Scathing report on for-profit colleges and their $32 billion in tax dollars

The for-profit colleges are taking billions in tax dollars with little to show for it, according to a report that will be issued today from a U.S. Senate committee.

Despite $32 billion in federal student aid to the colleges, most of the students never earn a degree, indicating that taxpayers are being saddled with a losing investment. However, the for-profits colleges don’t fail everyone, least of all their executives  — the CEOs of the colleges were paid an average of $7.3 million, according to the report.

The scathing report states that more than 80 percent of the for-profit college revenues comes from taxpayers. Because of its larger and larger claim on tax dollars, the for-profit college industry has come under greater scrutiny. Latest numbers show that the for-profits enroll 13 percent of the nation’s college students. Yet, those students represent nearly half of all the defaults on college loans.

And government loans are the oil that keeps the for-profit college industry running. Nearly  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.

According to Sen. Tom Harkin, who led the Senate investigation:

According to The New York Times:

“In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation,” Mr. Harkin, an Iowa Democrat who is chairman of the Senate Health, Education, Labor and Pensions Committee, said in a statement on Sunday. “These practices are not the exception — they are the norm. They are systemic throughout the industry, with very few individual exceptions.”

In a statement on Sunday, the Association of Private Sector Colleges and Universities, the leading trade group of for-profit colleges, called the report “the result of a flawed process that has unfairly targeted private-sector schools and their students.”

Over the last 15 years, enrollment and profits have skyrocketed in the industry. Until the 1990s, the sector was made up of small independent schools offering training in fields like air-conditioning repair and cosmetology. But from 1998 to 2008, enrollment more than tripled, to about 2.4 million students. Three-quarters are at colleges owned by huge publicly traded companies — and, more recently, private equity firms — offering a wide variety of programs.

Enrolling students, and getting their federal financial aid, is the heart of the business, and in 2010, the report found, the colleges studied had a total of 32,496 recruiters, compared with 3,512 career-services staff members.

Among the 30 companies, an average of 22.4 percent of revenue went to marketing and recruiting, 19.4 percent to profits and 17.7 percent to instruction. Their chief executive officers were paid an average of $7.3 million, although Robert S. Silberman, the chief executive of Strayer Education, made $41 million in 2009, including stock options.

With the Department of Education seeking new regulations to ensure that for-profit programs provide training for “gainful employment,” the companies examined spent $8 million on lobbying in 2010, and another $8 million in the first nine months of 2011.

Many of the for-profit colleges, the report found, set tuition at almost exactly what a student could expect in maximum federal aid, including Pell grants and Stafford loans. According to a Bridgepoint Education document, when a new $400 “digital materials fee” would make students pay more than would be available from federal aid, the chief executive frantically wrote an e-mail to the finance officer to complain that the change was going to cause a “shortfall.” And documents from Alta Colleges mention restructuring schedules “so we can grab more of the students’ Stafford.”

–From Maureen Downey, for the AJC Get Schooled blog

49 comments Add your comment

Double Zero Eight

July 30th, 2012
10:45 am

I had to re-read the section that stated
the CEOs were paid an average of 7.3 million.
That pretty much sums it up. They are grossly
overpaid, and most of these institutions are
more concerned about the money coming in,
instead of the success of their students.

destin dawg

July 30th, 2012
10:47 am

why are tax payers subsidizing this ? students should go to public schools or community collge and live at home.. better choice for many is Vo Tech.. we need electricians, plumbers, nurses, welders, etc.. learn how to DO SOMETHING .. not Liberal Arts, English, Lit. physcolgy… we sure don’t need more lawyers !!!!

Tired

July 30th, 2012
10:52 am

How sad that this market (non-traditional students) is being so exploited.

Eric

July 30th, 2012
10:53 am

This is absolutely sickening. The simple solution to the ever growing student loan crisis is stricter regulation on the federal loans being doled out. As these schools only exist as income sources to the investors and executives, make them accountable for their schools. Cut off federal funding until they begin to operate in the proper educational model and provide assistance and career development for their students.

The federal loans that are issued to for profit schools should be severely restricted as the taxpayers are the only ones who pay for the opportunity for these students to attend a few classes (before most drop out). If the federal loans were severely restricted at these schools, the default rate would decrease dramatically.

