Why do Americans mistrust for-profit universities?

Short, but important, piece.  Here's an updated link to the U.S. Senate Report mentioned within.  For profit institutions receive billions of dollars in student aid from the U.S. government.  We should consider that the growth of such institutions is correlated with a lack of financial support for public institutions that have educated the very students that these for-profit institutions are targeting, e.g., non-traditional, frequently older students, low-income minorities, and the like.
-Angela

The Economist explains

Why do Americans mistrust for-profit universities?

Jul 2nd 2013, 23:50 by B.R.

A RECENTLY announced tie-up between the Thunderbird School of Global Management, a business school based in Arizona, and Laureate, a privately owned higher-education firm, has antagonised students. A petition, signed by around 2,000 Thunderbird students and alumni, claims that their degrees will be cheapened by the association with a for-profit organisation. Why do Americans mistrust firms that make a profit from educating students?

America has a long history of for-profit colleges. They once fulfilled an important role in the country’s education system. Traditionally, they were small and tended to offer vocational qualifications or part-time programmes to cater to working adults. But over the past three decades, for-profit higher education has grown quickly. In 1980, just 1% of American students were enrolled at a for-profit college; by 2008, 8% were. Among black and Hispanic students, who are under-represented at traditional universities, the proportion is far higher. Much of this increase is due to the rise of mega-institutions that offer huge online programmes. The largest is the University of Phoenix, which is owned by the Apollo Group, a publicly traded company. In 2010, nearly half a million students were enrolled on its degree programmes.
As the sector has grown, so has the criticism. This culminated in a report published by a Senate committee last year. It found that for-profit colleges received $32 billion from the US government in student aid in the 2009-10 academic year. They also charge far higher tuition fees than comparable state universities. Yet they spend much less per student on instruction. Indeed, they typically spend a lot more on marketing their courses than they do on teaching them. This may explain why the majority of students on their degree programmes drop out long before they graduate. In 2008-09 the median length of study for a student at a for-profit university was just four months. The inference is that for-profit universities recruit anyone who is eligible for Federal funds but care little about what happens to them afterwards.
Such a business model is not sustainable. As their image has deteriorated, enrolments have started to fall. In 2011, the number of students attending such institutions fell by 2.8%, compared with a drop of 0.2% across the whole university system, according to the National Center for Education Statistics. Some think their decline will be exacerbated as more prestigious universities move into online education and offer more flexible degree programmes. The government, too, is likely to become more picky about which colleges it doles out money to. So for-profits may have to change tack. Many traditional American universities are strapped for cash. So higher-education businesses might try to partner with them. In return for a cut of the profits, firms can offer their expertise of running big online courses and opening lucrative foreign campuses. In return, they get to use the universities' good names. Indeed, this is the thinking behind the Thunderbird-Laureate deal. It seems the perfect solution. But only if they can keep the revolting students in check.

n+1: Bad Education

Malcolm Harris lays out the student loan debt crisis that we're in. It mirrors the pre-crisis housing market:

"The loans and costs are caught in the kind of dangerous loop that occurs when lending becomes both profitable and seemingly risk-free: high and increasing college costs mean students need to take out more loans, more loans mean more securities lenders can package and sell, more selling means lenders can offer more loans with the capital they raise, which means colleges can continue to raise costs. The result is over $800 billion in outstanding student debt, over 30 percent of it securitized, and the federal government directly or indirectly on the hook for almost all of it."

The way that the working class is getting denied "debt opportunities," if you will, that are available to the middle class that has had greater opportunity in securing four-year college degrees, is through the for-profits like the University of Phoenix or Kaplan. Check out these statistics and this narrative that suggest very real scamming that is taking place currently:

"While the debt numbers for four-year programs look risky, for-profit two-year schools have apocalyptic figures: 96 percent of their students take on debt and within fifteen years 40 percent are in default. A Government Accountability Office sting operation in which agents posed as applicants found all fifteen approached institutions engaged in deceptive practices and four in straight-up fraud. For-profits were found to have paid their admissions officers on commission, falsely claimed accreditation, underrepresented costs, and encouraged applicants to lie on federal financial aid forms. Far from the bargain they portray themselves to be on daytime television, for-profit degree programs were found to be more expensive than the nonprofit alternatives nearly every time. "

Despite this, corporate interests that include The Washington Post Co. University of CA Regent Richard Blum (husband to Senator Dianne Feinstein) means that this for-profit sector is among the fastest growing one in higher education.

