For-profits gaining ground, but changes loom

SACRAMENTO – A year ago, Joseph Carrillo Jr. had to fight to get into overcrowded classes here at the public American River College. He couldn’t find a guidance counselor, and he felt lost. So he switched to the private University of Phoenix, where everything fell into place — at 17 times the cost.

Carrillo’s move from the community college to the for-profit university shows the allure of a higher-education sector that is growing so fast the federal government wants to rein it in. The 24-year-old, who hopes to own a business someday, said he was impressed by the ease of course-scheduling at his new school and unconcerned about future debt.

“What good is cheap tuition if classes are so packed you can’t even get in?” he said.

But Congress and the Obama administration are concerned. New federal rules could cut government aid to for-profit schools if their graduates have to spend more than 8 percent of their starting salaries to repay their student loans. Sen. Tom Harkin (D-Iowa) also plans this month to begin hearings on the industry, examining its recruiting practices and the loan default rate of its graduates.

The Obama administration this week delayed the widely expected release of a proposal that would have stopped students from taking on debt for any programs that don’t lead to higher incomes, although the administration did propose banning for-profit colleges from tying the pay of recruiters to the number of students they enroll.

Supporters of for-profits say such new rules could shut down hundreds of programs, undermining President Obama’s goal of making the nation the world leader in college graduation by 2020.

“It will have a horrendous effect on programs in California and nationally,” said Harris N. Miller, president of the Career College Association, which represents more than 1,400 for-profit schools. The association, which wields some clout in Congress, is mobilizing to fight the rules.

Nationwide, enrollment in for-profit colleges soared from 673,000 in 2000 to 1.8 million in 2008. The growth has been fueled in California and some other states by discounts and incentives the schools are now offering.

For-profit schools such as the University of Phoenix, DeVry University and Kaplan University offer professional, vocational and technical training, and serve a large number of minority, low-income and first-generation college students. But they have come under federal scrutiny and faced lawsuits for leaving some students with crushing debt.

Miller has said repeatedly that the default rate on the loans of students at for-profit schools is about the same as it is for students who attend community colleges and nonprofit institutions that specialize in serving minority students. He denied that for-profit schools leave students with too much debt.

“The accusation is absurd,” Miller said. “Career college is the fastest growing segment of postsecondary education because it provides value and employable skills. Students wind up with a mountain of debt when their journey through higher education is aimless and, economically, pointless.”

Federal aid to for-profit colleges jumped to $26.5 billion in 2009, from $4.6 billion in 2000. Two-thirds of for-profit students receive federal Pell grants, which target low-income students and don’t have to be repaid. Even so, more than half of bachelor-degree recipients in 2007 at for-profit schools fell into a “high debt” range of at least $30,000 in loans, a recent College Board study found.

“These schools lay it all out for students with Pell grants and student loans,” said Stan Jones, president of a nonprofit organization called Complete College America. Students, he said, “don’t feel like they are paying for anything, but it’s really just like a credit card for higher education.”

For-profit colleges rely more on federal aid than many other higher education institutions. The aid helps offset tuition at for-profit schools, which averaged $14,174 in 2009, according to the College Board. The average for two-year state schools was $2,544.

California is at the vanguard of a movement toward cooperation between overstretched community colleges and for-profit schools. Its community college system, with nearly 3 million students, has the nation’s lowest tuition – $26 per credit. The agreements the institutions have reached with for-profit schools allow students to apply credits earned online toward their community college associate’s degrees.

“The reality is the private for-profits are here to stay and are spending a lot of money marketing,” said Terri Carbaugh, vice chancellor for communications at California Community Colleges.

Carrillo’s credits at an outlet of the University of Phoenix near here cost $450 apiece. He willingly gave up a campus life at American River, with its student center, sports teams and clubs, driving to a bland building in an office park just off the highway for his classes. Carrillo is also willing to borrow more for an education from a school he believes takes his dreams and plans seriously. He took out a loan of $6,000 with deferred payments, which supplements a Pell grant of about $5,000, he said.

“The University of Phoenix promised me smaller classes – and they delivered.  I haven’t had a class with more than 20 people,” he said.

That’s hardly the case at many California community colleges. At Contra Costa Community College in the East Bay area, microbiology major Dakota Bevins has been shut out of the chemistry and biology classes he needs to graduate. The 20-year-old still shows up, hoping enough students will eventually drop out so a space opens up.

“It’s a hard struggle,” Bevins said. “There’s at least twenty extra people in the classroom. You can’t find a seat, so it’s just crazy.”

California’s community colleges have become so crowded that officials don’t discourage students from attending for-profit schools or enrolling in their online courses to satisfy degree-requirements.

“This year, we have been serving close to 15 percent more students than are funded by the State of California,” said David Viar, president of American River College, which serves about 35,000 full- and part-time students.  “Access has always been a priority for the California community colleges, and the inability of students to get the classes they need at our institutions is a difficult situation for us all.”

For-profit enrollment surged more than 20 percent in California last year, while the state’s 112 cash-strapped community colleges were reducing course offerings, canceling summer school and turning away up to half of new applicants. An estimated 8,800 students, including Carrillo, transferred from the state’s two-year schools to the University of Phoenix.

Kaplan University is offering transfer students a 42 percent discount on tuition, reducing the cost of a typical course to $215 per credit. “The objective of the community colleges is to help their students graduate; that’s our objective, too,” said Jaime Cocuy, vice president of the Strategic Alliances Organization at Kaplan.

Bridgepoint Education’s Ashford University, which has just one campus in Iowa, is also attracting more transfer students from California to its online programs, accepting up to 90 credits from community colleges toward a bachelor’s degree. Students can take 75 percent of their courses at the community college’s lower tuition rate and then complete their degrees online at Ashford, said the school’s provost Elizabeth Tice.

California needs help in graduating more students. The state projects a shortage of one million college-educated workers by 2025 unless it’s able to increase college enrollment dramatically, a report released last month by the Public Policy Institute of California found. Robert Shireman of the U.S. Department of Education says he welcomes the role for-profits are playing in the financially strapped state.

“We need all of the higher education sectors to be hitting all cylinders, and the for-profit colleges have been really responsive to demand,” said Shireman. “That’s a big positive.”

So are graduation rates at two-year for-profits – 60 percent, compared with just 22 percent at two-year public institutions, according to data from the U.S. Department of Education.

Though the new rules — to be unveiled later this summer — might slow the rapid growth of for-profit schools, the weakened public-education sector and President Obama’s goal of producing 5 million more community-college graduates by 2020 both bode well for the for-profit sector. Jeffrey Silber, an analyst with BMO Capital Markets in New York, projects the industry will grow at a 7.7 percent annual rate in the next five years to over $143 billion in revenues by 2014 – with some adjustment if new limits are imposed on student debt-to-income ratios.

And while the Obama administration is seeking to increase oversight of for-profit schools, it acknowledges the significant role they play. Education Secretary Arne Duncan last month urged the sector to “to get rid of bad actors.” But Duncan added: “Among the for-profits, phenomenal players are out there making a huge difference in helping people take the next step in the economic ladder.”

Elaine Korry is a former National Public Radio reporter and freelancer writer based in the San Francisco Bay Area. Liz Willen is associate editor of The Hechinger Report. A version of this story appeared in The Washington Post.

Note: This story was updated on June 16, 2010 to reflect the Obama administration’s decision to issue a separate Notice of Proposed Rulemaking (NPRM) on issues of “gainful employment” and for-profit institutions later this summer.

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