Opinion: How For-Profits Lost Their Way

"The court of public opinion has not been kind to the for-profit college sector over the last few years. In particular, the reputations of the 15 publicly traded companies that dominate the sector have been tarnished through repeated stories of alleged abuse of federal financial aid programs and students aggressively lured into programs where some end up with unmanageable debt," Ben Miller, senior policy analyst for the New America Foundation, writes for Inside Higher Ed. 

"But for-profit education did not always operate this way. Some of the same companies barraged by today’s negative headlines were innovators of new business models that served populations left out of the traditional postsecondary education space. Others offered training programs for years before there even was a Higher Education Act that made federal financial aid available to students.

What led so many companies astray is a story of strategic choices made at the height of the 2000s boom. Faced with the means to achieve infinite scalability by tapping into a federal entitlement program, the opportunity to use online learning to cut costs, and motivated by Wall Street cash and its accompanying investor pressures, several companies pursued hypergrowth at all costs. They moved away from traditional missions, pursuing any and all students they could through sophisticated recruitment machines designed to feed the neverending demand for hitting enrollment and earnings targets.

U.S. Department of Education data on students who left school in 2008 and 2009 at the peak of the for-profit college boom show just how bad the strategic emphasis on growth over quality has been. In total, 40 percent of programs offered by publicly traded companies, representing 48 percent of for-profit students in the data, fail one or both of the tests of debt-to-earnings and student loan default that the Education Department is proposing to use to judge the success of career training programs. This includes 44 percent of students enrolled in colleges owned by the Apollo Group, which runs the University of Phoenix. It also includes 90 percent of students at ITT Technical Institutes.

But companies like Strayer and Capella that took a more measured approach to growth look much better in the data. Not a single program at Strayer appears to be leaving graduates overly indebted or headed for default, while just one of Capella’s 96 programs has problems — a bachelor’s degree in health informatics. Capella’s income results are so strong that not a single program had a debt-to-earnings ratio above 1 percent.

The results for Apollo and  ITT are particularly troubling because these are two companies with long operating histories that used to be some of the best examples of what successful for-profit education could be. The ITT Technical Institutes actually predate the Higher Education Act by nearly 20 years and were clearly able to recruit and educate students without being wholly reliant upon the federal grants and loans that make up the majority of its revenue. ...

The high-growth model has created legal headaches and poor student results for ITT. It has the largest share of students in failing programs of any publicly traded company. ITT also has programs like its $47,000 associate degree in visual communications, where a higher percentage of students default on federal student loans (45 percent) than find jobs in their field (30 percent).

ITT has also run afoul of the Consumer Financial Protection Bureau (CFPB), which sued the company in February for the debt it offered to cover tuition gaps. In its lawsuit the CFPB alleged that ITT lured students into high-priced private student loans with default rates as high as 60 percent and 'sacrificed its students’ futures by saddling them with debt on which it knew they would likely default.'

Recent efforts suggest that there may be ways to turn back the tide and get some companies to focus again on students over growth. Chastened by regulatory efforts aimed at reshaping recruitment practices and holding institutions accountable for debt, coupled with lawsuits and investigations against the worst behaviors, many companies have had to reduce enrollment, offer trial periods, and freeze or lower tuition. This includes initiatives like the Kaplan Commitment, which lets students test out classes for three weeks without paying tuition. Or DeVry’s Fixed Tuition Promise, which guarantees costs will not go up as long as students stay enrolled and came one year after a tuition freeze. Hopefully, these changes will result in better outcomes for students."

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