The growing debt amount is staggering foreshadowing the possibility of massive default. However, Federal policy via Student Loan Asset-Backed Security (or SLABS)has insulated investors to date. As long as the status quo prevails, universities can keep simply raising tuition costs. However from the consumer side, a $200,000.00 education-related debt should very well provide something to show for it at the end of the day. And it should minimally command a labor market advantage that will actually allow them to get out of debt. A more despairing, if growing scenario, is highly indebted class of college graduates that must go into greater debt to pay off student loans. And student debt is particularly punishing:

"Not only is it inescapable through bankruptcy, but student loans have no expiration date and collectors can garnish wages, social security payments, and even unemployment benefits. When a borrower defaults and the guaranty agency collects from the federal government, the agency gets a cut of whatever it’s able to recover from then on (even though they have already been compensated for the losses), giving agencies a financial incentive to dog former students to the grave."

Another trend is the hiring of top-level, very highly paid administrators with concomitant dips in instruction and student services:

"If current trends continue, the Department of Education estimates that by 2014 there will be more administrators than instructors at American four-year nonprofit colleges. A bigger administration also consumes a larger portion of available funds, so it’s unsurprising that budget shares for instruction and student services have dipped over the past fifteen years."

All very sobering and concerning.

-Angela


n+1: Bad Education

The Project On Student Debt estimates that the average college senior in 2009 graduated with $24,000 in outstanding loans. Last August, student loans surpassed credit cards as the nation’s single largest source of debt, edging ever closer to $1 trillion. Yet for all the moralizing about American consumer debt by both parties, no one dares call higher education a bad investment. The nearly axiomatic good of a university degree in American society has allowed a higher education bubble to expand to the point of bursting.

Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation. To put that number in perspective, housing prices, the bubble that nearly burst the US economy, then the global one, increased only fifty points above the Consumer Price Index during those years. But while college applicants’ faith in the value of higher education has only increased, employers’ has declined. According to Richard Rothstein at The Economic Policy Institute, wages for college-educated workers outside of the inflated finance industry have stagnated or diminished. Unemployment has hit recent graduates especially hard, nearly doubling in the post-2007 recession. The result is that the most indebted generation in history is without the dependable jobs it needs to escape debt.

What kind of incentives motivate lenders to continue awarding six-figure sums to teenagers facing both the worst youth unemployment rate in decades and an increasingly competitive global workforce?

During the expansion of the housing bubble, lenders felt protected because they could repackage risky loans as mortgage-backed securities, which sold briskly to a pious market that believed housing prices could only increase. By combining slices of regionally diverse loans and theoretically spreading the risk of default, lenders were able to convince independent rating agencies that the resulting financial products were safe bets. They weren’t. But since this wouldn’t be America if you couldn’t monetize your children’s futures, the education sector still has its equivalent: the Student Loan Asset-Backed Security (or, as they’re known in the industry, SLABS).

SLABS were invented by then-semi-public Sallie Mae in the early ’90s, and their trading grew as part of the larger asset-backed security wave that peaked in 2007. In 1990, there were $75.6 million of these securities in circulation; at their apex, the total stood at $2.67 trillion. The number of SLABS traded on the market grew from $200,000 in 1991 to near $250 billion by the fourth quarter of 2010. But while trading in securities backed by credit cards, auto loans, and home equity is down 50 percent or more across the board, SLABS have not suffered the same sort of drop. SLABS are still considered safe investments—the kind financial advisors market to pension funds and the elderly.

With the secondary market in such good shape, primary lenders have been eager to help students with out-of-control costs. In addition to the knowledge that they can move these loans off their balance sheets quickly, they have had another reason not to worry: federal guarantees. Under the just-ended Federal Family Education Loan Program (FFELP), the US Treasury backed private loans to college students. This meant that even if the secondary market collapsed and there were an anomalous wave of defaults, the federal government had already built a lender bailout into the law. And if that weren’t enough, in May 2008 President Bush signed the Ensuring Continued Access to Student Loans Act, which authorized the Department of Education to purchase FFELP loans outright if secondary demand dipped. In 2010, as a cost-offset attached to health reform legislation, President Obama ended the FFELP, but not before it had grown to a $60 billion-a-year operation.

