The Obama Administration today puts its foot down on the metaphorical hose through which federal funds flow to for-profit colleges, likely leading to another round of bankruptcies and campus closings.
Choking off the flow of federal dollars to schools whose graduates don't do well in the job market is intended to save taxpayers money and protect students from spending their time and money on degrees that do them little or no good -- and that often wind up costing much more than students expect.
"The student advisor said the degree I was interested in would be $16k total for tuition, with payments of $50.00. Upon graduation, the total for tuition turned out to be $34k with a combined payment of over $400.00 a month," a Payson, Utah, student said in a ConsumerAffairs review of Everest University last year.
A growth industry
It was only a few years ago that for-profit schools were seen as a growth industry and were touted as more efficient and responsive than traditional nonprofit public and private colleges. But then a hard truth emerged: graduates of the for-profit schools were having trouble finding jobs.
Students found that many employers simply didn't equate a degree from a for-profit college with one from a public or nonprofit private school.
That was the situation Gina of Seattle encountered when she graduated from ITT: "ITT basically made many promises but never came true. I have a BA in criminal justice and can not find a job to save my life. None of my fellow students have either. It's been almost two years. My student loans are around $80,000," Gina said in a ConsumerAffairs review.
In October 2014, after issuing the new rules, the White House listed shortcomings of for-profit schools:
- Students who attend a two-year for-profit institution pay four times as much as attending a community college.
- Eighty-eight percent of associate degree graduates from for-profit institutions had student debt, while only 40 percent of associate degree recipients from community colleges had any student debt.
- Students at for-profit institutions represent only about 11 percent of the total higher education population but receive 19 percent of all federal loans and make up 44 percent of all loan defaulters.
The weapon being wielded by the Obama White House is the Education Department's "gainful employment" rule, which was upheld by a federal court last week. It requires colleges to track their students' success in finding jobs and shuts down funding for those with poor placement records.
The rule applies to nonprofit schools as well but in the vast majority of cases, graduates of traditional nonprofits have a much better record of finding jobs in the field for which they trained and also have a much better record of paying back their student loans.
The department has estimated that the rule will result in the closure of 1,400 programs that enroll more than 840,000 students, nearly all at for-profit schools.
Out of business
Many of the nation's larger for-profit chains have already severely cut back or gone out of business. Corinthian Colleges, which includes Everest College and several others, shut down in April.
Besides the Education Department initiative, large for-profit schools like ITT are facing lawsuits by students as well as federal and state agencies. Just last month, Education Affiliates agreed to pay $13 million to resolve a Justice Department claim that it had submitted false claims to the Education Department for federal student aid.
In January, Kaplan Higher Education -- once owned by The Washington Post Company -- agreed to pay $1.3 million to settle a Justice Department suit that it employed unqualified instructors.