Posts Tagged ‘for profit colleges’

A recently filed lawsuit alleges that officials of Florida State College at Jacksonville conspired to compete with a for-profit college with a campus in Jacksonville. This is not true.

With an enrollment of 85,000, our college has plenty of students.

What is true is that Keiser University is retaliating against our efforts to raise awareness about excessive student loan debt.

In collaboration with the U.S. Department of Education, Florida State College at Jacksonville has been significantly involved in efforts to improve student loan consumer protection.

In our view, strong measures are urgently needed at state and federal levels to ensure consumer protection against the abusive practices of some for-profit colleges that can saddle vulnerable students and their families with a lifelong burden of debt without any realistic prospect for repayment.

Such excessive debt often precludes further education and may severely impair the student’s ability to secure future employment and housing. Ultimately, American taxpayers pay for loan defaults, which currently total an estimated $47.4 billion.

Federal studies and investigations have found the for-profit college industry to be at the center of this student debt crisis and have raised serious concerns about some of their business practices.

The leaders of Florida State College at Jacksonville are concerned primarily about the exploitation of students in Northeast Florida by profit-focused colleges as these (typically young) citizens pursue their dream of a higher education.

As one of the largest and most comprehensive public colleges in America, Florida State College at Jacksonville offers nearly every program of interest at tuition rates among the lowest in the nation.

The college’s commitment to student loan minimization led to the establishment of the Star Opportunity Fund – one of the largest local need-based financial aid programs in the country.

The number of scholarships awarded by the fund to low-income students has increased by 176 percent over the past two years, and the college’s foundation has launched a massive campaign to make far more resources available to students.

Florida State College at Jacksonville officials will continue to combat excessive student debt while working hard to protect the interests of our local college students.

We will not let this lawsuit deter us from our mission of providing high-quality, affordable education to our community, nor will it deter us from sounding the alarm about some of the business practices of the for-profit college industry.

STEVEN R. WALLACE,

president,

Florida State College at Jacksonville

 

From: http://jacksonville.com/opinion/letters-readers/2010-10-08/story/non-profit-collegesconsumers-need-protection?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JacksonvillecomOpinion+%28Jacksonville.com%3A+Opinion%29

For-Profit Institution Sues a Public-College President, Alleging a Smear Campaign

In a clear sign of the heightened tensions over proposed new federal regulations on for-profit colleges, Keiser University, a for-profit education system based in Florida, has sued a public-college president there, accusing him and a top administrator of smearing Keiser by communicating derogatory comments about the for-profit education industry to investors and others via e-mail. Keiser itself is not publicly traded, but its founder and chancellor, Art Keiser, has been an outspoken criitic of the proposed regulations. The civil suit was filed in state court against two officials at Florida State College at Jacksonville—its president, Steven R. Wallace, and its vice president for government relations, Susan M. Lehr.

From: http://www.forprofitedu.com/2010/10/keiser-university-files-civil-suit-against-florida-state-college-at-jacksonville/

Student Success Stories Ignored

WASHINGTON, DC (September 29, 2010) – In advance of a new round of expected criticisms of career colleges by Iowa Democratic Senator Tom Harkin at a planned Thursday hearing, more prominent Democrats and progressive advocates are asking for fairness for students of private sector colleges and universities.

In a letter sent today to Harkin, Coalition for Educational Success spokesperson and former Clinton Administration Special Counsel Lanny J. Davis said that the Senator’s overly broad criticisms of career colleges along with proposed U.S. Department of Education rules, would likely have a disproportionate negative effect on disadvantaged students’ access to higher education, especially the lower income and minority students who predominantly attend these colleges.

Davis, a long-time supporter of Senator Harkin’s, asked the Senator to try for more balance and fairness in the planned presentations at Thursday’s hearings.  “I hope that you will not, in fairness, ignore the millions of private sector college student and graduate success stories and not allow one witness with unproven allegations to testify without permitting another witness at the same table at the same time to provide a contemporaneous factual rebuttal.  I respectfully suggest that to do otherwise would be unfair–and inconsistent with all I have observed in your public service over the years,” said Davis in the letter to Senator Harkin.

Davis joins more than 80 members of Congress, including dozens of prominent Democrats, who have voiced their concern over proposed Education Department rules heavily promoted by Harkin, which would limit college access and choice for minority and poor students.  Just this week, progressive Democratic Senators Roland Burris, Herb Kohl and Bill Nelson asked for reconsideration of the proposal.  Leading groups in the African-American and Latino community have also added to the growing chorus of opposition.

