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Results Are In

July 30, 2012

A U.S. Senate committee released an unflattering report on the for-profit college sector on Sunday, concluding a two-year investigation led by Sen. Tom Harkin, an Iowa Democrat. While the report is ambitious in scope, and scathingly critical on many points, it appears unlikely to lead to a substantial legislative crackdown on the industry -- at least not during this election year.

Issued by staff from the Democratic majority of the U.S. Senate Committee on Health, Education, Labor and Pensions, the report follows six congressional hearings, three previous reports and broad document requests. The final result is voluminous, weighing in at 249 pages and accompanied by in-depth profiles of 30 for-profits. It questions whether federal investment through aid and loans is worthwhile in many of the examined colleges.

The investigation found that large numbers of students at for-profits fail to earn credentials, citing a 64 percent dropout rate in associate degree programs, for example. It also links those high dropout rates to the relatively small amount of money for-profits spend on instruction.

For-profits “devote tremendous amounts of resources to non-education related spending,” the report said, with the sector spending more revenue on both marketing and profit-sharing than on instruction. In 2009, the examined companies spent $4.1 billion or 22.4 percent of all revenue on marketing, advertising, recruiting and admissions staffing. Profit distributions accounted for $3.6 billion or 19.4 percent of revenue. In contrast, the companies spent $3.2 billion or 17.7 percent on instruction, according to the report.

The industry's trade group, the Association of Private Sector Colleges and Universities, fired back with a rebuttal, saying the report  "twists the facts to fit a narrative, proving that this is nothing more than continued political attacks." For example, the association said the sector's overall graduation rate at two-year colleges is a much higher 62 percent.

Republican staff members also contributed a dissent to the report, saying it is “indisputable that significant problems exist” at some for-profits, but that the investigation was not conducted in a bipartisan manner. They also raised doubts about the report’s accuracy, noting, for example, that the committee relied in part on testimony from the Government Accountability Office, some of which was flawed and has been revised.

The final report does include a bit of praise for the industry, noting that it is here to stay, and will continue to play a significant role in serving growing numbers of nontraditional and disadvantaged groups of students, including adults.

Singled out for the most criticism are publicly traded chains and colleges owned by private equity companies, which accounted for 76 percent of the sector’s enrollment in 2009, according to the report. Investors in those colleges often seek quick returns, it said, and “Congress has failed to counterbalance investor demands for increased financial returns with requirements that hold companies accountable to taxpayers for providing quality education, support, and outcomes.”

The companies’ profits are largely due to high tuition levels, according to the report, which found that for-profits on average charge much more than do community colleges and flagship public universities, for comparable programs. Bachelor’s degree programs cost an average of 19 percent more at for-profits than at their equivalents at flagships, while associate and certificate programs at for-profits cost four times more than similar programs at community colleges.

“Internal company documents provide examples of tuition increases being implemented to satisfy company profit goals,” it said. “Internal discussions among for-profit executives regarding tuition often revolve around how best to justify tuition increases.”

Fixing Problems

Sharing blame for the rise of poor-performing for-profits are lax accreditation, state oversight and federal laws, according to the report. It also details how some for-profits game the so-called “90/10 rule,” which prohibits the colleges from generating more than 90 percent of their revenue from federal sources, like aid and loans. One approach, for example, is reporting data from multiple campuses and swapping those campuses in and out of groupings to keep below the 90 percent ceiling.

As for accreditation, the report said both national accreditors that focus specifically on for-profit institutions and regional accrediting agencies have at times been unable to keep up with the industry’s growth. It singled out the Higher Learning Commission of the North Central Association of Colleges and Schools for allegedly failing to properly review Bridgepoint Education's Ashford University and American InterContinental University, which is owned by Career Education Corp.

“Accrediting agencies have been overwhelmed by the rapid growth of non-traditional educational organizations, whose size and methods of education are unfamiliar and demand different protocols of assessment,” the report said. “Accreditors are not equipped to properly oversee the modern-day for-profit education institution, especially those whose important decisions are made at corporate headquarters, not at the campus level.”

The report calls for tighter rules governing for-profits in several areas. Those include more data collection on student performance by the U.S. Department of Education, the tying of federal aid to minimum student outcomes, lowering of the 90/10 threshold to 85 percent and the creation of an online student complaint clearinghouse.

In the absence of “significant reforms,” the report said the “sector will continue to turn out hundreds of thousands of students with debt but no degree.”

The enclosed profiles of for-profit companies detail problems the investigation uncovered in areas such as student recruiting, substandard academic offerings, high tuition and executive compensation, low student retention rates and the issuance of credentials of questionable value. The report also includes a trove of documents the committee requested.

In its description of Bridgepoint, for example, the committee discusses the recent accreditation woes of Ashford, an institution that was the subject of a hearing during the investigation. The report praises the Western Association of Schools and Colleges (WASC) for its “thorough review” of the university, which resulted in a rejected bid for accreditation. In contrast, the report takes to task the Higher Learning Commission, Ashford’s regional accreditor, for three “relatively cursory” reviews of the university, which Bridgepoint bought in 2005.

Harkin’s tone during the investigation has been fiercely critical, so the inclusion of a few conciliatory notes in the report may be a surprise to some observers. It notes that the sector will continue to play an important role in higher education, in part because nonprofit colleges lack the capacity to serve growing demand

For-profits should be well-equipped to serve nontraditional students, at least “in theory,” the report said. “They offer the convenience of nearby campus and online locations, a structured approach to coursework and the flexibility to stop and start classes quickly and easily. These innovations have made attending college a viable option for many working adults, and have proven successful for hundreds of thousands of people who might not otherwise have obtained degrees.”

 

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