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For-Profit Colleges and Universities

July 11, 2014
Traditionally, we think of colleges and universities as being non-profit institutions, centers of research and academic study that educate our society and receive assistance from alumni, business communities and even governments to do so. As the cost of maintaining these institutions and educating generations has increased, so has the government’s role in subsidization and loan assistance, just two of the most prominent examples. Not-for-profit models of the education system allow both donors and the government to feel comfortable supporting institutions of higher learning without suspicion that their charitable donations will end up in investors’ pockets.

Author: Jessica Schneider, C’15

Traditionally, we think of colleges and universities as being non-profit institutions, centers of research and academic study that educate our society and receive assistance from alumni, business communities and even governments to do so. As the cost of maintaining these institutions and educating generations has increased, so has the government’s role in subsidization and loan assistance, just two of the most prominent examples. Not-for-profit models of the education system allow both donors and the government to feel comfortable supporting institutions of higher learning without suspicion that their charitable donations will end up in investors’ pockets.

For-profit colleges and universities are operating amongst us, and have been for decades, even centuries in the case of Strayer University, founded in 1892.[1] Proponents of for-profit colleges and universities argue that they create efficiency in the education market, and that they are able to focus on what the consumers, being the students, demand. If they are unhappy with the school’s offerings, they can bring their business elsewhere. Opponents of the system argue that much more effort is focused on recruiting students than their attendance and performance, leading to many students dropping out after accumulating high rates of student debt, but before obtaining a degree. Thus, the default rate on student loan debt from for-profit college and universities is much higher while the education companies make profits at an average of almost 20 percent.[2][3]


Source: http://www.eoionline.org/blog/senate-report-rips-for-profit-college-industry/

For-profit colleges and universities were relatively uncommon until 1992, when the U.S. House of Representatives Committee on Education and the Workforce changed federal regulations to include for-profit colleges and universities in federal aid eligibility.[4] The only stipulation then became the 90-10 rule, specifying that if an institution created enough value, than at least 10% of its students would be willing to pay full price, and the others would be eligible for financial aid, including that coming from the government.

Following this rule change, the number of for-profit colleges and universities expanded rapidly, and gave rise to large corporations that own many schools, such as the Apollo Group, Inc., which infamously owns the University of Phoenix.

In recent years, for-profit colleges and universities have begun to catch the eye of government regulators, especially after revelations that schools such as the University of Phoenix collected over $1 billion from the federal Pell Grant program in 2010. This money is not necessarily used to the benefit of students, who have high debt and default rates like any other for-profit university, but is instead taxpayer money used for marketing to attract more students, such as when the University of Phoenix agreed to pay $154.5 million for naming rights to the Arizona Cardinals football stadium.[5]

Deals such as these quickly drew the attention of elected officials paying out that taxpayer money, such as Senator Tom Harkin of Iowa, who launched a two-year investigation and produced a 5,000+ page final report detailing the companies’ practices.[6] Unfortunately there is no current policy in creation to re-write the rules allotting federal funds to for-profit colleges and universities, but thanks to increased scrutiny from policymakers and awareness, several groups are starting to see an impact, especially Corinthian Colleges, who recently announced that they would be throwing in the towel on its’ 107 campus and online degree programs after the threat of sanctions by the Department of Education along with ITT Technical Institute.[7]

Students deserve a quality education from an institution whose mission is to provide that degree of value, and taxpayers deserve to know that their hard-earned money isn’t going straight into the pockets of Wall Street investors. Senator Durbin, with whom I interned in the first part of this summer, cared strongly about holding these companies accountable and ensuring that our tax dollars were used to the benefit of the students. I could not agree more strongly, and will gladly assist and support any measures to do so. I urge you to do the same, for your own children and for your own money.

______________________________________________________

[1] http://www.strayer.edu/about

[2] “New Default Rate Data for Federal Student Loans: 44% of Defaulters Attended For-Profit Institutions”. Pew Charitable Trusts. December 15, 2009. <http://www.pewtrusts.org/en/about/news-room/press-releases/2009/12/15/new-default-rate-data-for-federal-student-loans-44-of-defaulters-attended-forprofit-institutions>

[3] http://americanradioworks.publicradio.org/features/tomorrows-college/phoenix/case-against-for-profit-schools.html

[4] Craig A. Honick (Fall 1995). “The Story Behind Proprietary Schools in the United States”. New Directions for Community Colleges 1995 (91): 27–40. doi:10.1002/cc.36819959105.

[5] http://sports.espn.go.com/nfl/news/story?id=2603052

[6]https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CCYQFjAB&url=http%3A%2F%2Fwww.help.senate.gov%2Fimo%2Fmedia%2Ffor_profit_report%2FContents.pdf&ei=I4-5U6j5ONCaqAbXoICQAQ&usg=AFQjCNGAmQYE11Ze-hqxd578f8IpG7sbbA&sig2=tJOKRtXR97K6eP9N5qNV1A&cad=rja

[7] http://www.marketwatch.com/story/corinthian-colleges-us-department-of-education-sign-operating-agreement-2014-07-03

 

 

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