More than 2 million students will enroll in career colleges this year, seeking a direct path into the job market by expanding their skills and knowledge.  The overwhelming majority are non-traditional students – full time workers, working parents, minorities, workforce returners and veterans.

Forty-three percent of students at career colleges are minorities and sixty-five percent are women.  The schools graduate nearly double the proportion of minority students when compared to other institutions.

“In the worst economy in a generation, we need more minority and underprivileged kids in college, yet some in Congress and the Obama Administration are considering new regulations that will create obstacles instead of opportunities,” said Davis.  “Underserved students, more than any others, depend on private-sector colleges.  Proposals being discussed will have dramatic consequences by denying choice and access to students, impeding skills training to fill open jobs in the workforce and choking innovation in higher education.”

From http://ed-success.org/press-release-concern-over-criticism-on-private-sector-higher-education.php

The Obama administration has taken steps to stop federal funding of for-profit institutions that are preparing too few of their students for “gainful employment” and that boast high student-loan default rates. Jesse Jackson and several members of the Black and Hispanic Congressional Caucuses have spoke out against these steps. In a letter to Secretary of Education Arne Duncan (September 15, 2010), Jackson stated, “I am concerned that the proposed rule casts too broad and too general a brush on many institutions, some of whom are doing an excellent job at serving economically disadvantaged and minority students.”

Herein lies the problem with Jackson’s claim: The institutions that are doing an “excellent job” won’t lose funding as their students are much more likely to secure employment by earning useful degrees. In addition, these same students will be more likely to pay back their students loans because they are employed. Jackson and others are worried that low-income, first-generation African-American and Latino college students will lose out on opportunities for a college education if the Obama administration holds for-profits more accountable. In truth, holding these institutions more accountable will help racial and ethnic minorities. It does not serve anyone well—African-Americans, Latinos, Whites, the nation overall—to have a degree that doesn’t lead to gainful employment or, worse, is not respected by employers. And in fact, granting degrees that are of low quality sets up a two-tiered system in which racial and ethnic minorities as well as low-income Whites pay the price.

Instead of critiquing the Obama administration’s attempt to raise the quality of education for all students—but especially low-income students who frequent for-profit institutions—Jackson, members of the Black and Hispanic caucuses, and all of us for that matter, need to be pushing for more access and greater degree attainment at colleges and universities that care deeply about the future prospects of their students. We need to pay particular attention to racial and ethnic minorities—not only because it is the right thing to do—but because they are quickly becoming the majority of the population.

If you take a closer look at the outcomes of attendance at for profit institutions, the Obama administration’s actions make sense. For example, according to the National Center for Educational Statistics, default rates measured 4 years after students begin repaying their loans show that students who attended for-profit schools have a higher default rate than those who attended non-profit public and private institutions. Specifically, public institutions have a rate of 7.1 percent, private institutions 6.2 percent and for-profits 19.2 percent. In fairness, although the for-profit sector’s rate is higher than that of other sectors, according to Government Accountability Office data, it is still beneath the threshold cut-off rates that disqualify schools from Title IV eligibility.

If we turn our attention to graduation rates, for-profits have lower six-year graduation rates than their non-profit counterparts. For example, according to a recent Chronicle article, 44 percent of students who seek a four-year degree at a for-profit institution graduate. That compares with 54 percent of students attending public four-year colleges and 64 percent enrolled at private, non-profit, four-year colleges. If we look more closely, African-Americans graduate at a rate of 40 percent at for-profit institutions, compared to 45 percent at non-profit colleges and universities (NCES, 2005).  Likewise, Latinos graduate at a rate of 50 percent at non-profits, but only at 46 percent at for-profit institutions (NCES, 2005).

Of course, higher loan-default rates and lower graduation rates can be explained, in part, by the student population served by for-profit institutions. Research tells us that low-income and first-generation students are more likely to default on their loans and less likely to graduate. Other colleges and universities that serve those populations also struggle with the same issues that for-profits do, but they do not operate with a goal of making a profit.

Although there are for-profit institutions that are graduating racial and ethnic minorities at a commendable rate, anytime you mix making money with education—especially the education of low-income, first-generation, or racial and ethnic minorities—it is vital to have the highest level of accountability measures in place. The Obama administration is doing the right thing by holding institutions that make a profit off of education, as well as those that don’t, accountable for providing a quality experience to students and making sure these students graduate with valuable degrees.

From: http://chronicle.com/blogPost/Gainful-Employment-Jesse/27192/?sid=at&utm_source=at&utm_medium=en

BANGALORE (Reuters) – U.S. for-profit colleges, widely criticized for saddling students with big debts and not fully preparing them for the workplace, are kicking back as they garner public support.

