Report: $32 Billion In Federal Aid Going To Students At Underperforming For-Profit Colleges

Earlier today, the Senate Committee on Health, Education, Labor, and Pensions (HELP) announced the findings of its two-year investigation into exactly where the $32 billion annual investment in federal student aid is going — and whether students are getting a return on taxpayers’ investment.

According to the report, not only does the for-profit education business rely the most on federal funding, it also has the highest percentage of students leaving with debt and the highest student loan default rates.

HELP found that only 17% of what these colleges spend actually goes to instruction, while 42% of the money goes to marketing, recruiting and profits for the companies. Not-for-profit schools pay less than 1% on average for marketing.

And even though an education at a for-profit college often cost twice what students would pay at a 4-year public college, public colleges spent almost double per-student on instruction. And private, non-profit colleges spent more than 2.5 times as much on average.

The report also accuses for-profit schools of being overzealous in its recruiting of students, effectively bullying some under- or unqualified students into enrolling.

From the report:

For the purposes of training their recruiting personnel, ITT used a “pain funnel” intended to educate recruiters how to break a potential student down by criticizing their current life situation. The most severe questions are meant to make the students feel bad about themselves: “What are you willing to change now or have you given up trying to deal with the problem?” After breaking them down, recruiters would then present an education at ITT as the solution to the “pain.”

And while these schools pumped all this time, money and effort into recruiting, on average they only had one career services staffer for every recruiter on the payroll. One of the largest for-profit operators had no career services position whatsoever.

Maybe that’s because an inordinate number of students never complete the programs at for-profit colleges. The HELP report found that, on average, 54% of students who began at a for-profit institution during the 2008-2009 school year withdrew by summer 2010. Nine schools in the study had withdrawal rates of at least 60%, with the highest being 84%.

Of course, when students exit without a degree, they are still walking away with debt.

And yet, while students are being aggressively recruited to pay too much for a degree from schools that don’t support them in the classroom or in the job hunt, those same colleges are making a tidy profit. In 2009, 16 of the largest for-profit schools raked in a profit of $2.7 billion.

“For-profit colleges are taking advantage of students and taxpayers alike at a financially vulnerable time for many families,” said Pamela Banks, senior policy counsel for Consumers Union. “These institutions promote the opportunity to advance your education and career and then leave students drowning with debt without the degree or experience to become a higher earner. We need to find ways to hold these for-profit colleges accountable and make sure that these expenses aren’t charged to the taxpayer’s tab.”

Senators Kay Hagan (N.C.) and Tom Harkin (Iowa) have already introduced the Protecting Financial Aid for Students and Taxpayers Act, which would require all colleges and universities to pay for advertising, marketing and recruiting with non-taxpayer dollars.

“Schools should be focused on helping students, not their bottom line,” said Banks. “This report underscores the need for Congress to protect students and taxpayers by passing this bill.”

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  1. Cat says:

    Not surprising at all. What is surprising is that it is allowed to continue.

    • nugatory says:

      It’ll keep happening for a while yet. “Protecting Financial Aid for Students and Taxpayers Act” won’t pass, how can it when it has the lousy acronym PFASTA? /s

      • wombats lives in [redacted] says:

        I ate pfasta last night.

      • Kuri says:

        Well, when a politicians biggest concern is how the acronym will look next to his name in history books, you got a point.

      • Oh_No84 says:

        BF: It’s time to leave
        [GF runs into bathroom]
        BF: What are you doing? We are late!
        GF: Peeing!
        BF: PFASTA!!!

    • Oh_No84 says:

      Agreed.
      Tax dollars for loans should ONLY go to state schools that are already tax subsized with lower tuition to lower the risk/money needed. That will give us the most bang for the buck and state schools are the top schools anyways and usually have the lowest in-state tuitions.
      Why would you let someone get a loan for a $20K to $60K a year school when they can get a better version of the degree at an in-state school for $8K a year.
      FAFSA for in-state schools only!

  2. cashxx says:

    I wonder how this compares to colleges like Penn State, Pitt, etc where you can take crap courses and not have a job afterwards and have a mountain of debt along with a crap degree that you can’t find a job for?

    • chulu says:

      For-Profit colleges give you the same degree but with a huge markup. They charge by quarter, and it ranges from $5,000 to $8,000 a quarter… Keep in mind this is just for tuition not books, housing and food. You are paying around $20,000 to $32,000 just for tuition. The full deal at penn state is $24,000. This includes everything books, food, tuition, misc expenses.

  3. Jevia says:

    I understand the need to protect students, but the tax payers (i.e. the fed) get their money back. Even if the student defaults, the debt never goes away, its merely paid off by garnishing tax refunds, wages, and, if necessary, social security benefits.

    • AstroPig7 says:

      The debt is likely excessive, unproportional to the quality of education received, and might not be repaid in a timely fashion. The average debt detailed by this report is a lot of money to simply leave floating with small repayments.

