Eleven Democratic Senators joined Sen. Dick Durbin of Illinois in calling on the U.S. Department of Education to freeze new enrollments at Corinthian Colleges' 107 campuses. The for-profit chain is currently negotiating a plan to teach out or sell its Heald College, Everest and WyoTech brands. The group of senators also asked the department to prevent any for-profit that is facing state or federal investigations to participate in the phasing-out of Corinthian's campuses.
There is a pattern of dishonesty taking place in some of the criticism of for-profit colleges. Too frequently, opponents of the sector take advantage of students and use an individual as a “straw man” to try to prove a point about student debt and tuition.
It is an attack by anecdote. Or more precisely, attack by false and partial anecdote.
The latest example is a filing from the Education Trust on the U.S. Department of Education’s proposed “gainful employment” (GE) rule. The rule would impose strict loan default and debt-to-earnings standards on private-sector colleges that would close the door to higher education opportunities for hundreds of thousands of minority and low-income students.
In their filing, the Education Trust references by first name an anonymous student from Kaplan University, using a quote from her as firsthand evidence of someone allegedly burdened by debt because of high tuition.
We know the student’s full story -- and, not surprisingly, the allegation is untrue. The quote claims that “tuition … ate up” the student’s financial aid. In reality, Kaplan University’s average actual cost is less than most private, nonprofit colleges and many tax-supported public institutions. This student came to Kaplan with significant debt incurred elsewhere -- including a nonprofit institution whose tuition is significantly greater than ours.
It was also alleged that we “maxed out her loans.” In reality the Education Department requires institutions to allow students to borrow up to the maximum amount for which they qualify. To cover personal expenses, students can take on debt far in excess of what is needed for tuition. Under the law, we cannot limit this. Particularly in non-residential, adult-serving institutions, these dollars do not stay with us -- the funds go to the student to cover his or her living expenses. Student academic success, such as the need to repeat failed courses, will also impact total cost and debt.
Sometimes, purveyors of these testimonials disclose full names. When a group calling themselves the “Young Invincibles” took to Capitol Hill last month to talk about student debt, it brought along 28-year-old Dymond Blackmon, who said he had incurred $90,000 in debt from pursuing an associate degree. Flanked by four U.S. senators, he said he did not make enough money to pay back loans from his photography program. As reported by Inside Higher Ed, the institution Blackmon attended had tuition and fees of $14,000 a year. Clearly, there’s more to the story than the tuition charged by his institution.
For most students, completing college takes a lot of work and often does not go as planned. Some students take on debt at multiple institutions, need to repeat courses extending their course of study, or borrow more than needed. These details are rarely acknowledged, and those that put the spotlight on these individuals know the schools are prohibited by law from discussing a student’s details and, to protect our students, we are loath to do so.
Student loan debt is a problem. But solving it will require more than finger-pointing.
Policy should permit schools to limit loans for a particular course of study, helping us align debt with expected earnings in the field. College can be made more affordable if student loans are managed, in part, by people who share a big stake in seeing their students succeed -- the schools in which they enroll.
Using misleading anecdotes may be a clever way to make an argument, but it doesn’t help illuminate the issue. Permitting colleges to help manage borrowing is the real issue here, and it is no straw man.
Corinthian Colleges announced on Monday that it had reached an agreement with the U.S. Department of Education that is designed to keep the for-profit chain afloat long enough to sell off and shutter its campuses in an orderly fashion.
The struggling Corinthian faces a dire cash shortage, due in part to decision by the feds last week to put a 21-day hold on payments for federal financial aid and grants. While the hold remains in place, the department agreed to release $16 million in payments immediately. That was the minimal amount necessary to keep Corinthian from going bankrupt this week, according to a corporate filing.
Last month the company said it was considering "strategic alternatives" such as the sale or merger of some of its operations. That process appears to have progressed, according to the preliminary terms of a transition plan Corinthian is working on with department. The company agreed to hire an outside monitor as it seeks to sell or "teach out" its 107 campuses within about six months.
Corinthian owns Heald College, WyoTech and the Everest College and University chains. It enrolls 72,000 students. The company will continue to enroll new students under the agreement. However, Corinthian agreed to freeze enrollments at institutions it is closing down, once the company and the government determine which campuses those will be.
"Throughout several days of intensive discussions with the department, our goal has been to protect the interests of our students, 12,000 employees, taxpayers and other stakeholders," said Jack Massimino, the company's chairman and CEO, in a written statement.
The department said it put a hold on Corinthian's federal payments because the company had been slow to respond to several information requests over concerns about the company's marketing practices. Corinthian agreed on Monday to provide the outstanding information in a timely manner.
The National Consumer Law Center, a nonprofit group, on Wednesday released a report calling for tighter state regulation of for-profit institutions. Federal crackdowns, such as proposed "gainful employment" standards, will not be strong enough to prevent deceptive practices in the sector, according to the report. The group's recommendation's include a call for states to stop relying on regional accreditors to vet for-profits, and for state agencies to instead set their own minimum standards.
