Posts Tagged ‘for-profit schools’

By mschnittman

In Senator Harkin’s opening remarks during the recent congressional hearings on higher education, he stated, “We have a responsibility to ensure that taxpayer dollars are being spent wisely, and that for-profit colleges are serving students, not just shareholders.” As the CEO of TopSchool and previously serving as the president of eCollege, I understand the need to serve shareholders. However, I couldn’t agree more that the ultimate goal of those of us in education is to serve the student.

For-profit colleges have a huge opportunity to move education forward, and at a great value to taxpayers. They have already made great strides in driving access, innovation and a trained workforce.

For-profit colleges make education possibilities a reality for the underserved, non-traditional student population. The Department of Education states that the Student Aid Objective is “to ensure that low and middle income students have the same access as high income students do.”

The for-profit education industry delivers an attractive alternative to students who are lower income, minority, older and/or more financially independent. Roughly 76% of for-profit college students are financially independent compared to 50% at public schools, and 45% of for-profit college dependent students come from families in the lowest income quartile compared to 24% at public and 22% at private non-profits.1 These for-profit college students are not choosing between paying their own way or getting federal financial aid – rather they are choosing between not getting educated and federal financial aid.

In fact, according to the U.S. Department of Education, the average Estimated Family Contribution for a student attending a four-year, non-profit school is almost $17,000, which is 123% greater than the $7,500 average for a student attending a four-year, for-profit school. Ironically, this is almost exactly the same ratio of the federal aid required by a student attending a for-profit school compared to a non-profit school.

For-profit colleges sit on the forefront of innovation when it comes to flexible delivery and schedules, giving more students the chance to succeed.

When you consider that 60% of for-profit college enrollments occur on a rolling basis, 2 meaning frequent intervals during the year, flexibility is key. For-profit colleges invest significantly in meeting the complex needs of their non-traditional students through online education, night and weekend offerings, and smaller suburban/satellite campuses. This consistent drive to satisfy their students has resulted in 65% of for-profit college students attaining a degree within six years after enrollment, slightly higher than students attending four-year, non-profit schools.3

For-profit colleges also focus on aligning their programs with the fields and jobs that are most in demand. According to Imagine America Foundation, for-profit colleges currently enroll more students (44%) in high demand fields than do public (18%) and private, not-for-profit (13%) institutions.2 In fact, 17 of the 20 fastest-growing occupations are in the key focus areas of for-profit schools, including the healthcare and computer/data processing industries, with an estimated 1.8 million jobs being created in these fields through 2016.2 These are positions that graduates of for-profit colleges can fill.

Not only are for-profit colleges training students, but they are getting them placed in the workforce. Consider the percentage of students who are employed within six months of graduation – in 2009, DeVry University reported a 90% placement rate for these students, while larger universities such as UCLA and Johns Hopkins reported only a 45% rate.4 And overall, 76% of for-profit college students who completed an award in 2005 were employed directly following graduation.2

Before we jump into the numbers, I think it important to point out that both for-profit and non-profit models work effectively. For-profit institutions are similar to state systems of higher education in that graduates of both models step out into a demanding job market after earning such degrees as an Associate’s in Accounting, a Bachelor’s in Finance or Computer Engineering Technology, a Master’s in Business Administration or Education – and the list goes on and on.

That said, what do taxpayers invest in students at for-profit schools? And to round out the equation, what is the taxpayer investment to support students at non-profit schools as well?

Let’s start on the for-profit side. I analyzed four large, publicly traded for-profit institutions – DeVry, ITT, Strayer and Corinthian Colleges. Using the data available in their most recent annual reports, I wanted to determine the taxpayer investment required to educate one student for one year. I calculated a “net taxpayer investment” by taking the annual Title IV revenue received for all four schools, in this case $3.5 billion, and subtracting the annual taxes provisioned by the institutions, in this case $377 million. As noted in the table below, this number, divided by the student population served, which was around 313,000, resulted in the net cost to taxpayers of roughly $10,000 to educate a student for one year at one of these for-profit schools.

Keeping that equation in mind, let’s take a look at the non-profit side. In addition to federal financial aid, students enrolled in public, non-profit institutions reap the benefits of state funding for education. You’ll notice that no federal taxes are provisioned for these non-profits as they don’t pay them.