Even with the Treasury no longer acting as co-signer on private loans, the flow of SLABS won’t end any time soon. What analysts at Barclays Capital wrote of the securities in 2006 still rings true: “For this sector, we expect sustainable growth in new issuance volume as the growth in education costs continues to outpace increases in family incomes, grants, and federal loans.” The loans and costs are caught in the kind of dangerous loop that occurs when lending becomes both profitable and seemingly risk-free: high and increasing college costs mean students need to take out more loans, more loans mean more securities lenders can package and sell, more selling means lenders can offer more loans with the capital they raise, which means colleges can continue to raise costs. The result is over $800 billion in outstanding student debt, over 30 percent of it securitized, and the federal government directly or indirectly on the hook for almost all of it.

If this sounds familiar, it probably should, and the parallels with the pre-crisis housing market don’t end there. The most predatory and cynical subprime lending has its analogue in for-profit colleges. Inequalities in US primary and secondary education previously meant that a large slice of the working class never got a chance to take on the large debts associated with four-year degree programs. For-profits like The University of Phoenix or Kaplan are the market’s answer to this opportunity.

While the debt numbers for four-year programs look risky, for-profit two-year schools have apocalyptic figures: 96 percent of their students take on debt and within fifteen years 40 percent are in default. A Government Accountability Office sting operation in which agents posed as applicants found all fifteen approached institutions engaged in deceptive practices and four in straight-up fraud. For-profits were found to have paid their admissions officers on commission, falsely claimed accreditation, underrepresented costs, and encouraged applicants to lie on federal financial aid forms. Far from the bargain they portray themselves to be on daytime television, for-profit degree programs were found to be more expensive than the nonprofit alternatives nearly every time. These degrees are a tough sell, but for-profits sell tough. They spend an unseemly amount of money on advertising, a fact that probably hasn’t escaped the reader’s notice.

But despite the attention the for-profit sector has attracted (including congressional hearings), as in the housing crisis it’s hard to see where the bad apples stop and the barrel begins. For-profits have quickly tied themselves to traditional powers in education, politics, and media. Just a few examples: Richard C. Blum, University of California regent (and husband of California Sen. Dianne Feinstein), is also through his investment firm the majority stakeholder in two of the largest for-profit colleges. The Washington Post Co. owns Kaplan Higher Education, forcing the company’s flagship paper to print a steady stream of embarrassing parenthetical disclosures in articles on the subject of for-profits. Industry leader University of Phoenix has even developed an extensive partnership with GOOD magazine, sponsoring an education editor. Thanks to these connections, billions more in advertising, and nearly $9 million in combined lobbying and campaign contributions in 2010 alone, for-profits have become the fastest growing sector in American higher education.

If the comparative model is valid, then the lessons of the housing crash nag: What happens when the kids can’t pay? The federal government only uses data on students who default within the first two years of repayment, but its numbers have the default rate increasing every year since 2005. Analyst accounts have only 40 percent of the total outstanding debt in active repayment, the majority being either in deferment or default. Next year, the Department of Education will calculate default rates based on numbers three years after the beginning of repayment rather than two. The projected results are staggering: recorded defaults for the class of 2008 will nearly double, from 7 to 13.8 percent. With fewer and fewer students having the income necessary to pay back loans (except by taking on more consumer debt), a massive default looks closer to inevitable.

Unlike during the housing crisis, the government’s response to a national wave of defaults that could pop the higher-ed bubble is already written into law. In the event of foreclosure on a government-backed loan, the holder submits a request to what’s called a state guaranty agency, which then submits a claim to the feds. The federal disbursement rate is tied to the guaranty agency’s fiscal year default rate: for loans issued after October 1998, if the rate exceeds 5 percent, the disbursement drops to 85 percent of principal and interest accrued; if the rate exceeds 9 percent, the disbursement falls to 75 percent. But the guaranty agency rates are computed in such a way that they do not reflect the rate of default as students experience it; of all the guaranty agencies applying for federal reimbursement last year, none hit the 5 percent trigger rate.

