Served, Yes, But Well-Served?

Nearly a quarter of all Pell Grant funds now go to students at for-profit colleges. What does that mean for the students, and for higher education?
October 8, 2009

The list published by the Student Lending Analytics blog last month jumped off the computer screen: Of the 10 colleges and universities whose students received the most Pell Grant funds in 2008-9, 7 were for-profit institutions. The massive University of Phoenix led the way with 230,000 students receiving Pell Grants worth a total of $560 million, way above No. 2, Kaplan University. The only public institution on the list was the 19-campus Pennsylvania State University, and two of the 10 (one for-profit, one private nonprofit) were in Puerto Rico.

There are plenty of caveats about the list and why it doesn't fully represent the true Pell Grant picture. Foremost among them, by far, is the fact that the Education Department database from which the numbers were drawn lists individual institutions.

So huge community college districts (like Phoenix's Maricopa Community Colleges) or public college systems (like the City University of New York) that serve huge numbers of poor students don't show up as single entities, while for-profit colleges like Phoenix and DeVry -- which are structured in a way that makes them equivalent to university "systems" -- do. (If the Maricopa colleges were lumped together, they'd show up in the middle of the top 10, as currently constructed, with about $60 million. CUNY and California State University would appear well above that.)

That limitation aside, the data on Pell Grants say something important about the state of American postsecondary education at a time when the Obama administration, joining many others, is pushing to increase the number of Americans -- particularly those from low-income backgrounds -- who enroll in college and leave with a credential.

The one clear thing that the numbers say is that -- in a way that wouldn't have been true 20 years ago, or even a decade ago -- for-profit colleges have become a dominant destination for students from low-income families. Nearly a quarter of all Pell Grant dollars now flow to students at proprietary institutions.

That fact is inarguable -- but that may be the only statement about the Pell Grant numbers that won't start a fight. How one sees the implications of that trend line, and whether the enrollment of low-income students in for-profit colleges is a positive or negative development, is very likely to hinge on one's perspective. A financial aid Rorschach test, of sorts.

For administrators at for-profit colleges and many supporters of the institutions, the numbers are proof that the sector is coming of age, and that the colleges are reaching out to a pool of students -- academically underprepared students from low-income families -- that many other colleges have long ignored. These students may have limited options for pursuing a higher education, these observers say, but they are voting with their feet to attend institutions that know how to educate them and are going to give them the support they need to reach their goal -- and a better chance than the other institutions that would open their doors to them.

That's essential, they argue, at a time when there is widespread agreement -- and significant political momentum -- behind the idea that many more Americans need to enter higher education and emerge with a meaningful credential.

"What you see here is that the population that we’re focused on, low-income and working class students, are increasingly embracing alternative forms of delivery" and, with their federal financial aid dollars in hand, "are coming to institutions like ours in increasing numbers," says Peter P. Smith, a former Congressman and public college president who is now senior vice president of academic strategies and development for Kaplan Higher Education. "There is an appetite for postsecondary, lifelong, certificate and degree-oriented learning, and learners are taking this money and going where they want to go to get it."

To some higher education and financial aid experts, however, the burgeoning number of Pell Grant recipients at for-profit colleges suggests several realities: that for-profit colleges are more aggressive than most other institutions both in recruiting students (through marketing) and in ensuring that students they recruit apply for federal aid; that other types of colleges that might historically have enrolled those students -- notably public two-year and some four-year colleges -- are finding their enrollments constrained by state budgets; and that for-profit colleges are heavily dependent on federal financial aid (about 80 percent of all students enrolled at for-profit institutions in 2007 received Pell Grants, according to federal data).

More importantly, they argue, is what the Pell Grant numbers alone don't reveal: whether the educational opportunity that they promise is actually delivered, and if it comes at too high a price. To flesh out that answer, they say, one must look at other data -- about such things as student loan burdens and learning outcomes -- that tell a less positive, if still incomplete, tale. Students at for-profit colleges on average accumulate much heavier debt than do those at other types of institutions, and while the available data on graduation rates and other student outcomes are skimpy, for-profit colleges on average tend to have better completion rates than community colleges do, but worse than many four-year public and private colleges.

"To say that low-income students are going to those institutions is a very different thing from saying that low-income students are being well-served by them," says Sandy Baum, an economist at Skidmore College and senior policy analyst at the College Board. “The idea that we’re having low-income students go to these institutions, not graduate, and come out with tons of debt really concerns me, from a public policy perspective.”

A Complex Picture

Any discussion like this one -- about the pros and cons of low-income students attending for-profit vs. other types of colleges -- is complicated by all sorts of factors. A major one is the wide variation within sectors; while some people at traditional institutions of higher education automatically look askance at any for-profit college, there is wide variation in the quality and mission of private sector institutions, just as there is among two-year public and four-year private institutions, for example.