Having seen their stock prices slump by a third since April as their business model has come under sustained attack from the Obama administration, education companies such as Apollo Group and Corinthian Colleges have begun a counterattack.

Corinthian has run a marketing campaign to raise awareness of the “unintended consequences” of the proposed rules, and has urged Washington to reconsider them.

Student unions, Republican senators and even some Democrats are lining up behind these schools in opposing the proposals that are seen crimping colleges’ growth and tightening enrollment policies.

The new rules would limit schools and the amount of help students could get, according to Dawn Connor, president of Students for Academic Choice, a student group that opposes the regulations.

“Default rates are up all over the place, that’s because the economy is down. I don’t think it should all be blamed on for-profit schools,” said Connor, who this week organized a student rally on Capitol Hill to protest the proposals.

The tough rules framed by the Department of Education could see fewer courses on offer and more students excluded from post-secondary education at a time when high unemployment and a slow recovery are bringing more people back to schools.

The department last week delayed releasing a final rule on the most controversial reform, citing the large number of critical comments, some 100,000, it had received.

The ‘gainful employment’ rule says the government would stop lending to college programs if more than 65 percent of ex-students fail to pay the principal on federal loans.

In August, the department released loan repayment rates of for-profit schools that showed most did not meet the required threshold to qualify for federal aid.

Morningstar analyst Todd Young said companies and industry groups were waiting to see the detail of the gainful employment proposals before firing back in earnest. These are now expected early next year.

“As the public comment period came to an end in September, the industry finally started its counterattack,” Young said.

Republicans also voiced their opposition to the proposed rules at a Senate hearing on Thursday.

“It’s naive to think these problems are limited to just the for-profit sector,” said Republican Sen. Michael Enzi, noting large debts owed by many law school graduates. “We’re just looking at this in a vacuum and that’s not fair.”

Democrats face the threat of losing control of one or both chambers of Congress in November mid-term elections amid voter anxiety over jobs and the slow pace of economic recovery.

The proposals could prompt 400,000 students out of post-secondary education each year, and trigger 90,000-100,000 job losses, according to a study by Parthenon Group — as schools will have to trim programs that don’t offer students solid job prospects.

“The government needs to think about access to education, how they can help students who want to get education but can’t afford loans and certainly can’t afford to get themselves into a lot of college-loan debt,” said Steve Loflin, executive director of The National Society of Collegiate Scholars, which provides scholarships to high-ranking students.

Some for-profit schools argue their default rates are high as they primarily serve some of society’s weaker elements.

“The biggest effect I see is the underserved population are going to be turned out again. I don’t think that’s a great result because those are the folks that are likely to need public assistance,” said Signal Hill analyst Trace Urdan.

STILL TAKING FLAK

But the schools are still coming under fire for charging high fees and running loose admission policies.

Rich Williams, higher education advocate at U.S. Public Interest Research Group, said for-profit colleges were still being irresponsible in their recruiting, and noted that they charge $15,000 for certification for programs like massage therapy — that costs about $520 at community colleges.

“If anything, these high-risk students should not be going to for-profit colleges,” said Williams, one of a 13-member team that helped the education department draft the new regulations.

Sara Fuller, a student at Apollo’s University of Phoenix, said she was never asked if she had a job or could repay loans before being enrolled on an associate degree in criminal justice.

“I called the university and was enrolled in classes on the same day,” said Fuller, who is pushing for tougher regulation as, even after investing over $12,000 in her degree, she’s not sure of getting a job.

Over the summer, negative stories about the for-profit education industry were not hard to find. A government study showing misleading sales tactics, congressional hearings that painted a negative image of the industry, and stricter industry regulations proposed by the Department of Education all fed into the anti-for-profit education story being pushed by short sellers.

Throughout the summer, the industry was rather quiet–rarely defending itself. We believe most companies and various industry groups were in a holding pattern, waiting for the DoE’s official proposal on gainful employment before firing back and defending themselves fully. As the public comment period came to an end in September, the industry finally started its counterattack. After taking their time to digest the gainful employment proposal, education companies, industry groups, and other interested parties sent a barrage of comments to the DoE, explaining their concerns with the proposal. Given the vast number of public comments–estimated to be over 100,000 in number–the DoE recently delayed the publishing of its final gainful employment regulation until early next year (Nov. 1 was the original deadline). It will also hold various meetings and public hearings in the near future to further discuss the issue.