      • Jevia says:

        True, but it does accrue interest at about 7% (which is higher than the “fed rate” or the LIBOR rate), so its not a terrible “investment”, just a slow return. The real problem is going to be when these students die with the debt still unpaid, and what little they have in an estate is still insufficient to cover the debt.

        • AstroPig7 says:

          It sounds like a poor investment, because it’s much more of a gamble than a loan to a student of a non-profit university would be. The whole machine smacks of a financial bubble.

      • Darkrose says:

        I attend a private college that is not on the list and I can say that the quality of the education I have received thus far is very much comparable to that I received in lecture based learning. I attend the school I do primarily becuase it’s one of two that offer the majority of classes for my Bachelor’s program online. I have to take some classes in a lecture setting. I have done these and I feel that the classes online were more difficult than the ground classes at the traditional institution.

        And yes, I have a 4.0 GPA across both colleges. The difference is that the private college is more convenient for my schedule with work (full time), the wife and kids (2 more full time jobs) and a 1/2 time course load that is a job in and of itself.

        I’m not defending my $400/credit hour college, I’m just saying I’m paying for the convenience of being able to complete my program mostly online. That, and they don’t offer a bachelor’s program for my course of study at ANY of the colleges around me.

    • AustinTXProgrammer says:

      I’m sure that only goes so far.

  4. techstar25 says:

    There is a documentary called “College, Inc.” that explains how bad this problem is. These places recruit in the poorest communities in America. They do the paperwork and get these kids loans of $50,000. Then when the kids get into class they realize they maybe they aren’t cut out for discrete mathematics or molecular biology and they drop out. The school keeps the $50k and the student is back to being dirt poor, but is now $50k in debt as well. It’s quite depressing to be honest.

    • Loias supports harsher punishments against corporations says:

      Why would they keep the entire $50k? Wouldn’t the student get the difference between the entire loan amount and his first year/semester? And really, shouldn’t that go back to the loan provider anyway?

      • JJFIII says:

        Nope, that is not the way it works. You do not get a refund. You could take one day of classes at many of these schools and you pay the full tuition, full books and “administrative fees”
        The whole concept of for-profit schools is a right wing “free enterprise” idea that is crazy. If you do something with a profit motive or to satisfy investors your ReSPONSIBILITY is to them and not the student. It is the same as for profit health care. Certain things should nto be for profit.

        • nishioka says:

          > The whole concept of for-profit schools is a right wing “free enterprise” idea that is crazy.

          I was just thinking about this when I read above that one for-profit school has an 84% dropout rate. How is that not like Bain Capital borrowing all the money they can on what’s left of a company’s credit, then pocketing the cash and leaving the company to declare bankruptcy?

        • cspschofield says:

          Is this really any worse than traditional colleges that pump out ‘graduates’ with a ‘liberal arts’ education that they should have gotten in High School? I am increasingly of the opinion that the outrage about “for profit’ colleges is a smoke screen intended to put of the day of reckoning for traditional colleges.

          • tmbggirl says:

            The entire way that we run our colleges needs to be revamped. Our college systems are based on the way colleges were run in the Middle Ages in Europe. College needs to be based less on a widget-factory model and more on a model where learning is embraced, in particular co-curricular learning.

            ‘The culture of college needs to evolve, particularly with regard to “perverse institutional incentives” that reward colleges for enrolling and retaining students rather than for educating them. “It’s a problem when higher education is driven by a student client model and institutions are chasing after bodies,” he said.

            The analysis in the book stresses that there is significant variation within institutions, not just among institutions, with students in some academic programs regularly outperforming others at the same campuses. Arum said this suggests that institutions can improve student learning by making sure that there is some consistency across disciplines in the rigor of requirements. “You need an internal culture that values learning,” he said. “You have to have departments agree that they aren’t handing out easy grades.”‘

            Read more: http://www.insidehighered.com/news/2011/01/18/study_finds_large_numbers_of_college_students_don_t_learn_much#ixzz22Apsp9hK
            Inside Higher Ed

    • Pants O Doom says:

      Why are there so many documentaries ending in Inc.?

      • nishioka says:

        For the answer to this and many other questions, check out my latest documentary, entitled Documentaries Inc.

    • Cacao says:

      Do all muckraking documentaries have to have that format now: “XX, Inc”? Food, Inc. College, Inc. Healthcare, Inc.

    • tmbggirl says:
    • nopirates says:

      can you really get a degree in discrete mathematics or molecular biology at the u. of phoenix or ITT???

    • Cor Aquilonis says:

      Allow me to play link-fairy – “College Inc.” by FRONTLINE: http://video.pbs.org/video/1485280975/

      EXCERPT:
      Program: FRONTLINE
      Episode: College Inc.

      The business of higher education is booming. It’s a $400 billion industry fueled by taxpayer money. But what are students getting out of the deal? Critics say a worthless degree and a mountain of debt. Investors insist they’re innovators, widening access to education.

  5. Alex says:

    ITT Graduate C/O 2007. ~3.9 GPA in their CNS program, graduated with highest honors. I have $40,000 debt, and best job I got out of it is Staples @ $9.50 an hour after 4 years graduating. Worst mistake ever.