Using a single tag like "for-profit" to describe both the University of Phoenix and a local trucking school makes no more sense, in many ways, than comparing Stanford University and a small Bible college -- yet the former would both be considered "for-profit," and the latter both "four-year private."

Another complication is attitudinal. The for-profit sector has a checkered past, prompting a Congressional crackdown in the late 1980s that shuttered 1,300 schools that were widely seen as defrauding the government of financial aid and scamming students.

The 1,200 career colleges that remain -- highly sophisticated publicly traded companies and neighborhood beauty schools alike -- still regularly face complaints from disgruntled students and consumer advocates who accuse them of failing to deliver on their educational promises. But the enmity they face in some quarters of traditional higher education at times seems out of proportion, as if the cleansing of the late ‘80s had never happened and accrediting agencies and state and federal agencies were doing nothing to regulate the institutions.

It is in that context that the Pell Grant numbers calculated by Student Lending Analytics land with such impact. They show students at for-profit institutions accounting for nearly a quarter of all Pell Grant funds disbursed by the federal government in 2008-9, up, according to an analysis by the Pell Institute for the Study of Opportunity in Higher Education, from 19.3 percent in 2005-6 and 13 percent a decade ago.

Thomas G. Mortensen, a senior scholar at the Pell Institute and the cruncher behind those numbers, notes that the vast majority of the growth among Pell recipients attending for-profit colleges in the last 15 years has been among students that many traditional colleges and universities have shunned: working adults, especially from the lower socioeconomic strata. That may be starting to change, though, as the largest area of growth for the University of Phoenix in the last year or so, for instance, has been among students seeking associate degrees through its Axia College division, which is aimed much more at traditional-age students.

While the numbers showing for-profit colleges snaring a steadily increasing share of students with Pell Grants may elate advocates for career colleges and trouble critics, Peter Stokes, executive vice president of Eduventures, a research firm, reads them another way: as an indicator of where we are.

“If these schools represent this much of the financial aid pie, how much longer can we keep pretending they don’t exist?” says Stokes. “Some folks may put their heads in the sand and wish these colleges weren’t here, but where are we going to get with that?” Wouldn’t it be a more productive conversation, he says, to try to understand why this is happening and how to ensure that the students who are choosing this route are coming out better for it on the other side?

As administrators at the colleges tell it, their students are often those who either don’t find a place at other institutions or wouldn’t otherwise consider college. Nearly three quarters of potential undergraduates “either don’t meet admissions requirements or meet them and there’s no room for them,” says Bill Pepicello, president of the University of Phoenix.

As the drumbeat about “education as the way to access a middle class lifestyle” grows louder and louder, says Pepicello, more low-income Americans are considering college, a trend accelerated by the current economic downturn, as jobs become scarcer. Many such students would logically turn to community colleges or other open-access institutions, and indeed many of those institutions are reporting booming enrollments now. But many states are also cutting back on funding for their public institutions, forcing two-year colleges in places like California to turn away students who can’t get the classes they need.

“The irony is that the current economic environment creates radically increased demand for higher education, period, and the supply in public institutions, anyway, is capped in many cases,” says Smith, of Kaplan. Add in the fact that, as Smith asserts, for-profit institutions tend to be flexible in adapting their offerings to those most in demand by students and employers, and that, as Pepicello says, the colleges invest significantly in the services and “more careful attention that less sophisticated students tend to need and for-profits are willing to provide,” and it’s not surprising that the institutions are seeing their shares of Pell Grant recipients rise.

Financial aid experts offer other reasons that might help explain the increase. First, the institutions recruit more aggressively than do their competitors for low-income students. “They advertise -- they’re everywhere,” says Sara Goldrick-Rab, assistant professor of educational policy studies and sociology at the University of Wisconsin at Madison. “Think how in your living room they are.” (This aggressiveness can be a vulnerability, too, as for-profit colleges occasionally run into regulatory trouble over potential violations of federal laws that bar them from paying recruiters based on their success in enrolling students. The University of Phoenix signaled last week that it was poised to settle a major lawsuit over that issue.)

The institutions are also much more aggressive about making sure that the students they enroll apply for and eventually receive federal aid for which they qualify -- an area that community colleges would be wise to emulate, for the good of their students, says James Rosenbaum, professor of sociology, education and social policy at Northwestern University. “You walk into the admissions office, and when you’re done, they take you by the hand, almost literally, to the financial aid office, where they say, ‘Here’s how we’re going to help you pay for this,’ " he says. “They spend time with these students, and they get enormous payoff for that time spent. Community colleges don’t.”

”This is a positive thing they do,” says Donald E. Heller, director of Penn State's Center for the Study of Higher Education. “It’s a model that the rest of us can learn from.”