With all of these protections in place, SLABS are a better investment than most housing-backed securities ever were. The advantage of a preemptive bailout is that it can make itself unnecessary: if investors know they’re insulated from risk, there’s less reason for them to get skittish if the securities dip, and a much lower chance of a speculative collapse. The worst-case scenario seems to involve the federal government paying for students to go to college, and aside from the enrichment of the parasitic private lenders and speculators, this might not look too bad if you believe in big government, free education, or even Keynesian fiscal stimulus. But until now, we have only examined one side of the exchange. When students agree to take out a loan, the fairness of the deal is premised on the value for the student of their borrowed dollars. If an 18-year-old takes out $200,000 in loans, he or she better be not only getting the full value, but investing it well too.

Higher education seems an unlikely site for this kind of speculative bubble. While housing prices are based on what competing buyers are willing to pay, postsecondary education’s price is supposedly linked to its costs (with the exception of the for-profits). But the rapid growth in tuition is mystifying in value terms; no one could argue convincingly the quality of instruction or the market value of a degree has increased ten-fold in the past four decades (though this hasn’t stopped some from trying). So why would universities raise tuition so high so quickly? “Because they can” answers this question for home-sellers out to get the biggest return on their investments, or for-profits out to grab as much Pell Grant money as possible, but it seems an awfully cynical answer when it comes to nonprofit education.

First, where the money hasn’t gone: instruction. As Marc Bousquet, a leading researcher into the changing structures of higher education, wrote in How The University Works (2008):

If you’re enrolled in four college classes right now, you have a pretty good chance that one of the four will be taught by someone who has earned a doctorate and whose teaching, scholarship, and service to the profession has undergone the intensive peer scrutiny associated with the tenure system. In your other three classes, however, you are likely to be taught by someone who has started a degree but not finished it; was hired by a manager, not professional peers; may never publish in the field she is teaching; got into the pool of persons being considered for the job because she was willing to work for wages around the official poverty line (often under the delusion that she could ‘work her way into’ a tenurable position); and does not plan to be working at your institution three years from now.

This is not an improvement; fewer than forty years ago, when the explosive growth in tuition began, these proportions were reversed. Highly represented among the new precarious teachers are graduate students; with so much available debt, universities can force graduate student workers to scrape by on sub-minimum-wage, making them a great source of cheap instructional labor. Fewer tenure-track jobs mean that recent PhDs, overwhelmed with debt, have no choice but to accept insecure adjunct positions with wages kept down by the new crop of graduate student-workers. Rather than producing a better-trained, more professional teaching corps, increased tuition and debt have enabled the opposite.

If overfed teachers aren’t the causes or beneficiaries of increased tuition (as they’ve been depicted of late), then perhaps it’s worth looking up the food chain. As faculty jobs have become increasingly contingent and precarious, administration has become anything but. Formerly, administrators were more or less teachers with added responsibilities; nowadays, they function more like standard corporate managers—and they’re paid like them too. Once a few entrepreneurial schools made this switch, market pressures compelled the rest to follow the high-revenue model, which leads directly to high salaries for in-demand administrators. Even at nonprofit schools, top-level administrators and financial managers pull down six- and seven-figure salaries, more on par with their industry counterparts than with their fellow faculty members. And while the proportion of tenure-track teaching faculty has dwindled, the number of managers has skyrocketed in both relative and absolute terms. If current trends continue, the Department of Education estimates that by 2014 there will be more administrators than instructors at American four-year nonprofit colleges. A bigger administration also consumes a larger portion of available funds, so it’s unsurprising that budget shares for instruction and student services have dipped over the past fifteen years.