This is eerily similar to the housing crisis. Not everyone deserved to own a home, as they were not responsible enough for a multitude of reasons. For the same reasons, not everyone should go to college. The US needs to further embrace public trade schools, community colleges and professional apprenticeships as an alternative to public/private non profit higher education. These alternatives offer lower cost with a higher potential ROI.

dc

July 30th, 2012
10:54 am

unfortunately this is completely a result of the current student loan program, as set up by the govt. If the companies providing these loans had to deal with potential bankruptcy, they would be much more careful about loaning money to students that were pursuing a worthless degree…or no degree at all. Sadly, another example of how a “well intended” program causes major issues – saddling students w/ debt they can’t possibly repay, allowing schools to drive tuition and fees through the roof, etc. When are we ever going to learn….keep the govt focused on what it does best, and quit allowing politicians to remove the “risk” from marketplaces. that always ends badly.

Chunter

July 30th, 2012
11:04 am

Time to yet again beat the drum against “profit” and “greed”?

And is this the same Sen. Tom Harkin (D-Iowa) who’s been around in Congress since 1974? He seems to find lots to complain about—without ever once looking in the mirror.

Actually, those best able to determine which schools are most worthy of funding are parents themselves. But of course, they tend to pick schools for reasons other than what Sen. Harkin’s teachers’ union supporters might deem critical.

NONPC

July 30th, 2012
11:19 am

I can see the case for and against for-profit colleges. I think the solution here is to not lend more than the prevailing rate for local public colleges, and to require the same admissions standards of the local public colleges.

Progressive Humanist

July 30th, 2012
11:20 am

Simple answer: Make for-profit schools ineligible for student loans. Then we’d see the real free market at work. Only the truly effective schools would survive, and we’d see an expansion of the cheaper but more effective community colleges.

And it’s not just the fact that most students don’t finish their degrees at for-profit schools that’s a problem. Even those who do finish are unlikely to find good work as a result of their degree. If they do find a good position then it’s probably something they were qualified for without the online degree.

For-profit schools should go back to their roots: DeVry-type schools. There is a legitimate need to specialized vocational training- electronics, welding, automotive, etc. But cosmetology? That’s one of the lowest paying professions in the country, so people are going 80k in debt so they can earn 20k a year. The same can be said for culinary institutes. And the liberal arts are going in that direction. Prospective students need to begin weighing the costs and benefits, but the federal government should stop enabling the reckless behavior by eliminating loans, and the for-profit colleges should be held accountable for misleading and exploiting students. It’s bad for the nation.

meno

July 30th, 2012
11:20 am

We should not overlook the implications this report has for the view that the private sector can take care of things if we just de-funded government. This report seems to indicate that public institutions are giving taxpayers much greater bang for the buck and are doing it without the profit motive being the primary driver.

Rockerbabe

July 30th, 2012
11:21 am

When are these folks, whoever these folks are, going to realized that for-profit companies [yes these colleges are for-profit companies] are always going to put the managment and the investors needs way in front of the student’s needs. NO ONE, should have to pay ivy league tuition for subpar education.

Our non-for profit schools, should get togther and develop curriculums that meet the needs of the students for education and training and NOT leave this to for profit schools, which are most obviously, not doing the job in any way that is adequate or in keeping with the undeserved large salaries the management team is being paid.

I say, Arne Duncan, Sec of education, should just declare these folks incompetent and stop paying them all of this taxpayer money for absolutely nothing.

MM

July 30th, 2012
11:28 am

What a steep price to pay for our “free market” obsession! Not as bad as our health care system which has the highest price in the world with shabby results overall. Myths die hard especially if you’re as hard-headed as we are.

Another case of the best Congress corporate America can buy.

Shar

July 30th, 2012
11:30 am

Colleges should be de-certified from public scholarship programs if they fail to graduate a certain percentage of their students or if the students cannot find employment in the field studies and thus cannot pay back the loans.

That way, the DeVry-type schools that turn out employable graduates demanded by the market would continue to function, but the others would immediately shut down. And good riddance to them.

no great choice

July 30th, 2012
11:35 am

If the for profit schools go away, where will most of the DeKalb Central Office employees earned their doctorates?

bootney farnsworth

July 30th, 2012
11:36 am

I agree with progressive two days in a row.

surely we are living in the end times…

I might alter his idea a bit however. instead of making them ineligible for students loans, make payment of loans contingent on 1-graduation and 2- their ability to place a student in a real job.
that way if they actually do produce some goods worthy of support, we support it. but the end of the blank check is way overdue

bootney farnsworth

July 30th, 2012
11:38 am

I do find it odd we the people are supporting a profitable business. if they can afford those kind of administrative paychecks, they can afford to lower tuition.

bootney farnsworth

July 30th, 2012
11:43 am

I have been howling about “big education” for some time now. both private and public are playing shell games with everybody-themselves included.

when this blows – and it will blow, sooner than later- it will make the housing bust look like a mild inconvenience. I’d bet my house Obama is going to try to launch some kind of student loan bailout in the fall.

