For-Profit Skepticism

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For-profit career colleges have mushroomed into a multibillion-dollar industry by building their brand identity around customer service. Through expensive marketing campaigns, they tout the flexible scheduling, small class sizes and generous financial aid packages that make them attractive – and sometimes, the only option – for nontraditional students. 

But convenience often comes with a high price tag, and thousands of graduates say they’ve been victimized by these schools. “We hear all the time from students who feel they’ve been ripped off,” says Edie Irons, communications director for the nonprofit Institute for College Access & Success. “They say they didn’t learn what they thought they would learn, and they weren’t able to get the jobs they were promised.”

Often unemployed, with staggering debt loads, these students have federal loan default rates nearly double those who go to public two- or four-year schools. Although they account for less than 10 percent of enrollment, students at for-profit schools represent 43 percent of loan defaults over a three-year period, according to U.S. Department of Education data. The defaults come at taxpayer expense, but they’re also disastrous for students, “ruining their credit and haunting them forever,” says Irons. 

Does that mean students should steer clear of all for-profits? Not necessarily. The Education Department is preparing to crack down on the worst-performing programs. Armed with good information – and a healthy dose of skepticism – it should be possible to avoid the sharks and pick a high-quality career college with worthwhile programs. But students need to do their homework lest they sign away their futures.      

 

Higher ed’s change agents

Career colleges – or “proprietary schools,” as they prefer to be known – are higher education’s current lightning rod, under attack by Congress, education leaders and civil rights advocates. Depending on whom you believe, these institutions either are 21st century pioneers, delivering cutting-edge career and technical education, or they are scam artists hawking phony degrees. 

“We’re change agents,” says Harris N. Miller, president of the Career College Association (now called the Association of Private Sector Colleges and Universities), the main trade group for for-profits, “and we’re shaking up a system that’s been around since the 11th century. A lot of people are intrinsically suspicious of that.” Miller says career colleges have turned the power equation of traditional higher education on its head. By treating students “like customers, not supplicants,” he says for-profits are giving low-income and minority students unprecedented opportunities. 

Barmak Nassirian is one of the sector’s many skeptics. “It should be easy to determine what is a teaching venue as opposed to a marketing machine,” says Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. “And when you look at where the money goes, it’s clear that too many of these institutions use education as the excuse for what they are really about, which is selling.” With operating margins above 20 percent last year, Nassirian says for-profit colleges are more beholden to shareholders and Wall Street hedge fund managers than to any lofty educational mission. 

Secretary of Education Arne Duncan has straddled the fence when it comes to career colleges; on the one hand he has praised “phenomenal players” in the sector for their “vital role in training our workforce to be globally competitive,” and yet, he has complained that other career colleges “are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use.” 

Amid the rhetoric, one thing is clear: The for-profit sector has seen explosive growth – a fourfold increase in enrollment in the past decade. A total of 2.7 million students – more than half of them women, and three-quarters working at least part-time – are attending for-profits this year. And if underserved populations are flocking to these schools, it’s at least partly because public higher education has failed them. As the recession and budget deficits have forced state and community colleges across the country to cut the number of classes and ration seats, new players have stepped up to offer an alternative – at a much higher cost.   

Not long ago, career colleges were mostly small vocational programs located in shopping malls, but the sector has reinvented itself. About 30 percent of for-profits now offer bachelor’s degree programs, and a growing number have master’s and doctoral programs. 

Giant corporate chains like Kaplan Inc. and the University of Phoenix have moved aggressively into general education, often using technology to transform the core curriculum.

But even their biggest promoters agree that proprietary schools are not for everyone. The first question anyone considering a for-profit should ask is why he or she wants to go to school in the first place. “If a student is using college as a time to mature and explore opportunities, we’re not the place to go,” says Miller. “If a student is looking for a place to hang out for a couple of years, doesn’t want to go to work or the military but wants to get out of the house, again, we’re not the place to go.”

 

A steppingstone to a career

            Career colleges, says Miller, are really only for students who already know what they want to be, and who see higher education as a clear steppingstone to an occupation or profession they’ve already chosen. His group’s website (www.career.org) offers some clue to the range of choices: It lists 1,800 accredited members, providing courses in more than 200 fields.   

Some career programs are highly specialized. The American College of Hairstyling in Cedar Rapids, Iowa, offers a certificate in Basic Barbering & Hairstyling for $15,120, plus $1,800 for equipment. The Divers Academy International offers a five-month course in commercial diving for civil engineering and the offshore oil and gas industry, at its training complex outside Atlantic City, N.J. The Barbara Brennan School of Healing, in south Florida, has a four-year program for “the study of hands-on energy healing and personal transformation.” 