When you hire corporate managers, you get managed like a corporation, and the race for tuition dollars and grants from government and private partnerships has become the driving objective of the contemporary university administration. The goal for large state universities and elite private colleges alike has ceased to be (if it ever was) building well-educated citizens; now they hardly even bother to prepare students to assume their places among the ruling class. Instead we have, in Bousquet’s words, “the entrepreneurial urges, vanity, and hobbyhorses of administrators: Digitize the curriculum! Build the best pool/golf course/stadium in the state! Bring more souls to God! Win the all-conference championship!” These expensive projects are all part of another cycle: corporate universities must be competitive in recruiting students who may become rich alumni, so they have to spend on attractive extras, which means they need more revenue, so they need more students paying higher tuition. For-profits aren’t the only ones consumed with selling product. And if a humanities program can’t demonstrate its economic utility to its institution (which can’t afford to haul “dead weight”) and students (who understand the need for marketable degrees), then it faces cuts, the neoliberal management technique par excellence. Students apparently have received the message loud and clear, as business has quickly become the nation’s most popular major.

When President Obama spoke in the State of the Union of the need to send more Americans to college, it was in the context of economic competition with China, phrased as if we ought to produce graduates like steel. As the near-ubiquitous unpaid internship for credit (in which students pay tuition in order to work for free) replaces class time, the bourgeois trade school supplants the academy. Parents understandably worried about their children make sure they never forget about the importance of an attractive résumé. It was easier for students to believe a college education was priceless when it wasn’t bought and sold from every angle.

If tuition has increased astronomically and the portion of money spent on instruction and student services has fallen, if the (at very least comparative) market value of a degree has dipped and most students can no longer afford to enjoy college as a period of intellectual adventure, then at least one more thing is clear: higher education, for-profit or not, has increasingly become a scam.

We know the consequences of default for lenders, investors, and their backers at the Treasury, but what of the defaulters? Homeowners who found themselves with negative equity (owing more on their houses than the houses were worth) could always walk away. Students aren’t as lucky: graduates can’t ditch their degrees, even if they borrowed more money than their accredited labor power can command on the market. Americans overwhelmed with normal consumer debt (like credit card debt) have the option of bankruptcy, and although it’s an arduous and credit-score-killing process, not having ready access to thousands in pre-approved cash is not always such a bad thing. But students don’t have that option either. Before 2005, students could use bankruptcy to escape education loans that weren’t provided directly by the federal government, but the facetiously named “Bankruptcy Abuse Prevention and Consumer Protection Act” extended non-dischargeability to all education loans, even credit cards used to pay school bills.

Today, student debt is an exceptionally punishing kind to have. Not only is it inescapable through bankruptcy, but student loans have no expiration date and collectors can garnish wages, social security payments, and even unemployment benefits. When a borrower defaults and the guaranty agency collects from the federal government, the agency gets a cut of whatever it’s able to recover from then on (even though they have already been compensated for the losses), giving agencies a financial incentive to dog former students to the grave.

When the housing bubble collapsed, the results (relatively good for most investors, bad for the government, worse for homeowners) were predictable but not foreordained. With the student-loan bubble, the resolution is much the same, and it’s decided in advance.

In addition to the billions colleges have spent on advertising, sports programs, campus aesthetics, and marketable luxuries, they’ve benefited from a public discourse that depicts higher education as an unmitigated social good. Since the Baby Boomers gave birth, the college degree has seemed a panacea for social ills, a metaphor for a special kind of deserved success. We still tell fairy tales about escapes from the ghetto to the classroom or the short path from graduation to lifelong satisfaction, not to mention America’s collective college success story: The G.I. Bill. But these narratives are not inspiring true-life models, they’re advertising copy, and they come complete with loan forms.

Image: Plans for a new athletic center at Ithaca College. From msidesign.com.

Senate Hearing: Videos of For-Profit School Staffers Expose Fraudulent Acts

Download the entire study, “For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices.”

You can also check out the GAO videos.

- Patricia


by Jamaal Abdul-Alim | Diverse Issues in Higher Ed
August 5, 2010

WASHINGTON – Secretly-recorded videos of shady practices within the for-profit college sector got aired Wednesday during an occasionally testy Senate committee hearing that probed the extent of those practices among the proprietary schools.

“Critics say it’s only a few bad apples. But I question if it’s the entire orchard,” said Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor and Pensions Committee.

Harkin was referring to for-profit colleges as a whole in light of a new Government Accountability Office (GAO) report based on an undercover investigation this summer that found 15 out of 15 for-profit colleges had made “deceptive or otherwise questionable statements” to GAO workers who posed as prospective students with hidden cameras to conduct their investigation.