Coco

July 30th, 2012
11:44 am

Why is someone from the senate decrying these figures? Who wrote and passed the laws that make all this possible?

curious

July 30th, 2012
11:44 am

Wait until school vouchers are approved and private (for profit) elementary and secondary schools come out of the woodwork.

You ain’t seen nothing, yet.

bootney farnsworth

July 30th, 2012
11:46 am

if you want to know why vouchers as promoted are a bad idea, look at the mess called higher education

Tyesha

July 30th, 2012
11:46 am

With the proliferation of for-profits you wonder how much longer prospective employers will take degrees from those outfits seriously. Now anyone can call themselves a college. A storefront ESL language school in a strip shopping center near me recently became a “college”.

Kay G. Baxter.

July 30th, 2012
11:53 am

This scam will look like chicken feed once vouchers come into effect.

bootney farnsworth

July 30th, 2012
12:01 pm

here is the real, ugly truth about the US economic system. something neither Boortz (totally free market) and Obama (economic fascist) will say, but anyone with a brain knows to be true.

the economy runs best with minimal gov’t intervention. every time the gov’t gets involved in funding something, costs shoot thru the roof. and most gov’t regulations on business are stupid, unnecessary, and aimed at enforcing a code of personal behavior.

that said, the free market without restraint is societal cannibalism. anyone my age remembers reading about Robber Barons. anyone who doesn’t recognize the term needs to look it up. the economy didn’t implode just because of gov’t driven home loans. it imploded because the ponzi games wall street played (many proven illegal) left them with no reserve when the mortgage disaster hit. Enron, Goldman Sacs, Countrywide, hell even GPC are all classic examples of what happens when corporations are run without restraint.

its truly a breathtakingly simple thing – gov’t needs to establish basic acceptable guidelines for the economic system and get out of the way until guidelines are broken. business needs to establish ethics codes based on the guidelines and honor them.

because of our societal inability to learn this basic lesson, we’re about to face another major fiscal crisis over education. question becomes, can we survive it?

bootney farnsworth

July 30th, 2012
12:07 pm

the term “college” is rapidly becoming something akin to the political use of the word racism. it is so over used in so many inappropriate and unnecessary ways it carries less and less weight with each usage.

kip

July 30th, 2012
12:11 pm

The irony is, the only field that respects degrees from these diploma mills is education. There are numerous teachers and administrators in metro Atlanta schools who have purchased doctoral degrees in order to make a higher pay grade. I don’t fault them for their logic. If they stay x number of years, the high cost of the degree will pay for itself. But many of them are borderline illiterate, lacking basic reading, writing and math skills. They hold “degrees” from “schools” such as Argosy.

Interestingly, we rarely talk about the fundamental problem with online education. Even assuming the institution is legitimate in the sense it provides a sound education- a big assumption – how do the people on the other end of the computer have any idea as to the identity of the student submitting the work, taking the tests, participating in discussion forums? There is already a shadow network of people who pose as online students for a fee. Again, it will cost you money to pay them on top of the already steep tuition. And, no one will take your degree seriously, so good luck finding a job. Unless, of course, you work in APS, DeKalb County Schools, etc. Only then can you cash in on this scam.

Chris

July 30th, 2012
12:17 pm

There are too many people going to college now who don’t belong in college. We must develop alternatives for career development and learning.

williebkind

July 30th, 2012
12:25 pm

destin dawg

July 30th, 2012
10:47 am
Holy Cow I am not the only one!

williebkind

July 30th, 2012
12:26 pm

Make school voluntary!

HR Professional

July 30th, 2012
12:45 pm

Most employers don’t put a high value on these degrees anyway and some even question the sensibilities of anyone who would enroll in one of the programs. You would think that would be enough to keep people from going this route. But sadly it is not until they graduate with their freshly minted degree from Joe Blow University and realize they wasted their time and money. Sad. Sad.

