For-profit colleges place investors, profits over students: Senate report

Tag for profit colleges, Kaplan, Phoenix, predatory student recruitment, Strayer, U.S. Senate Health Education Labor and Pensions Committee, U.S. Senator Tom Harkin

by Mary Ellen Flannery

The hierarchy is clear: At for-profit colleges, investors and profits come before students, concluded a Senate committee investigation, which this week released thousands of pages detailing the routine abuse of students and taxpayers at schools such as Kaplan, Phoenix, Strayer and others.

In this report, you will find overwhelming documentation of overpriced tuition, predatory recruiting practices, sky-high dropout rates, billions of taxpayer dollars spent on aggressive marketing and advertising, and companies gaming regulations to maximize profits.

Sen. Tom Harkin, D-IA, the chair of the Senate’s Health, Education, Labor and Pensions (HELP) committee, who called for legislative reform of the industry.

“These practices are not the exception,” he said. “They are the norm; they are systemic throughout the industry, with very few exceptions.”

The result of a two-year investigation, the report revealed:

• Salaries and profits: The Senate’s investigators uncovered administrators routinely padding their own pockets, even as students emptied theirs. In 2009, 30 companies devoted 22.4 percent of all revenues, or $4.1 billion, to marketing, advertising, recruiting and admissions staffing, and 19.4 percent, or $3.6 billion, to profit. Meanwhile, they spent a scant 17.7 percent, or $3.2 billion, on student instruction. The average college CEO salary was $7.3 million in 2009, more than seven times the average salary of large public university presidents.
• Predatory recruiting: At some colleges, recruiters have misled students about the length and cost of their programs, and the value of their degrees. Earlier this year, former Iowa student Eric Schmitt told the NEA Higher Education Advocate that he had piled up more than $50,000 in debt while earning a mostly worthless bachelor’s degree in legal studies from a local for-profit. He had been working as an assembly-line worker in a pesticide plant when he said, “My wife pays for our apartment. If it weren’t for her, I’d be destitute on the streets.”
• Staggering public investment: American taxpayers invest more than $30 billion a year into companies operating for-profit colleges, including 25 percent of Department of Education student aid funds; 37 percent of post-9/11 GI Bill benefits; and 50 percent of Department of Defense student aid funds. These sources accounts for 86 percent of revenues at the 15 publicly traded for-profit college companies.
• Money for nothing: Associate degree and certificate programs at for-profit colleges cost four times more than at public community colleges, and bachelor’s degrees at for-profits cost 19 percent more than state universities. To pay these sky-high prices, 96 percent of students will take out loans, and more than one in five will default on those loans within three years. Even worse, most won’t even get a degree for their debt. The investigation found that 64 percent of associate degree students in 2008-09, and more than 50 percent of all degree students, withdrew by 2010 without earning a degree.

In his recent book, Change.edu: Rebooting for the new talent economy, author and Kaplan Inc. CEO Andrew Rosen assure readers that profit actually motivates for-profit operators to do everything possible to meet the needs of customers. “Kind of the way, one presumes, that health insurance providers and cable TV companies work so hard to serve their customers so well,” writes Western Washington University professor Bill Lyne in an upcoming Thought & Actionjournal book review.

Budget and policy choices have created the market opportunity for ed-companies, Lyne says, and for-profit education lobbyists played a role in creating those opportunities. Meanwhile, public funding for state colleges and universities continues to plummet (and tuition, consequently, to rise), leaving students stuck.

With the findings of the report in mind, and also the huge investment by taxpayers into the for-profit industry, Harkin urged the schools’ operators to reform and refocus on the success of their students. Legislative, protective action by Congress likely is necessary, Harkin said— although it’s unlikely that lawmakers will take up any reform measures until 2013.