The for-profit college sites that were targeted by the investigation were: the University of Phoenix in Arizona and Pennsylvania, Everest College of Arizona; Westech College and Kaplan College, of California; Potomac College and Bennett College, of Washington, D.C.; Medvance Institute and Kaplan College, of Florida; College of Office Tech and Argosy University, of Illinois; Anthem Institute, of Pennsylvania; and Westwood College, Everest College and ATI Career Training, of Texas.

Four of the 15 school sites the GAO investigated this summer encouraged students to commit fraud, according to the GAO report titled For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices.

The schools’ practices are of concern, Harkin said, because they are reaping a growing amount of federal aid--$23 billion today versus $4.6 billion a decade ago—that is flowing largely into the pockets of their executives and investors.

“I’m not certain regulations will suffice,” Harkin said at the hearing, titled For-Profit Schools: The Student Recruitment Experience.

“Where this is headed is toward legislation,” Harkin added, explaining that he wanted to come up with a permanent legislative solution that could not be overturned by another administration or rendered ineffective by regulatory exceptions.

Sen. Mike Enzi, (R-Wyoming) suggested the investigation be expanded to include all types of colleges, not just for-profit colleges -- a suggestion that drew a cool response from Democratic members of the committee.

Gregory Kutz, managing director of Forensic Audits and Special Investigations for the GAO, outlined and commented on the secretly-recorded video clips during the hearing that showed for-profit college officials telling students to falsify their federal student aid forms in order to get more federal aid, misleading them about the cost and value of the colleges’ offerings, and pressuring them to enroll without being able to consult a financial aid adviser.

In one clip, a for-profit college worker told the federal worker posing as a student not to disclose that he had $250,000 in savings from an inheritance because it was “none of the government’s business.”

In another clip, the government’s undercover worker is told that spending $115,000 for a computer drafting course was a “good value,” when in reality the same type of certificate earned through the program could be gotten for $520 at a local community college.

Other clips showed the for-profit college workers telling undercover government workers that they would earn more money than statistics suggest is true. For instance, one worker at a school with a program for barbers claimed that a barber in Washington, D.C., could make from $150,000 to $200,000 a year when statistics show most barbers in D.C. earn about $19,000 a year.

The clips repeatedly showed officials at the for-profit colleges denying the government’s undercover workers’ requests to speak with financial aid advisers before they actually enrolled.

“We kept saying, ‘We want to know how much it is,’” Kutz, of the GAO, said. “They kept saying, ‘No, no, no.’”

Kutz said the colleges' wrongdoings had been referred to the U.S. Department of Education's Inspector General's Office and might be referred for criminal prosecution or civil action, depending on the circumstances.

So damning were the clips that the Career College Association, which represents the for-profit college sector, issued a statement that was void of any direct appeals to not judge the entire sector by the actions of a few.

“Even if the problems cited in the GAO report are limited to a few individuals at a few institutions, we can have zero tolerance for bad behavior,” CCA president and CEO Harris Miller said.

Joshua Pruyn, a former admissions representative at Westwood College, a subsidiary of Alta College Inc., testified that admissions representatives were coached and pressured to act as sales representatives—something critics say undermines students’ interests.

“Students were absolutely not allowed to speak to anyone in financial aid,” Pruyn testified. “Our response was, ‘This was step one, you’re not allowed to jump to step two.’”

Pruyn said that, when he asked why this was standard practice, he was told the reason was not to overburden the college’s financial aid staff. But the real purpose, he said, was to get the students to make a commitment to enroll in the college up front.

“We were directed to say things like, ‘I thought you wanted to make a change,’” Pruyn testified.

That runs contrary to the standard practice espoused by the National Association for College Admission Counseling, according to David Hawkins, director of public policy and research at the organization, who also testified at the hearing.

“Our standard practice is to allow students to ask the kinds of questions about the things they need to know about financial aid,” Hawkins said.