Since I reside in Colorado, I’ve used publicly available information about our own higher education system. According to the Colorado Department of Higher Education, in the Fall Term 2009, the state enrolled just over 240,000 students in its 28 two-year and four-year institutions. During that same year, the Department was allocated almost $2.8 billion in state funds and received over $1.2 billion in federal student financial aid. The table below shows that the net cost to taxpayers to educate a student in the Colorado Department of Higher Education in 2009 was almost $17,000, which is 66% greater than at the for-profit institutions.

Federal Loans
Of course, if we are looking at a net investment to taxpayers, we need to remember that much of the federal subsidies for higher education come in the form of loans. For a variety of reasons, students default on their loans. According to an analysis by the Chronicle of Higher Education, the 15 year loan default rate for for-profit students enrolled in four-year programs is 30%, as compared to 15.1% for non-profit students.5

Using the example from the Colorado Department of Higher Education, when you account for the percentage of education subsidies that are loans (compared to grants or state appropriations) and the difference in default rates, the adjusted taxpayer investment per student at a for-profit school is roughly $4,100, compared to $13,200 at a non-profit school, driving the State of Colorado non-profit education to a 224% premium over for-profits.

Both for-profit and non-profit institutions play valuable roles in our country’s need to educate the masses. All aspects of our society benefit the more educated we become. The fact is that we need both choices to effectively serve our country’s diverse population.

We can’t deny that the high growth, for-profit college industry should be held accountable for its recent issues, including the misguided information given to students by admissions representatives, higher default rates and so on. However, we also can’t ignore the tremendous value these schools provide to students. I believe the overall value to taxpayers is well worth the growing pains.

The critical factor in both the for-profit and non-profit models should always be the students. Students need accurate and credible information to make an educated choice in determining their path. At the same time, schools need to use data to better understand the type of student who is a good fit for their program and the ways in which they can ensure the success of that student.

In my career in the education market, I’ve learned the importance of data in providing a quality educational experience, both in the way education is delivered and the way it is managed. This principle guides everything we do at TopSchool, as we have built a next generation student information system – and that is exactly what the leaders of both for-profit and non-profit schools like about our model.  The majority of the data and information that Senator Harkin and others want to provide to prospective students can be accessed through a system like ours. We believe the key is making it accessible and available to the right audiences.  In addition to the many uses for prospective students, access to data can also guide college and university leaders to better understand their students and drive stronger learning outcomes, student satisfaction and retention.

Regardless if the school fits the for-profit or non-profit model, those schools that rely on data to make decisions that benefit their students will deliver a tremendous value not only to their students, but also a high return to us as taxpayers, to our workforce, and to the future of our country.


Taxpayer Investment in Higher Education

Last week, I spent a few days in Pennsylvania and have returned to Denver energized for things to come. Along the way, I was stuck behind a number of major traffic accidents and was re-routed extensively. It gave me an opportunity to see much of the PA country side and was worth the detour.

A colleague and I had a great meeting with a business college in the region. They have significant growth plans and are looking to utilize a student management system to increase operational efficiencies. We all look forward to further discussions with them.

I was honored to be invited to speak at the Pennsylvania Association of Private School Administrators Annual Conference.  I welcomed the opportunity to discuss the power of Software as a Service (SaaS) solutions to the attendees. SaaS solutions are flexible, low maintenance and can help schools focus on recruitment, retention and placement, rather than IT. It was great to see schools embrace the concept of SaaS.

In addition, I was excited about Mike Artim’s presentation, and he didn’t disappoint. Mike is the Executive Director of Cambria-Rowe Business College. Cambria-Rowe has been talking with employers in the region to better understand the skills and competencies they are looking for to fill positions. The school is evolving its program curriculum to adapt to the changing needs of the employers. Mike also discussed how Cambria- Rowe is leveraging technology in the classroom through the use of digital content, iPads and other vehicles.

Thanks to the efforts of the group at PAPSA for an enlightening career college conference, I look forward to participating next year.

I’m always looking for feedback, how is your school leveraging technology to create efficiencies?