San Francisco's city attorney, Dennis Herrera, on Tuesday announced a $4.4 million settlement with Education Management Corporation (EDMC). Herrera's office had been investigating the student-recruiting tactics of the California Art Institutes, which EDMC owns. The for-profit chain did not admit wrongdoing as part of the settlement, according to a corporate filing. It will pay roughly $2.5 million in scholarships for past and present students at the local Art Institutes. The rest of the settlement amount will cover Herrera's costs for the investigation. The company also reached a voluntary agreement to provide more public information about its programs, such as job placement and graduation rates.
The office of Florida's attorney general, Pam Bondi, announced on Tuesday that it had concluded a three-year investigation into the recruiting and enrollment practices of Kaplan Inc., a for-profit chain. The investigation, which focused on other for-profits as well, found no violations by Kaplan, according to a statement from the company. Kaplan also voluntarily reached an agreement with Bondi's office, under which it will disclose more details about academic programs. The company will also reimburse the attorney general's office for fees it racked up during the investigation.
The University of Southern California's Pullias Center for Higher Education on Friday released a proposed research agenda on the for-profit sector. The five-page document grew out of a meeting the center hosted in April. The event featured five papers with different perspectives on for-profits, which sought to "move beyond hyperbole" by confronting the competing narratives about the sector.
The 30 participants from the April conference reached a consensus about a research agenda to address the most most pressing and fundamental policy questions about the scope, cost, quality and accessibility of for-profits. The resulting paper describes how to better track the performance of for-profits as well as changes that could improve their student outcomes. It also asks questions that seek to get at the differences between for-profits and traditional colleges.
At least nine letters sent to the Education Department and Congress, allegedly from business owners who had hired Corinthian Colleges graduates and praising the for-profit chain, were actually written by Corinthian employees, The Orange County Register reported. The letters were part of a lobbying campaign against new rules proposed by the Obama administration. A Corinthian spokesman said that there had been no intent to deceive and that the employees made a mistake. He said that the record would be corrected.
Investor Service, the credit ratings agency, has downgraded the credit outlook for Laureate Education to negative from stable, citing the global for-profit chain's increasingly leveraged position. Laureate, which is based in Baltimore and enrolls 800,000 students at 200 campuses around the world, has used debt to finance many of its acquisitions. The pending purchase of a Brazilian university for $500 million would bring the company's total debt to roughly $6 billion, according to Moody's.
"The company's current pace of investment has resulted in leverage that is now quite high," the ratings agency said in a written statement. "Moody's believes that the company will be challenged to restore lower leverage over the near team."
The $6 billion in debt is more than Laureate's annual revenue. However, the company's liquidity is adequate, Moody's said. Laureate has $427 million in cash on hand. And the ratings agency said Laureate remains in a "prominent market position," thanks to solid enrollment growth and "favorable industry fundamentals."
Doug Becker, Laureate's CEO, recently toldInside Higher Ed that the company plans to continue its growth strategy.
The court of public opinion has not been kind to the for-profit college sector over the last few years. In particular, the reputations of the 15 publicly traded companies that dominate the sector have been tarnished through repeated stories of alleged abuse of federal financial aid programs and students aggressively lured into programs where some end up with unmanageable debt.
But for-profit education did not always operate this way. Some of the same companies barraged by today’s negative headlines were innovators of new business models that served populations left out of the traditional postsecondary education space. Others offered training programs for years before there even was a Higher Education Act that made federal financial aid available to students.
What led so many companies astray is a story of strategic choices made at the height of the 2000s boom. Faced with the means to achieve infinite scalability by tapping into a federal entitlement program, the opportunity to use online learning to cut costs, and motivated by Wall Street cash and its accompanying investor pressures, several companies pursued hypergrowth at all costs. They moved away from traditional missions, pursuing any and all students they could through sophisticated recruitment machines designed to feed the neverending demand for hitting enrollment and earnings targets.
U.S. Department of Education data on students who left school in 2008 and 2009 at the peak of the for-profit college boom show just how bad the strategic emphasis on growth over quality has been. In total, 40 percent of programs offered by publicly traded companies, representing 48 percent of for-profit students in the data, fail one or both of the tests of debt-to-earnings and student loan default that the Education Department is proposing to use to judge the success of career training programs. This includes 44 percent of students enrolled in colleges owned by the Apollo Group, which runs the University of Phoenix. It also includes 90 percent of students at ITT Technical Institutes.
But companies like Strayer and Capella that took a more measured approach to growth look much better in the data. Not a single program at Strayer appears to be leaving graduates overly indebted or headed for default, while just one of Capella’s 96 programs has problems — a bachelor’s degree in health informatics. Capella’s income results are so strong that not a single program had a debt-to-earnings ratio above 1 percent.