While the delay could be construed as an increase in the likelihood that the DoE will once again soften the regulation, we caution investors that it could be nothing more than the DoE needing extra time to sift through the large number of public comments. We continue to believe this policy is not the best way to address the issues surrounding education. However, given the DoE’s hard-line stance toward regulating for-profit schools, we question the DoE’s willingness to make further concessions, even if they are in the best interest of the public. That said, a change to the proposal is not out of the question.

In our opinion, the current proposal fails to look at traditional, not-for-profit schools, which undermines the issue that student debt loads and a tough employment market are problems that affect all students and not just for-profit ones. Additionally, the rules create many unintended consequences, potentially harming quality schools as opposed to just impacting the bad actors, which is the intent of the regulation. Also, the regulation seems abruptly put together as it uses different data than what will actually be used when the regulation is implemented. This means that the DoE’s current impact analysis could be significantly different than the actual results.

After reading through various comments from the companies as well as industry groups, we believe they have made a good case for why the regulation, as proposed, is bad policy. The Association of Private Sector Colleges and Universities, or APSCU (formerly the Career College Association), even argued that the DoE doesn’t have the legal authority to institute the rules in the proposed regulation. The APSCU argues that Congress already addressed student debt levels and institutional default rates in the Higher Education Act and it has not given the DoE authority to override or augment the current requirements. The APSCU also points out that the regulation violates due process because it does not allow institutions access to the data used in its calculations. We have heard other industry insiders question the legality of the regulation. While it would be in everyone’s interest to resolve this issue without a legal fight, if the regulation goes through as proposed, we would not be surprised to see legal challenges.

Congress could preempt any legal challenges by passing new laws. However, we don’t think there is the political support to make that happen. The Republican Party is cautious of over-regulation, and they could potentially gain additional congressional seats in the upcoming elections. Additionally, many Democrats oppose the regulation as they fear it could limit educational access for minorities and lower-income students.

So what does all of this mean for investors? We believe the majority of any regulatory impact is already factored into most of the education companies’ stock prices, creating investment opportunities within the space. In our opinion, many stock prices reflect an overestimation of the impact and also imply a near 100% probability that the regulation goes through as currently proposed. One prominent short seller openly admitted that he would not be short this industry without the regulation. Given the political and legal headwinds facing the regulation as well as pricing that already reflects a dire scenario, we question why anyone would still be short many of these stocks.

One example of where the market appears to be overestimating regulatory impact is Apollo’s (APOL) stock price. The company’s $50 stock price implies an almost 50% hit to its earnings. The company even recently traded as low as $39 before the industry started to fully defend itself. This approximate 50% earnings drop was first promulgated by a short seller before the most recent gainful employment proposal was issued. However, when an updated proposal was issued, it created two additional ways to remain eligible for financial aid access. Additionally, Apollo scored relatively well (a 44% repayment rate versus a 45% threshold for full eligibility) on one of the DoE’s preliminary tests. Despite the fact that the likelihood of a sever earnings impact has decreased significantly, it appears the market is still factoring in a 100% probability of a massive hit to earnings. Also keep in mind that the 50% hit to earnings was an estimate that we believed was overly bearish even under the initial, more stringent regulatory proposal.

Instead of a 50% hit to earnings, we believe a more likely scenario for the higher-quality education names is a slight dip in their enrollment followed by decreased growth opportunities. A recent study from an independent, nonpartisan think tank that favors the regulation, Education Sector, supports our opinion. Education Sector concluded that only 6% of programs at the 14 publicly traded education companies would be ineligible and 21% would fall into the restricted category. Restricted programs would face enrollment caps, limiting growth but not necessarily causing an enrollment decline. The remaining programs would fall in one of two categories: fully eligible, or requiring a debt warning. Programs in either of these categories should see no material impact on their growth prospects. We even believe that providing incoming students with aggregate debt levels is a good thing for all programs, not-for-profit and for-profit alike.

To put this impact into perspective, let us compare the potential impact from this analysis to our original growth estimates before any regulation. Our original growth estimate for the industry was 10% compounded annually over the next few years. Assuming Education Sector’s estimates hold, our new growth estimate drops to 1.3%. This scenario of limited to almost no growth is a far cry from the massive earnings losses that are baked into many education companies’ stock prices.

Here is how the math works. If we assumed a 100 student population index, our estimate for the following year with 10% growth would be 110 students. However, given 6% of programs would be ineligible, that index would decrease to 94 students. An additional 21 students would be in programs that could not grow. But the remaining 73 students would be in programs that can continue to grow at our original 10% estimate. Growing these 73 students by 10%, and adding back the 21 students that are still in restricted programs, results in 101.3 student index.