The Loan Burden

The financial aid counseling that for-profit colleges provide to students not only helps them qualify for significant Pell Grant aid -- it also gets them access to the often hefty loans that they need to afford the tuitions that the institutions charge, which are significantly higher than those at public colleges, especially two-year ones. And that is what most troubles Baum, the College Board economist.

A policy brief published by the board in August shows that 96 percent of the students who earned bachelor’s degrees and 98 percent of associate degree recipients from for-profit colleges in 2007-8 had education loans (more than 60 percent had private, non-federal loans), and 19 percent of the associate recipients who borrowed and 60 percent of the bachelor’s holders had accumulated debt of at least $30,000. The comparable figures for public two-year colleges: 38 percent had any loan debt (5 percent of whom had debt of $30,000 or more); for public four-year colleges, 62 percent had loan debt, and 20 percent of them owed at least $30,000.

“The percentage of students who graduate with large debt is higher than for other institutions, and the growth from 2003 to 2007 was huge,” says Baum. “I do think students should be discouraged from borrowing that much money to go to school.”

Baum acknowledges that the questions about debt levels cannot be easily separated from questions about outcomes. Though it’s tricky business, students and families of greater means regularly choose among colleges of differing costs (a more expensive Ivy League or liberal arts college vs. the local state flagship university, for instance) based in part on their expected return on their investment.

But the decision is especially fraught for students from low-income backgrounds, she says. “If you are yourself personally at poor risk of graduating, and you’re going to an institution with low graduation rates, at least make sure you’re not going to leave that institution with huge debt.”

In Baum’s calculation, that would appear to suggest that low-income students would generally be better off at less expensive community colleges. But she acknowledges, too, that many community colleges and non-selective four-year public colleges have very low graduation rates – a fact that officials at for-profit colleges are often quick to point out. How, though, do the academic outcomes of students at for-profit and other institutions compare?

Unfortunately, data on that question are hard to come by. Rosenbaum, the Northwestern scholar, co-wrote an article last winter that found that low income students’ chances of earning an associate degree were “dramatically improved” by going to private two-year colleges (a category that included private nonprofit institutions, but was dominated by for-profits) rather than community colleges. The study did not consider the quality of the content on which the degrees were based, Rosenbaum acknowledges, and it did not fully explain the better outcomes at private institutions, though it suggested that some of the “more innovative” procedures they used to help students stay on track “could be imitated” by community colleges.

Any meaningful comparison of the graduation or other completion rates of for-profit and other institutions, to be fair, would probably have to focus on students from low-income families -- who often come into college with significant academic deficiencies.

Goldrick-Rab, who blogged about Rosenbaum’s study, said the other factor she would throw into the mix of considerations is students’ return on investment from going to various types of institutions. It would be easier to justify the significantly larger debt burden that students at for-profit institutions accumulate if the economic returns over the course of a worker’s career were significantly higher, she says. But the best available data, she says, offer evidence that “the economic returns are the same” for students who attend community colleges and more-expensive for-profit institutions.

Most of those interviewed for this article acknowledge that too little evidence is available to fully answer the most vexing questions raised by the Pell Grant numbers. While they start from different points – Pepicello and Smith confident that their institutions are a good investment for students (and, to the extent federal aid is flowing into them, for taxpayers), Baum and Goldrick-Rab skeptical – there is widespread agreement that for-profit colleges will continue to make the case for their own quality. The University of Phoenix is about to publish its second annual report on its student outcomes, and other institutions, including Capella and Kaplan, have either begun or are preparing to follow suit.

For Smith, given his experiences as founding president of both the Community College of Vermont in the 1970s and California State University at Monterey Bay in the 1990s, the position Kaplan faces now feels familiar.

“In each case, I had to make the argument that what we were doing was sufficiently good, sufficiently qualitative, that it would change people’s lives,” he says. “Look at the battles that community colleges won; they used to have to fight, now they’ve come of age. I think there is a process of acceptance that you go through, and that’s what [for-profit colleges] are going through now.”

Stokes, of Eduventures, argues that it will be impossible for the country to meet President Obama’s goal of 60 percent of Americans with postsecondary credentials unless all institutions, for-profit and non, play a meaningful role. Given their history and their approach, for-profit institutions are, appropriately, “going to be held to a higher standard,” and subject to special regulation, he says. But the institutions have long been “rapping at the door, saying take us seriously,” and the Pell Grant numbers say, at the very least, that increasing numbers of students are.

“They are here, they are serving someone, so they must be doing something right,” Stokes says. “The way I look at it is, are there ways we can improve upon what’s being done at those institutions, and are there ways that the public and private nonprofit institutions can learn from the for-profits to increase their scale, to help us meet some of these more ambitious goals?

“It just seems like we might be able to combine the best of both worlds.”


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