Smaller for-profit schools may exist only online, but most of the major players, including the University of Phoenix, DeVry University and Corinthian Colleges, have brick-and-mortar campuses, usually located in office parks near major freeways. You’re not likely to find a football stadium or an ivy-covered bell tower at these campuses; for-profits place a higher premium on easy access, free parking and maybe a child-care center. 

And while many state schools or private universities showcase their selectivity, for-profit schools are generally open admissions programs, which do not require SAT scores or high school transcripts for acceptance. Even students without a high school diploma are admitted, if they have a GED or can pass a basic test of academic skills. Recruiters are just a phone call away, eager to sign them up. 

That may not always be a good thing, according to some critics. 

“If you make the mistake of sending a web form in requesting information, they’re going to hound you, just like aluminum-siding salesmen, with active, heavy-handed recruitment,” says Nassirian. “The cynic in me says, ‘Of course they want to be responsive, they want to grab the kid’s money.’ ”

Often, a lot of money. For-profit schools are considerably more expensive than public higher education options. Full-time tuition at a career college averaged $14,174 per year in 2009, according to the College Board, compared with $2,544 at two-year state schools. About 75 percent of students at for-profits receive financial aid. The College Board reports that more than half of bachelor’s degree graduates from these schools fell into a “high debt” category of more than $30,000 in loans. 

Despite the high cost, a for-profit might still be a good deal for students interested in occupations such as allied healthcare, information technology, business or criminal justice. No matter what the field, says Miller, for-profits develop programs “based on what the labor market needs and the kinds of qualifications employers say are necessary to be professionals in those careers.”

So, by their own standards, for-profits should be judged by the success of their graduates in finding jobs and pursuing careers. This is the very criterion the Department of Education will use to crack down on programs that run afoul of new regulations that take effect next year. 

 

Learn the lingo

            The big question is how to tell a good career college program from a bad one; unfortunately, there’s no easy answer. For-profits spend billions of dollars annually on marketing – often more than their entire budgets for faculty salaries. But prospective students can look beyond the barrage of advertising claims to determine whether a particular school is worth the money.

Start by learning the lingo:

  • Figure out the difference between a public (usually state-subsidized) school, a private not-for-profit institution and a for-profit school. Many for-profits call themselves “proprietary” or “market-based” schools – these are buzzwords for institutions that are in business to make money.   
  • Keep in mind that “accelerated” or “fast-track” programs, which promise to get you through coursework at lightning speed, can come back to bite you. Although convenient, these programs are often judged by outside agencies to have low standards. The certificate you earn may not be worth the paper it’s printed on. 
  • Watch out for schools that list their tuition costs as “price per term.” One year of courses at such a school may be broken into four or six “terms,” which means the overall costs will be substantially higher than for a regular two- or three-term school.
  • Finally – and this is critically important – understand that not all “accreditation” is created equal. There are national postsecondary accrediting bodies, such as the Accrediting Commission of Career Schools & Colleges of Technology (ACCSCT), and then there are six regional agencies: the Middle States, New England, North Central, Northwest, Western and Southern Associations of Colleges and Schools. These are independent bodies, and although it may seem counterintuitive, accreditation by one of these regional agencies is the highly sought gold standard. 

The vast majority of academic, nonprofit schools (whether public or private) have regional accreditation, whereas most for-profit career schools have only national accreditation.  The difference becomes crucial when it’s time to transfer those hard-earned credits or have your degree recognized within a profession. 

Roberto Ayala, 24, of Buena Park, Calif., learned the difference too late. He was recruited by Westwood College in Anaheim, Calif., when he was a senior in high school. Ayala knew enough to ask whether the videogame developer program he was considering was accredited, and he was assured that it was. But he found out later that although the program was accredited nationally, it had no regional accreditation. 

Ayala tried to transfer his credits to Fullerton College, a nearby public community college, only to be told that a full year’s coursework was worthless; he would have to start from scratch. When he tried to apply for jobs, employers told him the same thing: “Come back when you have a valid degree.” 

Crystal Matthews, of Sandy Springs, Ga., has a similar story. She paid $389 per month and racked up an additional $17,000 in debt to pursue a three-year associate of arts degree in film and animation at a Westwood College campus in Atlanta, Ga. Halfway through the program, she tried to transfer her credits to Georgia State University, and was told, “No way.” Matthews, 36, a single woman who is raising her 16-year-old brother, also had to start over at a community college. Matthews says she should have done her research before she signed up. “It’s sickening. I was desperate to start my education, and they just said, ‘Everything’s going to be fine; sign here and here,’ and I believed their pack of lies.” 