We are cautious to give too much weight to the exactness of the impact analysis that studies like Education Sector’s provide. As is the case with the DoE’s impact analysis, the use of estimations and substitute data sources (like using the Bureau of Labor and Statistics versus the Social Security Administration to estimate student earnings) make any calculation just an approximation. However, we believe it gives a good ballpark figure as it relates to the potential impact.

A common theme in Education Sector’s study echoes what we have been saying. Higher-quality education companies will likely see a more limited impact than others in the industry. In fact, this study suggests that Apollo, Strayer (STRA), Grand Canyon (LOPE), DeVry (DV), Capella (CPLA), and Bridgepoint (BPI) will have no programs that fall into the ineligible category. So while the exercise above gives an indication of the industry impact, these schools should experience a milder decline in growth. This study even indicates that Apollo will only see 10% of its programs in the restricted category. Therefore, a 50% decrease in earnings potential is a vast overestimation, in our opinion.

Finally, it is important to remember that this impact analysis is by no means 100% accurate. One of the key flaws in this proposal is that it lacks the detail and data needed to fully analyze the impact. Additionally, the downside industry scenario described above is only likely if the regulation goes through as proposed, which is still a big if. Given the market’s overreaction and the excessive fear surrounding increased regulation, not to mention the potential for a favorable change in the proposal, we believe there are numerous investment opportunities in the industry. However, we would advise investors to stick with the higher-quality names as the eventual impact should be less detrimental to their operations compared with the rest of the industry.

Disclosure: Morningstar licenses its indexes to certain ETF and ETN providers, including Barclays Global Investors (BGI), First Trust, and ELEMENTS, for use in exchange-traded funds and notes. These ETFs and ETNs are not sponsored, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs or ETNs that are based on Morningstar indexes.

From: http://seekingalpha.com/article/228028-the-for-profit-education-industry-fights-back

  • Posted by Robert W Tucker , President at InterEd, Inc. on September 13, 2010 at 12:15pm EDT
  • Not everyone who wrote to the Department objecting to the proposed rules has skin in the game.

    http://www.intered.com/storage/deptofed/InterEdTuckerLetter-to-Duncan_090810.pdf

    On balance, my work will be unaffected by the outcome. I wrote my response because the proposed regulations are blatantly hypocritical and unfair, and riddled with logical and empirical errors, half-truths, and at least one lie. Perhaps worst, is the fact that the proposed rules would not accomplish their stated goals. They would work against these goals via a myriad of “unintended” consequences. Sometimes I wonder if there is anything left but politics and special interests in the federal process,and if our leaders are even capable of objective, dispassionate thought. I encourage everyone involved at senior levels of higher education to read the proposed rules.

    A few of more than a dozen key points:

    1. The Administration’s reasons for proposing this narrow application of rules to 12% of the market and not the other 88% are: (a) that for-profits cost the taxpayer more and (b) have higher loan values and default rates. Both claims are empirically false. Not grey areas . . . they are false. First, economists vary in their assumptions and therefore their findings when determining taxpayer costs of institutional types but the absolute range is from zero to $4,500 for for-profits with less than $2,000 being based on the most sound models, and $10,500 to $16,500 for publics. Second, examining the feds own loan database for loan payback and default for public colleges serving higher proportions of lower income, first-generation students, turn in higher loan values and lower payback percentages.

    2. The rules, as proposed, are based on intentionally distorted empirical foundations. The largest proportion of variance in the variables of interest (default, etc.) are accounted for by loan value and debt/income ratios. From a different perspective, these same variances are accounted for by student and family demographics (e.g., University of Phoenix programs offered to established, working business people have among the lowest default rates in the nation; on the other hand, their programs designed to serve the underclass have high drop out and default rates. (I have no interest in defending UOP. They are not a client. I mention them because I know their default rates in detail.)

    Common sense right? I guess not because the schools to be regulated by these proposed rules: (a) will not be permitted any visibility into how much their students borrow, (b) will not be permitted to determine whether their students can reasonably be expected to be able to pay back what they borrow, and (c) will not be permitted to have any influence whatsoever on the amount borrowed. These schools will be held accountable for behavior over which they will be denied any control or visibility. Does that sound fair to anyone?

    Statistics are widely available showing the growing trend of students borrowing as a substitute for saving and working, even taking out maximum student loans to purchase cars and homes. Under the proposed rules, the schools will be held accountable for these excesses but will not be permitted to learn of them until they receive their after the fact default notice from the feds. And, what is the fed’s position this growing loan problem? One need only look at the fed websites to see that they are encouraging students to borrow as much as they “need” and to consolidate loans. At the same time, the proposed rules count consolidations as defaults against the schools. (There is more detail to this but the main point stands.)