Prof

July 30th, 2012
12:51 pm

I want to emphasize what is noted in passing by Progressive Humanist at 11:20 am and at greater length by kip at 12:11 pm. FOR-PROFIT COLLEGES AND UNIVERSITIES OFFER SOLELY ONLINE EDUCATION AND ONLINE DEGREES. Their abuses are now coming to light, and so is the general worthlessness of degrees from such diploma mills. Reputable educators already knew this.

Somehow, this seems to fit with yesterday’s blog topic involving Dr. Bhuiyan who is touting the “ubiquitous online courses and programs” as the wave of the future. That may be so to some extent; thus see the blogger on that thread who cited Georgia Tech’s new Strategic Plan that utilizes online courses.

But right now, the for-profit institutions such as the University of Phoenix and Argosy University pretty much shape the way that online degrees are viewed– as a “scam,” as kip puts it.

Prof

July 30th, 2012
1:07 pm

Please note that for-profit colleges and universities offer solely online education leading to online degrees and are generally known as “diploma mills,” largely for the reason identified by kip at 12:11 pm.

This probably is a significant reason for the resistance that many presidents of non-profit colleges and universities show to online programs–they are afraid that it will affect the reputation of their own degrees. No-one wants one’s school to be known as a “diploma mill.”

curious

July 30th, 2012
1:37 pm

bootney farnsworth
July 30th, 2012
12:01 pm

“the economy runs best with minimal gov’t intervention”

I prefer “OPTIMAL”. The difficulty is determining optimal.

curious

July 30th, 2012
1:37 pm

bootney farnsworth
July 30th, 2012
12:01 pm

“the economy runs best with minimal gov’t intervention”

I prefer “OPTIMAL”. The difficulty is determining optimal.

HR Professional

July 30th, 2012
1:40 pm

Most employers don’t put a high value on these degrees anyway and some even question the sensibilities of anyone who would enroll in one of the programs. You would think that would be enough to keep people from going this route. But sadly it is not until they graduate with their freshly minted degree from Joe’s University and realize they wasted their time and money. Sad. Sad.

Guest

July 30th, 2012
2:06 pm

@ destin dawg

“physcolgy”

Not even close, my friend.

Hillbilly D

July 30th, 2012
2:41 pm

I thought all colleges were for profit colleges.

Prof

July 30th, 2012
3:42 pm

@ Hillbilly D. For-profit colleges are operated by private, profit-seeking businesses; and their main emphasis is not education but making money. And an online diploma mill makes money, never mind whether its students have really done the work themselves, its faculty have any national reputation in their fields, or the required classwork has any educational rigor at all.

Tired

July 30th, 2012
4:24 pm

“With the proliferation of for-profits you wonder how much longer prospective employers will take degrees from those outfits seriously.”

Tyesha, you’re assuming that anyone currently takes these degrees seriously. I honestly don’t know of any company or non-profit that does.

Progressive Humanist

July 30th, 2012
4:55 pm

Hillbilly D- Actually, at most public universities the amount that students pay for tuition does not cover the full cost of their education; it covers something like 70-80% of it and tax dollars, grants, etc. subsidize the rest. So if a student is charged $4000 per semester, it actually costs the university $5000 to educate that student for the semester. The money certainly isn’t going to professors, who don’t make that much. The reason tuition costs keep going up is that state governments are paying less and less towards university costs, so the students have to make up for that gap. Now, you can make the argument that universities should be more efficient with their spending and don’t need the grand facilities that many of them have built in recent years, but that’s a somewhat different argument. The point is that public colleges can’t even cover the cost of a student’s education based on tuition alone, so they aren’t profiting from what is really a shortfall.

bs doth not a degree make

July 30th, 2012
8:48 pm

What a scam. It’s a good thing these a private colleges, huh. Because I just cannot imagine the public outrage if this were happening at a public school, using tax dollars. And yes, that is sarcasm.

Wondering

July 30th, 2012
9:27 pm

Just wait and the federal government will start offering student loans to k-12 students looking to attend private, for profit schools or charter schools that pay for-profit companies to run the school. Why not? It’s simply competition. Think about this when you vote in November.

William Casey

July 31st, 2012
11:18 am

Alas, whenever the Federal Government attempts social progress (broadening access to higher education) slick operators come in, figure ways to game the system and siphon off milions. I saw it up-close-and-personal with Great Society job training programs in the late ’60’s. Same thing with these faux colleges now. Sadly, it’s enough for politicians to be able to give the appearance of doing something worthwhile. Real results seldom matter.