1U.S. Department of Education, National Center for Education Statistics, “National Postsecondary Student Aid Study 2003-2004 (NPSAS: 2004).”
2Imagine America Foundation, “Economic Impact of America’s Career Colleges (2007).”
3U.S. Department of Education, National Center for Education Statistics, “1995-96 Beginning Postsecondary Students Longitudinal Study, Second Follow-up (BPS: 96/01).”
4Daniel Hamburger, DeVry University, “The Vital Role of the Private Sector Higher Education,” 2010, (data originally pulled from institutional websites, May 2009).
5 The Chronicle of Higher Education, “Government Vastly Undercounts Defaults” July 11, 2010.

By Kevin Kuzma

“Make a difference” is a call to action that is used so often, it sometimes doesn’t even register with us. The trouble with that phrase is that we frequently give our time or money to causes and we know it makes an impact, somehow, even if the results aren’t immediately evident to us. When it comes to such a call and reaching out to elected officials, it can seem even more futile: the government is a big, inaccessible behemoth, we think. It might pretend to listen, but given the thoughts and views of millions of others who want their opinions to matter, too, how can it?

This summer has been incredibly rough on career education. Nearly every day, the “for-profit” sector of education, as the media has deemed it, has fallen victim to scathing reports using either conflicting data or student anecdotes meant to cast all schools in a negative light. Read the last part of that sentence again: “meant to cast ALL schools in a negative light.”

The cards have been stacked, so it seems, by these biased reports and a Senate that’s done what it can to call to light the flaws of our sector. Some of their findings have been relevant and shown a need for improvement in various practices. But they’ve also gone about their investigation in the most public, unrelenting and potentially damaging way possible. Our schools have been cast in the most embarrassing light you can shine on a sector.

As hopeless as all the negativity toward career education might have made you feel over the last few months, you have a chance to make a difference. Really. You have a chance to make your voice heard – and in a format that matters. While it might sound like a rally cry (and to a certain extent, it is), you can stand up for your students, for your profession, and for what you do by sharing your thoughts on the Department of Education’s (DOE) proposed gainful employment rule.

Less than two weeks remain to submit public comments to the DOE about its gainful employment proposal. The best measure you have available to make sure gainful employment stops stumbling forward is to submit your thoughts directly to our elected leaders. Share your view about why gainful employment is wrong. Explain who it negatively impacts. Tell them why we should explore other alternatives.

The Career College Association (CCA) has made a few clarion calls to its members, requesting that they stand up and be heard by submitting their comments. And, CCA has made it easy to share your thoughts with a website that gives you everything you need to send your letters today.

Your words can be as concise as you like. What matters is that your voice is heard, and that it contributes to the collective din we want legislators to hear. Your words and those of individual students – the people who actually work inside of or regularly attend classes at career colleges – can change the discussion. What you have to say can convince your Congressman and Senators to thwart the proposed metric on September 9.

This is your only chance to file your comments with the US government and have them play a real part in the future of our schools. Our country’s leaders are going to be reviewing those remarks to see how valid counter-arguments are to their proposal and how passionate our sector is about the rule they want to impose. Share it all with them while the floor is yours.

The debate on proposed regulation of for-profit colleges [“How to discourage college students,” editorial, Aug. 22] missed the larger point: As a nation we are failing to connect the dots between college and careers. Our research shows that college is increasingly the only path to middle-class earning power. Students need user-friendly information about the costs of postsecondary education and the potential earnings in their chosen career if they are to successfully become part of tomorrow’s workforce.

We need to do a better job of connecting the dots between the costs and returns of postsecondary education. In truth, the basic data already exist in the form of wage records, transcript and program data, figures on job openings and detailed information on occupational competencies. Properly assembled, such an information system would minimize, though not eliminate, the future need for aggressive federal oversight or state-level regulation, a matter at the heart of the current debate. Rather than get sidetracked by discord, our common goal should be to compile this information effectively and make it publicly available.

Anthony P. Carnevale, Washington

The writer is director of the Center on Education and the Workforce at Georgetown University.

So maybe we should rate for-profit colleges on whether their graduates can turn a profit and measure their “profitability” by the default rate on their students’ loans? This makes at least as much sense as some of the yearly high-stakes, minimum-standards testing that drives (down) much of the curriculum in many K-12 public schools. If we implement this standard, let’s make sure the for-profit colleges don’t meet the standards by reducing the percentage of poor students admitted.