    3. The Administration appears to believe that the at-risk students taken away from the “expensive” for-profits will be well served by other choices. “What they mean by this is tax-supported public institutions where the total cost is north of tuition plus $10-16K (~$20K). The Administration seems ignorant of the fact that public institutions across the nation have turned in double-digit tuition increases, some as high as 17%, with hidden fee increases reported as high as 54%. In the meantime, they are closing doors on programs, reducing enrollments, and turning record numbers of applicants away. These are the schools these the Administration would have the displaced underclass students attend. The truth is that these public institutions do not want and will not admit many of these students. Let them eat cake, I guess.

    Much attention has been given to the culinary industry as an example of programs for which students of for-profit schools do not meet reasonable gainful employment tests and that the public institutions could just as easily educate. Today, 59% of the culinary bachelors degrees are delivered by for-profits. No knowledgeable person could suggest that the public 4-year institutions could pick up this load when, at present, they provide only 11% of these degrees. Take a look at what the National restaurant Association said in their plea to the Department to look at the facts. They depend on the for-profits for an educated workforce and they are worried. See: http://www.intered.com/storage/deptofed/NRA_Gainful_Employment_Comments.pdf

    4. The Department has ignored technical shortcomings in the proposed rules, noting they can be worked out later. To suggest this is either disingenuous or naive. The department of education has a near perfect record of creating rules that it does not and cannot enforce. Who — in reality, based on track record — will work out the bugs in this approach and enforce the final versions? How will that work take place and why would we think it will take place since the history of this kind of detailed follow-up is an embarrassment to the Department?Additionally, every single abuse of the student loan system that has been uncovered to date – whether in for-profits, independents, or publics – is covered under existing law. Law that has not been adequately enforced. This and most federal departments follows a standard practice of proposing new rules to address problems created by failing to enforce current rules. Then there is the fact that each administration wants to leave its stamp on every major industry.

    5. There are more than 900 for-profits colleges and universities. Some serve only the underclass. Some offer only advanced degrees to senior professionals. All but a small handful are not publicly traded. They are small companies closely tied to their communities, employers, and the professions they serve. These 900 schools have little more in common than any 900 schools selected at random from the IPEDS database.

    The proposed rules are clearly designed to slow the growth of the large publicly traded for-profits without regard for the fact that they don’t fit hundreds of schools and will close the doors of dozens of small schools that are serving students no one else wants or will admit.

    To anyone working in a public institution who might be enjoying the suffering of your for-profit colleagues, I would advise you to put principle of equity and rationality over immediate self-interest. The feds have plans to come after you next and you will have lost your opportunity to stop this paternalism, unreasonable for 17-21 year olds, notwithstanding the fact the 40% of college students are working adults and something in the area of 75% of the for-profits’ students are working adults.

In recent months, a number of media outlets have launched bazooka on bumblebee smack-downs of the for-profit education industry. PBS’s Frontline recently aired College, Inc., and Bloomberg BusinessWeek has reported on the for-profit industry’s recruitment of the homeless.

But with only about 7% of all students attending for-profit colleges, are they really worthy of all the bad press?

Relax: I come to bury the for-profit colleges, not to praise them. As I’ve written before, I don’t believe that anyone should attend a for-profit college for undergraduate education. Even if they have the best of intentions (and most don’t), they’re at a significant competitive disadvantage to their non-profit peers: they have to pay taxes, don’t benefit from rich endowments and donations, and generally don’t own millions of dollars worth of real estate free and clear: their cost of capital is far, far higher than non-profits. These obstacles make it nearly impossible for for-profits to compete with non-profits on a value basis — even before you take into account the profits they pay out to shareholders. That they are able to compete as well as they do is actually a testament to just how poorly-run non-profit colleges are.

The issue here — and the reason I’m getting sick of all the for-profit trashing — is that for-profit institutions hardly have a monopoly on exploiting undergraduates to fund projects that don’t benefit them. The University of Phoenix charges inflated fees to fund dividends and executive bonuses. The University of Florida charges inflated fees to pay basketball coach Bill Donovan $3.3 million per year and MIT spends $200,000 per bed on a vanity project dorm. Colleges across the country dole out massive salaries to high-profile faculty who conduct their own research and teach few classes.

And what of the claim that for-profits are shamelessly taking money from students who are unlikely to graduate and benefit from higher education. Bad news: non-profits do the exact same thing. As education expert Marty Nemko has reported, “[A]mong college freshmen who graduated in the bottom 40 percent of their high school class, 76 of 100 won’t earn a diploma, even if given 8 1/2 years. Yet colleges admit and take the money from hundreds of thousands of such students each year!”