Patrick Shane

July 31st, 2012
2:59 pm

Student debt is stunting the growth of the economy.

Student loans have increased by 275% over past decade. As the next generation graduates from college, they are plagued by insurmountable debt that places demands on their income, limiting their ability to spend their earnings in ways that stimulate the economy.

http://www.youtube.com/watch?v=mRA9ndc1pCM

FCHSGC

July 31st, 2012
10:09 pm

I work closely with the very students who are targeted and, dare I say, preyed upon by for-profit colleges. These kids have not generally been very successful in high school, but good enough to graduate. Suddenly someone is blowing up their phone telling them they got a scholarship from the school and that the rest of the tuition will be paid by federal student loans. These kids never thought they’d be able to go to college “for free,” and seldom do they have any immediate family members who have attended college or understand that this is a scam.

I tell students that the more hard-sell communication they receive from a college, the LESS interested they should be in that program. Good programs sell themselves, and often they aren’t nearly as expensive as the for-profit. Most of those schools are not accredited, and students find that if they do transfer to a community college or tech school, any credits they earned are not transferable.

It’s shameful that who can least afford it and who have the least knowledge about higher ed are regularly scammed for our tax dollars.

Warrior Woman

August 1st, 2012
12:05 pm

@destin dawg – Most of the for-profit schools are vo tech.

@ Progressive Humanist – The for-profit schools in question are the DeVry schools and similar ones. DeVry’s cohort default rate for 2009 is 14.2%, compared to the national cohort default rate of 7.2% for public schools, 4.6% for private schools, and 15% for all proprietary (for-profit) schools. In general, proprietary schools are not a good educational value.

@Tyesha – I don’t think any employers currently take degrees from for-profit schools seriously. Lack of employment opportunities, even for students finishing the program, are part of the reason for the excessive default rates.

Warrior Woman

August 1st, 2012
12:20 pm

@Prof, kip, and Progressive Humanist – It is a completely false statement that for-profit schools offer only online degrees or online education. According to the Department of Education, for-profit schools include both online and classroom schools, such as DeVry, ITT Tech, various beauty schools, schools for medical assistants, etc., in addition to places like University of Phoenix, Strayer University and similar schools.

hssped

August 1st, 2012
12:24 pm

The really sad thing is that most of the “people” in charge in the world of education (from the DOE on down to the local school system) have these crap degrees. Maybe that is why we (GA) are on the bottom of the dumb list?

Warrior Woman

August 1st, 2012
12:26 pm

For those of you comparing federal student loans to for-profit colleges to voucher systems, perhaps you should look at the Department of Education report. Loans to students at private universities are much less likely to default than loans to students at public universities, which in turn are much less likely to default than loans to students at for-profit institutions. Where is your evidence that private schools vouchers are more likely to perform like the for-profits than the privates?

Pride and Joy

August 4th, 2012
7:42 am

destin dawg, have you ever peeked outside your house or maybe even stepped foot outside your neighborhood? You wrote that kids should live at home and go to community college.
You assume that kids CAN live at home. I’ve been on my own since I was seventeen years old, barely seventeen. I didn’t have a home to live in my senior year of high school. I bunked on a friend’s couch to get through my senior year of high school.
Your assumptions are as ignorant as those made my the silly administrators at my college. They sent a note around that we had to move all of our stuff out of the dorm over Christmas and Spring break. Take it home with you, they demanded and bring it back when Christmas break was over.
The dorm was my home. I had no other place to go. You and your kind need to think about how others live.
I got my education and I have a home to live in now and God willing, my children will have a place to go but….many kids aren’t so lucky. Put your thinking cap on before you tell other people what to do. THey don;t have the same options as yo enjoy..

paco lolo

August 5th, 2012
9:21 am

i can tell you from experience that it’s all about the all mighty dollars! We were told to sell Bachelor’s instead of Associate’s Degree because the Bachelor’s Degree is significantly more! Management and CEO’s do not care about the employees! We were push to sell, while management and CEO reap all the benefits by receiving huge bonuses, even brand new luxury cars, and they would find excuses not to give us raises! Management got more stingy as they recieve huge payouts, even to the point of no water or coffee were given to us during our monthly meeting! I hope Congress do something about this huge Corporate greed !