There are two lessons here: First, if you ever plan to transfer credits for your coursework, look for a program with regional accreditation, and second, don’t put blind trust in anything recruiters say.

 

Watch out for recruiters

A large for-profit institution may employ hundreds, if not thousands, of recruiters. Unlike admissions officers at not-for-profit schools, recruiters usually do not have a background in education; their training is in sales or telemarketing. A successful recruiter can pull down $150,000 per year; someone who can’t close the deal gets fired. So, good recruiters generally are good manipulators. “They’re taught to find the pain points of the person they’re soliciting,” says attorney Chris Hoyer. “They harp on a kid’s fears of being a failure, or tell a single mom she owes it to her kids to get a better education.” 

Hoyer’s Florida law firm has filed several class-action lawsuits against Westwood College and its parent company, for deceptive recruiting practices. “We’ve heard from about 850 students,” says Hoyer, “and they all said pretty much the same thing: They were deceived about what the school would cost; they were misled about accreditation; and they were lied to about their employment prospects.” 

Westwood College officials declined to be interviewed on the record. The school’s website states that earned credits “are typically not transferable to other colleges and universities.” It goes on: “Information that Westwood provides in its catalog and directly to potential applicants during the admissions process makes clear that Westwood credits most likely will not transfer to other schools.” 

For-profits have vowed to clean house, after a series of embarrassing disclosures about improper recruiting and admissions practices. An investigation by the Government Accountability Office uncovered deceptive, possibly illegal, recruiting at 15 career colleges in cities across the country. “It’s very troubling,” says Miller. “In four cases, it appears there may have been outright fraud committed by financial aid advisers.”

So, the smart student will be skeptical of all marketing come-ons. The fact is, no college – whether public, private or for-profit – can guarantee you a future job. Miller says career placement “is built into the DNA of our schools,” but jobs data can easily be massaged. A graduate who is employed behind the counter making copies at FedEx Office can show up in the employment data as a successful hire in graphic design.

 

How to avoid being ripped off

There are numerous other ways prospective students can protect themselves:

  • A good starting point is the Department of Education’s College Navigator website (www.nces.ed.gov/collegenavigator). You can use this online tool to verify a school’s tuition, as well as to check its graduation and loan-default rates. Steer clear of schools with excessively low graduation or high loan-default rates – they usually spell trouble.        
  • Call employers in the field you’re interested in, and find out what they have to say about the school you’re considering. Interested in nursing? Call the human resources department at your local hospital and ask if it hires graduates of that particular program. Professional organizations such as the American Nurses Association or the National Healthcare Career Network may also provide valuable information about labor market trends and the credentials employers are looking for.       
  • Check with local licensing bodies to verify that graduates of the program you’re interested in are eligible to sit for state examinations in the field.
  • Ask recruiters about the percentage of students enrolled in the program through a GED or other equivalency degree. High rates of students without a high school diploma could mean the curriculum has been “dumbed-down” to accommodate lower skill levels.  
  • Don’t rely on marketing brochures or virtual tours to evaluate facilities. Visit the actual site where courses are held; ask to sit in on a class and see the specialized equipment you’ll be working with; ask to speak with instructors.
  • Don’t assume that because your high school guidance counselor has invited recruiters to make a pitch that everything you hear from them can be trusted.
  • If you’re considering an online degree, look at new conditional admissions programs at schools such as Kaplan University or the University of Phoenix that allow students to try out a class for a few weeks before making a financial commitment. Good online courses should be as rigorous as any offered in a face-to-face classroom setting, so don’t make the mistake of thinking an online class is an easy A. 
  • Be on the lookout for the estimated 3,500 vocational or technical schools nationwide that have no accreditation. Courses at these schools do not even qualify for the federal student aid program. The schools may extend private loans through their internal financial aid offices, with interest rates sometimes topping 18 percent. Credit for these courses will not transfer anywhere, and graduates of these programs usually are not eligible to sit for state licensing exams. 
  • Don’t fall for the high-pressure tactics of any recruiter who demands an instant commitment, “before classes fill up.” Don’t rush into a decision; read and keep a copy of every document you sign, especially financial aid forms. Students have been known to amass big debts without realizing they authorized a school to apply for federal loans on their behalf.
  • Run from any recruiter who says student loans don’t have to be repaid; on the contrary, defaulting on a federal student loan can put you into collections, and prevent you from ever obtaining a mortgage, a federal job or future financial aid.    
  • Stay tuned as the federal government takes a more active role in eliminating programs that don’t serve students’ needs. 

