of students’ ability to repay their college debt.

Degree programs at for-profits will pass the test — and retain eligibility for federal student aid — if the default rate of their students remains under 30 percent, according to the last draft released by the department. And graduates’ debt service will have to consume no more than 8 percent of their earnings and 20 percent of their disposable income.

This approach satisfies few. For-profit colleges say they are being held to a higher standard than public and nonprofit institutions, whose degree programs don’t have to meet any such requirement. Mr. Jerome also complains that such colleges are being pulled in different directions by different regulators: Even though the federal government may define Monroe to be vocational, New York State requires it, like any other college, to offer liberal arts credits that may not immediately turn a profit in the job market.

Mr. D’Agati, the state education official, sympathizes. “You can’t just offer a course where all 60 credits are how to weld,” he said. “But that also means you can’t turn around and say, ‘O.K., but your student didn’t get a job as a welder.’ ”

On the other side of the fence, student advocates and other critics of for-profit schools complain that the regulations inadequately protect low-income students.

Professor Deming worries that regulations might simply encourage for-profit schools to be more careful at selecting students, screening many out to improve their scores. “Schools are going to push certain students out,” he said. “Do we want that to happen? It certainly will.”

Ben Miller, an expert on education policy at the generally liberal New America Foundation, is sympathetic to the Education Department’s effort but argues that the proposed rules don’t directly address high dropout rates. And they would allow the continuation of many programs that fail to significantly improve the earnings of their graduates.

“ ‘Gainful employment’ only tries to get at excessive debt that students can’t handle,” Mr. Miller said.

An alternative would be to require for-profit schools to meet the same accreditation and quality standards as any other institution of higher education. “I understand why the federal government is using gainful employment as an indicator of success,” said Mr. D’Agati. “But it might not be the best indicator.”

In any event, advocates for stricter regulation of private, for-profit colleges should recognize there is a trade-off. The United States must satisfy a growing demand for higher education, particularly from low-income students. If for-profit colleges are discouraged from fulfilling it, somebody else has to.