Have the goal be 100 percent on-time loan repayment by 2014 for all economic categories — poor, lower-middle-income, middle-income, high-income — and 100 percent repayment for separate sub-categories: special education students, English-language-learners, fine arts majors, etc. Or is such an approach “good” for public schools but somehow not so good for for-profit corporations?


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Joyce Migdall, Falls Church

Please visit this website and let your voice be heard!  We need to fight for our rights to keep educational choices available in the United States.

a noted Wall Street short-seller, Steve Eisman, gave a speech criticizing certain public companies that are for-profit colleges and universities. Eisman is known for “shorting” stocks in public companies in the sub-prime industry before the collapse — meaning he made tons of money when these companies’ share values went down or virtually collapsed.

For the uninitiated, at the risk of oversimplifying, you make money “shorting” stock by borrowing someone’s stock at a certain share value and then, if the share values go down, repaying the loan at a lower amount, pocketing the difference.

Eisman, in his May 26 speech before the Ira Sohn Research Conference in New York City, criticized some for-profit colleges and universities that are public companies (such as the Apollo Group, which owns the University of Phoenix, Corinthian College and Kaplan University (owned by The Washington Post). He suggested they were on financially shaky ground due to high student default rates from Department of Education Title IV loans and excessive debt-to-income ratios, to name just a few of his criticisms.

Stories appeared shortly after the speech that the share values of the companies that Eisman had criticized dropped immediately and considerably — and that Eisman had “shorted” these stocks, and thus profited handsomely. Whether the share values fell as a result of Eisman’s criticisms is up to a logical reader — or inquiring member of Congress — to determine.

Eisman also penned an extensive op-ed in the New York Post. But he made no disclosures in that piece as to how much he had shorted in the companies he was criticizing and how much he had profited if and when the share values dropped.

Similarly, on Thursday morning, in front of the Senate Health, Education, Labor and Pensions (HELP) Committee, chaired by Sen. Tom Harkin (D-Iowa), Eisman is repeating similar charges. Yet he doesn’t make any specific disclosures that I can discern, at least from the written testimony I have read, as to what stocks he has shorted in the companies he has criticized in the past, and what his current short positions are and how much.

I’ve known Harkin for many years. He is one of the best senators ever. But he has always stood for transparency. I suspect he will demand such full disclosure and transparency this morning from Eisman.

Private-sector colleges are part of the mix of higher-education options available to lower-income kids, representing 2.7 million (about 7 percent) of the current students in higher education. Many of the students would qualify as non-traditional — working adults, low-income students and minorities — and can fairly be described as “higher risk” compared to students at traditional universities.

One report, using U.S. Department of Education data and issued by the Parthenon Group, said that students at two-year private-sector colleges graduate at rates approximately 50 percent higher than public schools. In addition, the graduation rate for four-year private-sector schools is virtually no different from traditional four-year schools — 43 percent compared to 45 percent, according to the Integrated Postsecondary Education Data System (IPEDS).

In a 2009 report, the National Governors Association (NGA) said this: “Private two-year colleges have much higher graduation rates than public two-year colleges, even though they enroll similar students.” The U.S. Department of Education’s National Center for Education Statistics (NCES) data corroborated the NGA’s study: “Four-year career colleges that are predominantly minority-serving exhibit a higher graduation rate than public and private institutions that also serve minority students (47 percent versus 33 percent and 40 percent, respectively).”

And what happens when private-sector colleges graduate their students? A review of the data shows that these students get a job and pay their debts. Default rates of for-profit students are basically the same as students from community colleges (11 percent versus 10 percent, respectively). While it’s true that for-profit students have higher default rates than public and nonprofit colleges, the GAO reported in 2009 that “the characteristics of the students who attend the schools” account for the differences in the loan defaults, not the kinds of institutions these students chose to attend. In other words, lower-income students have higher default rates than wealthier students, whether or not they attend for-profit or non-profit schools.


Let’s concede that, in the for-profit college industry, there are bad apples. Congressional oversight and U.S. Department of Education rules give ample ability to focus on fraud, root it out and end it.

But the notion of pervasive, systemic abuse and fraud as suggested by Eisman, more with innuendo than hard facts, may not stand up to scrutiny.