 

New “gainful employment” rules

Federal law requires career colleges that receive Title IV student financial aid “to prepare students for gainful employment in a recognized occupation.” By next year, a new definition of “gainful employment” could begin to restrict or shut down programs that cost too much or leave students buried in debt with no way to repay it.              

“Our goal is for students to be able to enroll in college and training programs and to be able to complete those programs without excessive debt,” says Robert Shireman, deputy undersecretary of education. 

In certain cases, the new rule would eliminate federal aid to programs that require students to spend more than 8 percent of their starting salaries to repay loans. By the industry’s own analysis, the vast majority of career college programs would not be affected; however, 5 percent could face extinction. Fifty-five percent more, according to Education Department data, could be required to cut tuition, limit enrollment or disclose more loan default data to students.

A draft of the proposed new rules, released in July, set off a frenzied lobbying campaign against what the industry said were essentially price controls. CCA denounced the debt-to-income proposal as “unwise, unnecessary, unproven and … likely to harm students, employers, institutions and taxpayers.” Apollo Group, which owns the University of Phoenix, the largest of the for-profits, said the proposal had the “potential for unintended consequences that could restrict educational access [and] limit students’ choices.”

In its campaign, the for-profit industry found some unlikely supporters. MANA, a national organization for Latinas, came out against the proposed regulations, saying they would “adversely affect Hispanic students’ ability to borrow money and will limit Hispanic students’ access to higher education.”

Alma Morales Riojas, president and CEO of MANA, says for-profits have been unfairly targeted, when they are filling a need that isn’t being met by the public institutions. “I’ve got three nephews and nieces who are right now enrolled in career colleges. Why? Because they have kids and full-time jobs, and the public institutions in their cities don’t offer classes at the times they could attend.” 

Riojas says she’s all for consumer protection, but she contends there must be a better approach than closing the door to some for-profit programs. “If students are choosing those programs, there’s got to be a reason why. Very often they don’t have a better choice.”

The National Hispanic Caucus of State Legislators and the National Black Chamber of Commerce issued similar statements opposing the new gainful employment rules.     

But a coalition of 25 civil rights and education organizations fired back with a letter to Secretary Duncan urging even tougher regulations. “We’re not talking about taking down this whole sector; we’re talking about weeding out some bad actors whose programs have left students buried in debt with nothing to show for it,” says Irons, whose Institute for College Access & Success, one of the signers. 

“We do have a capacity issue in higher education,” says Irons, “but we need to be expanding access to quality programs, not just opening the floodgates to anybody who wants to collect Pell Grants and federal loan dollars.”

 

Looking ahead

As recently as this spring, financial analysts were forecasting continued growth in the for-profit sector at up to 10 percent per year. But the biggest companies have paid a steep price for the revelations in the GAO report on recruiting. 

Shares of Apollo Group, which owns the University of Phoenix, dropped 10 percent within days of the report, wiping out $684 million in market capitalization. The company has since been sued for securities violations. 

The share price of a number of education companies, including DeVry Inc., Corinthian Colleges, Career Education Corp., which owns Le Cordon Bleu cooking schools, and ITT Educational Services, the owner of ITT Technical Institutes, all dropped to 52-week lows.   

Kaplan Inc., which is owned by The Washington Post, is also under investigation, after the GAO report highlighted improper admissions and recruiting tactics at two Kaplan campuses. Within days, Kaplan announced it had suspended enrollment at the campuses in Pembroke Pines, Fla., and Riverside, Calif.  

But no one is predicting the quick demise of for-profit education. New programs will continue to grow, and recruiters are always standing by.

Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor and Pensions Committee, has led oversight hearings into the for-profit industry. On the heels of the GAO investigation, which was requested by Harkin and his committee, Harkin issued a major documents request from 30 for-profits – 15 publicly traded and 15 privately held firms. 

Harkin has requested the most detailed information to date on the schools’ graduation and job placement rates, tuition costs and student debt levels, saying he wants to probe questionable practices in the industry. “Critics say that it is only a few bad apples, but we need to take a hard look at the entire orchard.”

 

Elaine Korry is a freelance reporter who covers education and social policy from the San Francisco Bay Area. She can be contacted at info@youthtoday.org.