The results for Apollo and ITT are particularly troubling because these are two companies with long operating histories that used to be some of the best examples of what successful for-profit education could be. The ITT Technical Institutes actually predate the Higher Education Act by nearly 20 years and were clearly able to recruit and educate students without being wholly reliant upon the federal grants and loans that make up the majority of its revenue. From its founding in the 1970s until the early 2000s, Phoenix would not admit students unless they were 23 or older, were working full-time, and had at least two years of workplace experience. This helped it build and maintain a reputation as a high-quality option for working adults that other colleges were reluctant to educate.
For those seeking to maximize profit, the entitlement nature of the federal student aid programs provides a clear path to unlimited growth. Anyone who meets minimal eligibility criteria qualifies for at least a multithousand-dollar student loan. Low-income students — the ones who just happen to be the least likely to go to college and can be recruited with the least competition — can bring thousands more in additional revenue each and every year through federal Pell Grants. As long as companies could find American students, there was little ceiling to the growth possibilities.
The internet pushed that growth ceiling even higher. Digital coursework could reach students anywhere in the country at a substantially reduced cost. Finding sufficient concentrations of students to justify face-to-face investments like classrooms and more professors became totally unnecessary. The recruitment pool had effectively become anyone with a pulse and an internet connection.
Entitlement programs and distance learning provided an opportunity and means for exceptional growth, but it was Wall Street that came in with the motive. The Apollo Group and ITT became publicly traded in the mid-1990s. At Apollo, enrollments rose from 124,000 in the fall of 2001 to 470,800 in the fall of 2010. ITT, meanwhile, grew from 28,600 to 88,000 over the same period.
Enrollments grew even faster from 2006 on, fueled by cheap credit available elsewhere in the economy and constant demands for showing increased student starts. But such growth pressure can coexist with historical standards and missions only while there’s a glut of students who fit that mold. Once that pool is tapped out, either standards or enrollment targets have to give.
Standards and institutional mission lost. Phoenix removed its enrollment requirements and began placing more emphasis on two-year degrees to students regardless of age or work experience through Axia College. A university with over two decades of experience catering to one type of student immediately started enrolling anyone it could. As former Phoenix Senior Vice President John Murphy wrote in his book Mission Forsaken, “It was a money-spinning financial decision, but a cheerless academic disaster.”
The Education Department data show what an academic disaster looks like in numerical terms. Take Phoenix’s associate degree in office management and supervision. It is the second-largest associate degree program offered by any institution in the country. And more than 9,800 of the 27,500 students who started making payments on federal student loans for this program from October 2008 through the following September ended up defaulting on their debt by the fall of 2012. These individuals had their credit ruined and balances inflated through a host of fees and penalties, and will almost certainly never be able to discharge their debts through bankruptcy.
The office management and supervision program is just one of 20 programs at Phoenix with a default rate of 30 percent or higher. This represents over 32,200 individuals — about the same size as the University of Alabama. Every single one of these programs offers an associate degree. It even includes programs that should have direct market payoff, such as network systems administration (default rate of 44 percent) and information technology (42 percent).
By contrast, Phoenix’s graduate programs do not look so bad. None of them had unacceptable results and just one — a doctorate in higher education management — had a default rate over 15 percent. Two doctoral programs (business administration and organizational leadership) even had typical earnings over $100,000. One has to wonder how many students might have been prevented unnecessary financial harm had Phoenix stuck to its core business model and not pursued such expansion.
Unfortunately, Phoenix provided a case study for other companies to emulate, especially for recruitment. For ITT that meant creating an aggressive recruitment machine that used a “pain funnel” tactic to increase enrollment by preying on students’ fears and insecurities. And since many of those students were low-income, it created new debt products for students who needed money to cover the gap between tuition and federal aid.
The high-growth model has created legal headaches and poor student results for ITT. It has the largest share of students in failing programs of any publicly traded company. ITT also has programs like its $47,000 associate degree in visual communications, where a higher percentage of students default on federal student loans (45 percent) than find jobs in their field (30 percent).
ITT has also run afoul of the Consumer Financial Protection Bureau (CFPB), which sued the company in February for the debt it offered to cover tuition gaps. In its lawsuit the CFPB alleged that ITT lured students into high-priced private student loans with default rates as high as 60 percent and “sacrificed its students’ futures by saddling them with debt on which it knew they would likely default.”
Recent efforts suggest that there may be ways to turn back the tide and get some companies to focus again on students over growth. Chastened by regulatory efforts aimed at reshaping recruitment practices and holding institutions accountable for debt, coupled with lawsuits and investigations against the worst behaviors, many companies have had to reduce enrollment, offer trial periods, and freeze or lower tuition. This includes initiatives like the Kaplan Commitment, which lets students test out classes for three weeks without paying tuition. Or DeVry’s Fixed Tuition Promise, which guarantees costs will not go up as long as students stay enrolled and came one year after a tuition freeze. Hopefully, these changes will result in better outcomes for students.
But short-term improvement is not enough. The last 15 years has shown just how Wall Street can trump old values and prompt reckless behavior if their ambitions and actions are left unchecked. Without a stronger accountability structure around them, there’s no promise that growth at all costs will not return.
Ben Miller is senior policy analyst for the New America Foundation's Education Policy Program.