2012-07-31

Co.Exist

For-Profit Colleges Great for Shareholders, Not Students

A new Senate report finds that the University of Phoenix and its ilk spend twice as much on marketing, recruiting, and profits as they do on instruction.

The results of a two-year Senate investigation into the for-profit college industry describe a system where the interests of shareholders come above the interests of students. That’s especially problematic given that the industry is almost 90% funded by taxpayer dollars, which pour into a system barely filtered by weak regulations.

Publicly traded companies like Apollo Group (U of Phoenix), DeVry, and Corinthian Colleges enroll three-fourths of for-profit college students. These companies average a whopping 19.7% profit margin. They do that by focusing on online marketing and recruiting, using search engine optimization and high-pressure direct sales tactics familiar from the pre-crash mortgage industry.

In a way, these colleges work like your less-friendly local gym. They sign up lots and lots of students. But once they collect your first semester’s tuition, capturing an increasing slice of total federal student aid funds (including one in four of all Pell Grant dollars issued), they don’t really care if you come back. Actually, it’s cheaper for them if you don’t. So they plow the money back into marketing and recruiting rather than student support and career services. Most students who sign up leave within a median of four months—with debt and without a degree. This goes a long way toward explaining how for-profits, which enroll only one college student in 10, account for half of all federal student loan defaults.

A particularly upsetting part of the report focuses on these schools’ marketing to enlisted military and veterans. Their GI Bill benefits are subject to a loophole that allows these colleges to get even more than 90 percent of their revenue from the federal government.

For-profit colleges, as the Senate report argues, have the potential to be an important part of the higher education system, expanding access to working adults with online programs. Some smaller, local, specialized trade schools offer associates’, bachelor’s and even graduate degrees with great connections to jobs. But these colleges cost far more than the community colleges they compete with. Better regulations could rein in the industry, but that might be difficult. These companies gave almost $700,000 to political campaigns in the first half of the year, including to several Republicans in tough races, but nothing at all to President Obama.

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