We need oversight and regulation for sure. We also need full disclosure and transparency by short-seller critics — for sure too.


This piece appears today, June 23, 2010, in Mr. Davis’s regular weekly column in The Hill, “Purple Nation” and The Daily Caller, an online political website.

Mr. Davis, with his own Washington firm, Lanny J. Davis & Associates PLLC, served as special counsel to President Bill Clinton from 1996-98 and was a member of President George W. Bush’s Privacy and Civil Liberties Oversight Board in 2006-07. He is the author of Scandal: How “Gotcha” Politics Is Destroying America (Palgrave MacMillan 2006).

From the Huffington Post –

THE OBAMA administration is considering rules that could sharply limit the availability of for-profit colleges to American students. The government is right to fashion reasonable regulation to discourage fraud or misleading practices, but it would be wrong to impose rules that remove an option that is especially useful for poor and working students.

Readers should know that we have a conflict of interest regarding this subject. The Washington Post Co., which owns the Post newspaper and, also owns Kaplan University and other for-profit schools of higher education that, according to company officials, could be harmed by the proposed regulations.

But our feelings about career colleges, as the for-profits are often called, are consistent with our editorial policy on education more broadly: that is, the more options available to parents and students, the better. Particularly among some Democrats, that’s not always the prevailing view. But for the most part it has been the philosophy of the Obama administration, which is why an effort to narrow choice in this area would be inconsistent as well as misguided.

In a speech on higher education in Texas this month, President Obama noted that getting more Americans into — and successfully out of — college is an economic imperative. “It’s an economic issue when the unemployment rate for folks who’ve never gone to college is almost double what it is for those who have gone to college,” Mr. Obama said. “Education is an economic issue when nearly eight in 10 new jobs will require workforce training or a higher education by the end of this decade.” But the president noted that in college completion the United States has been “slipping. In a single generation, we’ve fallen from first place to 12th place in college graduation rates for young adults.” He vowed to reverse that trend.

Read the rest of the article at –

Commentary found here –

One of the biggest risks facing publicly traded for-profit educational institutions is the Department of Education’s (DoE) proposed “gainful employment” rule. Under the proposed rule, schools where less than 35% of students are repaying the principal on federal education loans would essentially become ineligible. Schools with 35-45% would face restrictions on their ability to receive these loans. There are some additional income stipulations, where if debt is 8% or less of income, then the above restrictions can be waived.

Notably, the rule is set to only apply to for-profit institutions, not publicly funded 2 or 4-year schools.

The rationale for these rules is noble. The government wants to insure their investment in education is resulting in employment where the student is making enough incremental salary to show the value of the education received.

Private Sector Education Repayment Rates

Shortly after announcing the proposed rules, the DoE released a report that detailed the repayment rates at over 8,400 institutions, both for-profit and not (download it here). This release caused the share prices of many for-profit companies to tank, as several of them fell well below the 35% threshold. The consolidated repayment rates and weighted average federal debt per student at some of the larger companies were:

Corinthian Colleges (COCO) 24% ($6,794)
Strayer (STRA) 25% ($14,908)
Washington Post’s Kaplan Division (WPO) 28% ($7,458)
ITT Education (ESI) 32% ($10,608)
DeVry (DV) 35% ($13,373)
Career Education (CECO) 36% ($10,775)
Apollo Group (APOL) 44% ($13,324)

Those are unquestionably some poor numbers, leading to an explosion of reactionary journalism and “analysis” that immediately concluded that the bear case on for-profit educators, of being “churn and burn” marketing institutions, must be true. In fact, a New York Times article had a quote from Debbie Frankle Cochrane, program director at the Institute for College Access and Success, that read “I think it’s notable that the for-profits are the only type of school where the majority of students are unable to repay their loans”.

With several of these companies a part of Magic Formula Investing, the issue is important to followers of the strategy (as well as investors at large). Is it really true that for-profit institutions are wholly unconcerned with educating their students? Is the problem just that the insatiable greed of capitalism is to blame for low repayment rates at private sector schools?

All Students Are Not The Same

For the purposes of this article, I’ll put aside the objections raised by firms like Strayer that argue that consolidation loans, which are often structured as interest-only or graduated income repayment, are not considered in the repayment rates. That is fine, but if the methodology was the same for all schools, the net effect should be similar and bring down repayment rates for all schools.