One of the more heated moments occurred when Sen. Al Franken (D-Minn.) took witness Michael McComis, executive director of the Accrediting Commission of Career Schools and Colleges (ACCSC), to task on McComis’ testimony that the accrediting agency he oversees strives to “hold institutions accountable to ensure that only the highest level of integrity is injected into the student recruitment and admissions process” and to make sure that students are “accurately and fully informed” of an institution’s program.

Franken asked how those statements could be true when three schools that McComis’ agency accredited were found to have misled prospective students.

“Do you think perhaps your rigorous standards aren’t rigorous enough?” Franken asked.

“I don’t think so,” McComis responded.

“To me,” Franken shot back, “there is a real discrepancy here. Doesn’t this industry have any interest in self-policing itself?”

Later, under questioning, McComis acknowledged that a “key” part of its accrediting process is a self-evaluation done by the college that is seeking accreditation.

“You kind of go to the school, ask them how they’re doing, and if they say good, you say fine,” Sen. Harkin observed.

Harkin also questioned why the ACCSC accredited 41 schools with default rates higher than 30 percent within the first three years.

McComis said the ACCSC currently uses two-year default rates but doesn’t take them into account when accrediting a college.

“We have found in our data no correlation to indicate that default rates are directly statistically correlated to the quality of the education,” McComis said, adding that graduation and employment rates are better indicators of a program’s effectiveness.

The U.S. Department of Education has proposed a set of rules that would, among other things, take the student loan default rates among students into account when determining whether the schools should be eligible for federal aid.

Wednesday’s hearing was the second in what Harkin says will be a series of hearings on the for-profit college sector in the coming months. Harkin stated that accreditation was one of the areas he planned to look at in a future hearing.

Click here for a link to the GAO videos.

Private, For-Profit Colleges Under the Microscope

by Reeve Hamilton | Texas Tribune
July 20, 2010

Dallas personal injury lawyer Julie Johnson’s foray into the fight against private, for-profit colleges began with a handful of would-be interior designers.

A few years ago, a group of students had come to Johnson for help: They had forked over thousands of dollars at a private, for-profit school, but their non-accredited course work didn’t pass muster for an interior design license. Since then, Johnson has devoted most of her practice to hounding “proprietary” or “career” colleges for failing to make good on their claims.

She’s not alone in her focus. Career colleges find themselves in the hot seat this year, as U.S. Sen. Tom Harkin, D-Iowa, leads federal hearings on the need to regulate for-profit recruitment practices and the warnings of hedge-fund manager Steven Eisman (who famously predicted the crash of the housing market) that the student loan market is the next bubble to burst. And one of Johnson’s most recent cases — Dallas-based students claiming they were misled into believing that their psychology doctoral program was in the process of being accredited by the American Psychological Association — landed a prime-time slot on PBS’s Frontline.

Bob Cohen, senior vice president of the Career College Association, a national coalition of proprietary schools, dismisses what he describes as self-interested detractors who tend to generalize isolated incidents for the sake of publicity. “A lot of what we’re seeing is the attempt by short-sellers on Wall Street or trial lawyers who have made a specialty practice to try to drum up this story,” he says. “But the basic fact remains that you have 2.8 million students in career schools, and they’re getting a good education.”

The pitch at these schools — ITT Technical Institute, Everest Institute and Kaplan College are some of the more pervasive names in Texas — is simple: Without the hassles of developmental courses and required liberal arts courses, students can get career-focused training and join the workforce in less time. Cohen says for-profit schools avoid what he dubs the “scavenger hunt” for courses that can occur at community colleges. “There, a lot of the onus was put on the student to get over that steeplechase and graduate,” he says. “At career colleges, we say, forget all that.” To the dismay of education traditionalists, that’s not a tough sell for an increasing number of Texans, even if the short-term cost of attendance is steeper than comparable public-sector options.

Johnson argues that the pitch is too often made to the most vulnerable Texans, who might not be aware of other options like a traditional community college route. “The kids that go to these schools do not come from three generations of Longhorns,” she says. “They’re the first to go.”

