A report last month showing many students at for-profit colleges aren't repaying their school loans has prompted the federal government to propose new oversight for these enterprises.
The U.S. Department of Education has proposed rules that would make these for-profit colleges and universities ineligible for government-backed student loans if fewer than 35 percent of students and former students are paying their loans. Schools would also be denied access to federal funds if graduates are spending more than 12 percent of their income to pay back student loans.
Education Secretary Arne Duncan has asked Senate Education Committee Chairman Tom Harkin (D-IA) for more federal scrutiny of for-profit schools. Sen. Dick Durbin (D-IL) is also an advocate of greater oversight.
While responsible for-profit colleges offer a valuable alternative to students, there are too many schools taking advantage of students and making money hand over fist, Durbin said. Some for-profit colleges are spending a quarter of their revenues on marketing and recruiting, and up to 90 percent of those revenues come from federal funding.
"We need to consider whether it is wise for companies to profit so handsomely on federal funding when the results dont match the investment. And we need Congressional action to rein in abuses and ensure that taxpayer dollars are being wisely spent, Durbin said.
Plenty of complaints
Students writing to ConsumerAffairs.com have long complained about for-profit schools' financial aid policies and the financial burden it places on them.
I applied for information to the University of Phoenix at the end of May, 2009, Jodi of Brigham City, Utah, told ConsumerAffairs.com. I was approved and told to apply for financial aid. I explained that I couldn't afford to get too much in student loans and they said to apply for the Free Application for Federal Student Aid (FAFSA).
Told that her tuition would be about $8,000, Jodi said she told her counselors she couldn't afford to borrow that much. She said she was told that she would likely get most of that money in a Pell Grant. But it didn't work out that way.
On June 24 I, received a letter stating that I got $1,179 in Pell money, and $8,000 in student loans, Jodi said.
Amy of Anchorage, Alaska, says she is in her third year at Strayer University and, to date, has not received any money from financial aid.
I called last week and was told that the administration department does not speak to the financial side and so there is a mess up and there is no telling when my money will come, Amy told ConsumerAffairs.com. I was shocked and sent a complaint to the main office in Virginia, last week. No response still! They have the money I have to pay back with interest and will not give it to me or call me back.
Raking in federal dollars
Durbin says many for-profit colleges that have raked in federal dollars while leaving students poorly trained and drowning in debt. These schools have flourished, in part he says, because of a lack of federal oversight.
The vast majority of for-profit colleges see 75 to 90 percent of their revenues coming directly from the federal government. The amount of revenue that can come from federal student loans and Pell Grants is capped at 90 percent, but Durbin says many schools are lobbying for that cap to be removed.
Because most courses are taken online, many students turn to for-profit colleges because they offer flexible schedules and distance learning. They also have open enrollment. Unlike private and state-supported colleges, students do not have to meet admission standards.
The industry is growing rapidly, with the help of federal dollars. While for-profit schools enroll just 10 percent of all students in higher education, Durbin says they receive 25 percent of all federal financial aid.
$20 billion in student loans
The Illinois Senator says the industry as a whole received $20 billion in student loans and $4 billion in Pell Grants from the federal government last year. As of 2008, the 14 publicly traded companies in the industry enrolled 1.4 million students, a 225 percent increase over the past ten years.
According to the Department of Education, for-profit colleges are the only type of school where the majority of students are unable to repay on the principal of their student loanonly 36 percent of former students are in repayment. In addition, for-profit colleges cost five times more than public two-year colleges and twice as much as public four-year universities on average.
The lawmaker says many for-profit colleges engage in aggressive student recruiting, spending barely half of their revenues on education and nearly one-third on recruiting and marketing. According to a recent investigative study conducted by the Government Accountability Office, recruiters at all 15 for-profit colleges studied purposefully misled potential students about the costs, duration, and quality of their programs.
Students, especially low-income students, come to these colleges in droves, lured by promises of high-paying careers, flexible courses, and easy financial aid, Durbin said. But when they enroll, they may find that far less money is put into educating them than on recruiting them. And if they do leave with a degree or certificate, they may find that it is basically worthless.