More of interest to me was raised on Corinthian’s conference call last Friday. Corinthian raised a very salient point: these companies, particularly the 2-year focused ones like COCO, ITT, DV, and CECO, service a generally low income, minimally educated demographic. In fact, up until this year a quarter of Corinthian’s enrollment was “Ability To Benefit” students, a program set up by the government to allow students with no high school diploma or equivalent to attend higher education. It is of little surprise that ATB students graduated at low rates, defaulted on loans frequently, and were hard to place in jobs (Corinthian is dropping them for 2011). Most programs at these 2-year schools are vocational, and targeted at either older students or younger students that do not possess the desire, SAT test scores, or GPA to be accepted into public universities.

Could it be that the relatively low repayment rates at many of these institutions were due more to the demographic they served as opposed to the supposedly poor quality of education they delivered? I wanted to test the hypothesis.

Is There A Demographic Pattern?

One way to test the demographic theory on the DoE’s data is to look at some 4-year public schools (the ones not ruined by capitalism). Data about average student incomes at public schools is obviously difficult to come by, but reputation is a good place to start. MagicDiligence operates from Baltimore, and I started there with a few inner-city and rural colleges that, by reputation, service low income demographics:

Coppin State University 23% ($11,958)
Morgan State University 23% ($14,765)
University of Maryland, Eastern Shore 31% ($12,433)

Hmmm… all 3 schools have similarly low debt repayment rates. We’re off to a good start, but this is clearly not enough data. Let’s stretch the example out some. Athletic conferences are built around schools with similar demographic populations, so let’s look at the rest of the Mid-Eastern Athletic Conference (MEAC):

Bethune-Cookman 15% ($12,890)
South Carolina State 17% ($15,583)
Savannah State 20% ($12,511)
Delaware State 21% ($15,316)
North Carolina Central 22% ($20,367)
Norfolk State 24% ($13,325)
North Carolina A&T 27% ($12,036)
Howard 32% ($31,789)
Florida A&M 32% ($18,804)
Hampton 42% ($17,377)

Well, this is interesting! The entire conference of schools have repayment rates below 45%, and only Hampton even clears the DoE’s 35% restricted threshold. 7 schools have lower repayment rates than Corinthian, the worst of the for-profits (1 is the same). And all are sticking the federal government with more than double the debt of the 2-year schools (challenging another myth that for-profits are way more expensive than public schools).

So, the MEAC should be shut down by the DoE and shorted by Steve Einsman. But is this an anomaly? What if we look at another conference of low income demographic public universities? Let’s take the Southwest Athletic Conference (SWAC):

Mississippi Valley State 8% ($19,143)
Grambling State 12% ($17,111)
Jackson State University 12% ($20,433)
Alabama State 14% ($15,102)
Arkansas Pine Bluff 14% ($13,559)
Alcorn State 15% ($15,398)
Southern 18% ($19,621)
Prairie View A&M 20% ($20,833)
Alabama A&M 21% ($18,186)
Texas Southern 23% ($17,931)

That’s even worse than the MEAC! The entire conference, 10 publicly funded schools, with repayment rates well below Corinthian’s (drastically below ITT and DeVry), and with more than double the repayment obligations.

Clearly, Debbie Frankle Cochrane is dead wrong when she asserts that only for-profit schools have students that cannot repay their debt. But do we really believe that all of these schools are “churn and burn” institutions, uninterested in the outcomes for students? I think it is unlikely that is the case.


While I realize that this is by no means an exhaustive analysis, I think it is more then enough to show that demographics matter to repayment rates – and they matter a lot. The “best and brightest”, with well-to-do families that pay a significant portion of their bills, should not be the standard for which a student who went to work out of high school to support their family is.

Furthermore, the “gainful employment” rule seems to do a very poor job at weeding out the bad apples in for-profit education – the ones that are not truly providing valuable instruction. In fact, for these low income students, the trade-based for-profit schools are a much better value than the 4-year publicly subsidized schools. They are providing jobs that allow higher repayment rates and leave students with much lower debt burdens, according to the DoE’s own data!

