Sticking on the topic of for-profit colleges for another week. There may have been some disagreement over the positive outlook on these schools in last week's blog, but they do seem to be holding up, even in a slow economy. At least the one where I work doesn't appear to be short on prospective students. Anyhow, I'd like to dig back into some older articles over the next couple of weeks. In the meantime, I'll be tackling the usefulness of teacher tenure, as well as the idea of running schools like businesses -- good or bad idea?
By Jim McGrath
Because of its business model, some may question the reason for governmental scrutiny being placed on for-profit colleges. To fully understand the breadth of the argument from either side, there are several topics to take into consideration.
Scope of the Market
Without question, the for-profit, or proprietary, college industry is a growing business. According to an October 2010 Washington Post article, one of every 10 postsecondary students is now served by this sector of the education market. The report states that roughly 25 percent of federal Pell grant funds go to for-profit school students. In terms of the amount of federal financial aid being dispensed, a December 2010 article from the Lexington (KY) Herald-Leader notes that the share of money received has increased from $4.6 billion in 2000 to $26.5 billion last year.
Another number to consider is 225. This represents the percentage growth of enrollment at 14 publicly traded for-profit college chains between 1998 and 2008, according to a study conducted by the St. Petersburg Times last December. Since 1998, the number of students in these proprietary schools has now reached 1.4 million.
Need for Government Income
According to the same Times study, the for-profit college industry depends on public money, much of it financed from the federal government. In fact, 80 percent of the income collected by these schools is in the form of student loan aid. While representing 25 percent of student borrowers, for-profit students also account for approximately the same percentage of funds borrowed. In short, one-quarter of federal funding goes to students enrolled in proprietary schools. This may explain the concern from the government as to how useful this money is being spent.
Because much of the federal government student aid money is going to for-profit college students, lawmakers at the local and national levels have started to emerge with questions about the usefulness of this type of spending. On the other side, proponents of proprietary education have stepped up their efforts to deflect these criticisms, through the use of advertising campaigns, hiring of lobbyists or position pieces in educational journals and newspapers.
Response from the Obama Administration
Over the past several years, states have put more restrictions on for-profit schools, including acts which make them adhere to the same accreditation standards as non-profit colleges. For example, in Virginia, all non-profit and for-profit colleges are now required to adhere to the standards set by SCHEV (Schools and Colleges of Higher Education in Virginia). This upgrade of accreditation standards, which became required in the late 2000’s forced several for-profit schools to close its doors. Others chose to change their business model, changing their brand name and offering only two and four year degree majors, while dropping its certificate programs. Many adjusted their curriculum to emulate the semester model used by public institutions, thereby allowing for an easier transfer of credits for students who wished to pursue higher education at a four-year school after graduating from the proprietary school.
However, lawmakers in a number of states have noted the higher loan default rate of for-profit school students when compared to their non-profit brethren. Federal data acquired for the Washington Post article show that 11.6 percent of for-profit borrowers default within their first two years, as opposed to six percent from public colleges and four percent from private, non-profit institutions.
Because of this new concern, the Obama administration has taken notice. While continuing to recognize for-profit schools as a way of educating American students and achieving the goal of having the highest percentage (by country) of graduates by 2020, Arne Duncan, the Secretary of Education, has agreed to meet with for-profit school owners on a number of issues. According to the Post, among the issues to be discussed will be the plan to implement several rules requiring more disclosure from the schools, especially on topics such as graduation rate, issuing federal aid based on job placements among graduates and prohibiting recruiter payment based solely on the number of students enrolled. Duncan promises flexibility, but says that his department wants to “get it right.”
Conclusion
The for-profit education sector is rapidly growing, but can be expected to face more governmental regulations in the coming months. These new mandates will primarily address the issue of federal financial aid being tied to a school’s job placement rate and requiring for-profit schools to disclose graduation rates. Also, according to a Washington Post article from December 2010, there may be reinforcement of a federal law which prohibits school recruiters from being paid solely based on the number of students they enroll.
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