There’s certainly a distinction between for-profits and non-profits — but it hardly seems like one that the non-profits can use to claim some sort of moral high ground. It’s time for the media to lay off the greedy capitalists who are exploiting 7% of college students and take a long, hard look at the greedy bureaucracies that are exploiting the other 93%.

Follow Zac Bissonnette on Twitter: www.twitter.com/zacbissonnette

On Saturday, The Hill published an article that discussed how Senate Democrats and for-profit educators were sparring over the Department of Education’s proposed gainful employment restriction. The article noted:

‘High student loan debt coupled with low repayment rates signal a questionable investment for students and taxpayers,’ the Democrats wrote Thursday in a letter to Education Secretary Arne Duncan. ‘We encourage swift implementation of the gainful employment regulation and would be concerned with any efforts to weaken the proposal.’

In their haste to see the Department of Education implement the gainful employment rule, some Democrats have overlooked an important point –the gainful employment rule will harm the very people who most deserve increased access to higher education.  Students at for-profit schools are disproportionately low-income and minority students who come from working class families.  These hardworking students from non-traditional backgrounds are often not privileged with the same means, support systems or opportunity as their peers who attend traditional colleges and universities.  That may explain why “for-profit colleges make up roughly 10 percent of college students but 44 percent of student loan defaults.”

Those who have argued for the gainful employment rule have consistently failed to look at the statistics within the context of the type of students’ attending for-profit higher education.  Many of those engaged in this debate have ignored that these students enrolled in the for-profit sector come from at-risk backgrounds where the non-traditional approaches and flexible schedules of for-profit education make graduation a possibility.  These students deserve our support, especially in this recession.

Without for-profit schools, many low-income and minority students would not have an option in higher education.  Access to higher education remains an issue that rule-makers and their supporters should take into account before they cut off support for thousands of students.

Larry Penley Ph.D

http://larrypenley.com/2010/09/14/jousting-over-higher-ed/

Enzi Blasts ‘Gainful Employment’ Proposal on For-profit Schools

Sen. Mike Enzi (Wyo.), senior Republican on the Senate education committee, is slamming a White House proposal designed to prevent students at for-profit career colleges from defaulting on their loans.

The proposal, Enzi said in comments submitted this month to the Department of Education (DOE), would not only disadvantage for-profit schools relative to their nonprofit competitors, but also limit access for many low-income and minority students, who tend to enroll in for-profits disproportionately.

“Admissions at for-profit institutions may become more selective, and otherwise academically qualified students may be denied admittance,” Enzi wrote. “This outcome is contrary to nearly 50 years of Congressional efforts to make postsecondary education accessible to all Americans.”

The comments echo those of scores of other lawmakers — many of them Democrats — who are pushing the administration to delay the rule until the issue can be studied further.

The issue is of great importance for the health sector because an enormous number of the nation’s health professionals — from nurses to medical technicians — get their training at for-profits.

Under the proposed rule, for-profit programs would have to demonstrate that annual loan payments among recent graduates are less than 8 percent of their starting salaries. The idea is to ensure that graduates will be earning enough to pay off their debts after graduation.

The penalty for non-compliance is steep: Programs that fail to meet the standards could lose access to federal financial aid — of which 23 percent ($24 billion) went to for-profit schools last year.

Enzi said applying the new standards only to for-profit schools “will be sending the message that the Federal government is not concerned with the outcomes for over 75 percent of the Federal investment in student financial assistance.”

Moreover, Enzi argued, it’s not the government’s role to ensure that students’ educational choices “pay off.”

“Federal student financial assistance has historically been provided to increase access and help make postsecondary education more affordable,” Enzi wrote. “It does not remove the responsibility of students and their families to make informed choices and to understand the financial consequences of those decisions.”

The comments put Enzi at sharp odds with Sen. Tom Harkin (D-Iowa), the chairman of the Senate education committee who’s urging the White House to adopt the so-called “gainful employment” rule as quickly as possible.

“High student loan debt coupled with low repayment rates signal a questionable investment for students and taxpayers,” Harkin wrote to the DOE on Sept. 9. “[W]e encourage swift implementation of the gainful employment regulation and would be concerned with any efforts to weaken the proposal.”

Bolstering Harkin’s argument, the Education Department this month issued new figures showing that the student-loan default rate at for-profits rose from 11 percent in 2007 to 11.6 percent in 2008 — much higher than default rates at nonprofit schools.

“While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not,” DOE Secretary Arne Duncan said in a statement announcing the figures.