A better plan would be to simply do what has been done – limit federal aid based on cohort default rates. This system has been fairly successful, penalizing a school when cohort defaults exceed 25% for three consecutive years (or 40% for one year). Even lowering these rates by a few percentage points would help the bad apples to shape up. If the DoE is really serious about pushing “gainful employment”, for which no positive outcome studies exist, a better idea is to include consolidation loans that are current. It is unfair to penalize any school (private or public) for loans that are current, regardless of the repayment schedule.

I fear that, if passed, all this rule will succeed in is limiting educational opportunities for low income students looking to better their position in life. We need a better way to weed out what schools are providing value vs. those that are not.
Disclosure: Steve owns APOL, COCO, ESI

A diverse group of critics has recently been sounding alarms about for-profit colleges. The naysayers assert that for-profits have low graduation rates, poor career placement, excessive profit margins, and high default rates on loans. Sen. Tom Harkin (D., Iowa) and financier Steven Eisman have even compared the growth of for-profits to the subprime mortgage bubble.

What are the facts?

As of 2008, the for-profit sector, which has grown rapidly over the last decade, included 9% of students enrolled in American colleges and universities. For-profit colleges run the gamut from vocational schools that give certificates for culinary or beautician training to schools that grant bachelor’s, nursing, medical and master of business degrees. Some of these schools have regional accreditation (the highest type) from the same organizations that accredit elite public and private universities.

The graduation rates of some for-profit institutions are well above 50%—as high or higher than those of many four-year public colleges, let alone community colleges and nonselective public and private colleges (which often have rates below 50%).

All schools’ graduation rates are driven by selectivity and demographics (including the income, age, race and prior education of students and the education level of their parents). Students who attend for-profits typically work during the day and go to school at night. Often they matriculate online. They may be single mothers. They borrow not just for tuition but for general expenses. And they do have relatively high default rates. Their average two-year default rate is 11%. For public nonprofits the rate is 5.7% and for private nonprofits it is 3.7%.

Like graduation rates, default rates are driven by demographics. At for-profit colleges, 39% of degrees are conferred to minorities who tend to be, on average, in tougher financial shape and more likely to be the first in their families to attend college. At public nonprofits, 20% of graduates are minorities. In addition, 76% of students at for-profit colleges are financially independent, meaning their parents do not support them. But colleges don’t control student borrowing, so they don’t control how much debt students accrue.

As for career placement, more than 90% of graduates of Rasmussen College, with which I am associated, are currently employed, despite the recession. Across for-profits, placement rates for students who get degrees in medical technology, business administration, information technology and design are all high.

Many students at for-profits are indeed at risk of not completing their degrees, as increasing access and opportunity do not always lead to high graduation rates. Education officials and critics should realize that increased access is likely to mean strains on graduation rates. But that is not an argument against offering nontraditional students an education that would otherwise be beyond reach.

For-profit colleges are also leaders in online education, which President Barack Obama and the Department of Education have correctly said will be critical in the 21st century. Many nonprofits still do not have the expertise or financial resources to develop, deploy and support effective online programs. This has led some to establish online-education partnerships with for-profit institutions.

It is true that students at for-profits use federal Pell Grants and Title IV loans to help pay tuition. But for-profits—which don’t have access to endowments built up by decades of private donations—use private capital for construction, don’t use state or federal funds for their operating budgets, and don’t use taxpayer funds to hold down tuition rates (as every state university does). Those who argue that for-profits drain public resources are ignoring parts of the story.

Of course, state and federal governments should insist that for-profits and nonprofits alike be transparent with regard to student debt, graduation rates and job placement. At present, the data are incomplete and imperfect. They can also be misleading.

For example, when parents and students decide to pay or borrow for education, they weigh the cost against a lifetime of future earnings. But snapshots of earnings immediately after graduation are poor predictors of lifetime earnings, especially in the present labor market. It is hard enough to know the income of graduates of elite universities, and all the more difficult to get such information from students who study online. Both sectors should do better at reporting.

Nonprofit public universities such as the University of California are cutting access because of cost pressures, and many students are now failing to find suitable places in state and community colleges. For-profit colleges offer these students paths to better careers and higher earnings. It is to no one’s advantage to thwart a growing sector that is training underserved people.

Mr. Bienen is vice chairman of the board of Rasmussen Inc., a for-profit college, and president emeritus of Northwestern University.