The population served by career colleges — which accounts for about 5 percent (more than 72,000) of total fall enrollments in the state and 7 percent (more than 130,000) of 12-month enrollments — mirrors that of community colleges: Nearly two thirds are minorities, many of them first-generation college-goers. But unlike their counterparts at community colleges, students at proprietary schools have difficulty transferring their credits to other Texas schools. Often this is a matter of traditional universities opting to only recognize the more prestigious regional accrediting bodies, whereas for-profit schools are generally accredited by national organizations.

At an April 20 hearing of the House Higher Education Committee, Joe Fisher, the former chair of the Career Colleges and Schools of Texas and the current president of for-profit Hallmark College, laid out his understanding of the dynamic. “It’s a turf war,” he said. “It’s elitism."

More than half of institutions of post-secondary learning in Texas are for-profit schools. Of those 216 schools, 72 percent offer certification in less than two years, while only 7 percent offer four-year degrees. A number of the certificates offered are not often found in traditional academia. For example, according to the Career College Association, 97 percent of somatic bodywork and related therapeutic services awards in Texas come from career colleges, which account for approximately 46 percent of all awards for health and clinical-related professions in the state.

Getting those awards (certificates, associate's degrees, bachelor's degrees or beyond) doesn’t come cheap. Argosy University, for example, charges $510 per credit hour for undergraduate courses, as opposed to the $50 per credit hour charge for Texas residents at public universities. As is the case at most schools, the answer for many students lies in loans — primarily of the federal variety, which career college students receive at rates similar to and occasionally higher than they would at public and private non-profit schools.

[For a breakdown of federal grants — totals and averages — given to Texas students at different types of institutions, click here.]

Education is changing, Cohen says, and to maintain the working middle class, it needs to be more tailored toward professions with a “tangible” return. “It can’t be where you go to school for six years and come out with a degree in Chaucer,” he says.

Speaking of return on investment, what if you take out a big loan and end up with a credential that employers and schools won’t recognize? The 16.5 percent default rate for proprietary schools in Texas notably outpaces public schools (7.7 percent) and private nonprofit institutions (4.9 percent). And that debt never goes away — student loans cannot be discharged, even in bankruptcy.

Johnson says she fully understands why people like Eisman are calling it the next housing crisis. “These students are being charged for educations that are poorly run with promises of employment that are undeliverable,” she says. “What are they going to do?”

Cohen insists that the default rates are in line with the expectations for the less well-off population they serve. As for the credential they receive, and how and if they can use it, that’s up to the student. While some professional societies require certification, sometimes certificates earned at career colleges can only be used as a resume booster — at best. “There’s various ins and outs,” Cohen says, “and the students really need to do their homework to understand what the circumstances are going in.”

“There is an element of self-responsibility to getting an education and getting a job,” Johnson acknowledges. “I think that there are students who go to one of these schools and then, depending on the degree that they choose, may ultimately get a career. But those are fewer than the norm.”

One bet that can be taken to the bank: Career colleges aren’t going anywhere. Faced with a budget shortfall projected to be as much as $18 billion at a time of record enrollments in higher education, Texas needs all the capacity-expanders it can get.

“They play a unique role,” says state Rep. Dan Branch, R-Dallas, who chairs the higher ed committee. “But they’ve got to balance access and quality. Obviously, we don’t want the credential to be illusory.” The regulatory structure in place to prevent degree mills is provided by the two agencies: the Texas Workforce Commission, which licenses institutions to operate, and to a lesser extent the Texas Higher Education Coordinating Board, which oversees degree programs. Currently, no state version of proposed federal regulations to curb predatory recruitment is in the works.

“We are monitoring the activities at the federal level, but I think Texas remains confident they have structured themselves right with the Workforce Commisson and the Coordinating Board,” says Jerry Valdez, a lobbyist for the Career Colleges and Schools of Texas.

Last session, Branch passed a bill bolstering (to the modest tune of $1.2 million) the Texas Career Opportunity Grant, which provides awards to economically disadvantaged Texans enrolled in career schools. He says career colleges are increasingly drawing attention as more education statisticians begin to count an individual with a certificate from a less-than-two-year program as a credentialed adult. Such considerations are important as Texas tries to close the achievement gaps that exist between it and other states in the next five years.

As proprietary schools stand to increase in numbers, capacity and relevance to the state’s higher education strategy, Johnson hopes that so, too, will the number of watchful eyes upon them.