Still, not all liberals are supporting the rule. Jesse Jackson, head of the Rainbow PUSH Coalition, is on Enzi’s side, arguing that the change, while well intended, would hurt minority students.

“The amount of debt a student incurs and the student’s ability to repay that debt are not reflections of the quality of an institution,” Jackson wrote in his own comments submitted to DOE. “To apply a standard that looks at debt and repayment as a measure of quality misses a greater opportunity to hold all institutions to a higher standard of student outcomes, namely, graduation rates and successful post-graduation careers.”

The DOE is hoping to finalize its rule by Nov. 1.

The Liberal Paradox

Suppose that a conservative Republican Administration, in the middle of high unemployment and an economic slowdown, proposed new regulations that would most hurt lower income people and minority groups and the for-profit colleges and universities that serve them? Can you imagine the cries of outrage from liberal critics, condemning “hard-hearted” Republicans targeting the most vulnerable young people in our society?

Yet that is exactly what the Department of Education’s proposed “gainful employment” regulations would likely do. They are almost exclusively aimed at “for profit” private colleges, which are predominantly comprised of lower income and minority students. Let’s be careful about characterizing, as some liberals have done, those schools catering to such vulnerable at-risk students with “open admission” policies as “bad actors” whereas the more selective elitist Harvards and Stanfords with less student loan defaults are deemed “good actors.”

This has the uncomfortable look and feel of disparate class and racial treatment – which should make liberals very uncomfortable.

So how to explain the paradox that, in fact, these proposed regulations are being proposed by a progressive Democratic Administration and its strongest proponents are liberal members of congress?

There appear to be three explanations – each one less meritorious than the other.

The first is a simple misunderstanding of the facts. For example, liberals supporting these proposed regulations rightly complain about marketing and other abuses. But the fact is, such abuses occur at non-profits and public institutions as well as at for-profits and, in any event, the gainful employment regulation doesn’t even address the issue of these abuses (although liberal commentators and editorial writers continue to conflate the two issues).

Moreover, those liberals who cite the excess “cost” of student loan defaults among the lower income and minority students ignore two inconvenient, indisputable facts: first, billions of dollars of taxpayer subsidies that go to non-profits and public colleges are not available to for-profits; and for-profits cost taxpayers substantially less per-student each year than non-profits and public colleges, when the approximately $1 billion of taxes/year paid by for-profits are taken into account.

Second, this is a classic example of overly broad regulations confirming the law of unintended consequences.

How overly broad? According to the Department of Education’s own data released last month, its proposed “gainful employment” regulations are so poorly crafted that if applied to non-profits too (which they currently are not), Harvard Medical School, D.C.’s famous minority school, Howard University, and 93 of 100 Historic Black Colleges in the U.S. would all fail the so called loan repayment test. But, supporters of the regulation say, failing just one-of-two tests won’t result in loss of student federal loan eligibility. However, just recently, Iowa Democratic Senator Tom Harkin, one of the strongest proponents of this proposed regulation, suggested that failure of the loan repayment test alone should be enough to bar student loans to those who need them the most.

This is why numerous members of the Congressional Black Caucus have strongly weighed in against these proposed regulations and more and more representatives from minority and blue collar communities are waking up and opposing the proposed regulation.

The third explanation appears a classic example of ideology trumping facts: the instinctive negative reaction of many liberals to the word “profit” when associated with providing education. This seems uncomfortably similar to opposition by most liberals to private “charter” schools within urban public school districts, opposition that seemed increasingly paradoxical as more and more inner city parents supported having the choice of charter schools for their children.

The fact is, it is precisely the profit motive that causes for-profits to offer more flexible, consumer-responsive schedules and courses, such as night classes, online courses, and new curricula that are directly responsive to recent changes in the job market.

Clearly Secretary Duncan needs to put an amber light on the “Gainful Employment Regulation” as it is presently written. As Harry C. Alford, President and CEO of the National Black Chamber of Commerce wrote recently, “student debt is a national problem, one that must be addressed, but imposing regulations on schools that are effectively educating students is unnecessary.”

If any regulation is necessary, then Mr. Duncan owes it to the most vulnerable students who will be disproportionately hurt by the current version to use a scalpel, not a hatchet, and to address the issue of excessive student debt at all higher education institutions – not just at for-profits, but at non-profits and public universities as well.

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Lanny J. Davis, a Washington D.C. attorney and former Special Counsel to President Bill Clinton in 1996-98, serves as a paid “Special Advisor” to the Coalition for Educational Success, a group composed of several companies that own and operate for-profit higher educational colleges in the U.S.