    • AzCatz07 says:

      Wow. That really sucks. My girlfriend is graduating from a for-profit with an RN certificate. Although she already has an RN job lined up (where she’s working now as an LPN), she worries about her friends who are studying things like dental tech and medical assisting. She doesn’t think those people are going to find jobs, and if they do they will not pay them enough to make up for the $10,000 or so those programs cost. She said the school routinely lies to prospective students about all the good-paying jobs that are out there.

      No offense intended toward you at all, but did you research the jobs that were available to a CNS graduate before you decided to go to ITT? Were you fed lies by the marketing staff and recruiters?

      • Alex says:

        This was before the whole “recession” thing Bush denied on TV when I was already 3/4 done with the program. There were flyers everywhere in the school saying our programs have prospected $40k a year jobs etc. All lies…no one looked for my schooling, just experience and then the lucky ones who did get jobs *friends with them after ITT* they are network engineers while I’m stagnating.

    • SgtSicko says:

      Same situation here but I made it up to about $15/hr before my company decided to “restructure” and chopped whole departments. And with my “associates” I was not qualified to retain my title under the new qualifications….

    • poco says:

      Yep. I went to ITT for exactly one year before sitting down with an instructor to find out why none of my classes so far had been in the subjects I had discussed with the recruiter. He told me that about half of those subjects weren’t covered by the program, and the other half were only covered in the bachelor’s degree program (I was in the associate’s). I dropped out immediately but still owe the school 12k.

      Now I’m attending a local community college for a third of the cost and am actually studying the subjects I’m interested in. Screw ITT with their inflated tuition and flat out lying recruiters.

  6. jojo319 says:

    I’m curious the article says “And even though an education at a for-profit college often cost twice what students would pay at a 4-year public college”. Does that include the money public schools get from the government? I just find it hard to believe that public schools “cost” less. Maybe to THAT student, but what about the combined costs? is there data for this?

    • nishioka says:

      That would be relevant to this matter if private schools had the same dropout rate as for-profit schools.

      The problem is for-profit schools charge you more and give you much, much less in return in relation to their private and public competitors.

    • Oh_No84 says:

      Well my public school instate is about $10K a year or $277 per credit hour.
      A class is typically 3 credit hours.
      So a class of 30 for the semester nets about $25K. A teacher might teach 4 or more 30 student sections per semester so the school will get at least $200K a year from that one class.
      Teacher gets maybe $50K a year salary + benefits leaving about $125K for the presidents/admin office, department office, buildings, utilities, etc for just one class.

      They may have 30K students taking 6 classes each per semester. (another 10K in graduate students).
      That would mean the college’s revenue after paying teachers is like $125 million to cover buildings, admin staff, maintenance, etc just for undergrad.
      Then you have another 10K in grad students who could either be paying about $20K per year in tuition or teaching classes to get free school (which is less compensation than $50K a year a normal teacher costs).
      For-profit private colleges are ripping of students with substandard educations/accredidations. In the entire county there is maybe like 20 to 30 legit private schools worth going to. All the rest are just in it for the money.

  7. beachdad says:

    Much of the money seems to be going to advertising, especially mid-day TV and drivetime radio. Every other spot is for a for-profit college.

  8. callenjr says:

    A huge problem with many of these for profit outfits ( I refuse to refer to them as colleges) is that they are not properly accredited. If you ask them about their accreditation they will tell you they are accredited by (fill in the blank) organization. Most of these students to which they recruit have no idea what organizations are actually recognized. My best friend is a supervisor at a large university hospital and is not allowed to hire these people because their school’s accreditation is not recognized my the state, therefore they cannot sit for their boards. Students from both degree granting universities and colleges as well as certificate programs from community colleges and vo-techs are eligible, but not those from these for-profit so called accredited “learning centers”.

    • tmbggirl says:

      These for-profit colleges are regionally accredited. A college has to have regional accreditation in order for its students to be eligible for federal financial aid. This is why for-profit institutions will often purchase struggling small private colleges, in order to gain that very important accreditation piece.

      What you are speaking of is accreditation of a particular program. For example, the college I just graduated from is regionally accredited by NEASC (New England Association of Schools and Colleges). If I had majored in School Counseling, our department is accredited by NCATE ( National Council for Accreditation of Teacher Education). Now, its probably not illegal to have a School Counseling program that isn’t NCATE accredited, but you probably wouldn’t be able to get a job in our state with a degree from a non-NCATE accredited program.

      • AstroPig7 says:

        My wife avoided Amberton University for this reason. The only campus with relevant accreditation was in Georgia, and the local campus tried dancing around this fact until she got sick of it and stopped returning their phone calls.

  9. woot says:

    From a hiring perspective, if an applicant went to a for-profit college they’re generally going to the bottom of the pile. That’s enough to question someone’s judgement right there.

    • evilpete says:

      Agreed, I’m in the tech industry and will many times hire a non college grad or a dropout from a real university before I hire a for-profit grad

    • woot says:

      Yup. I’m in tech too. It seems cruel to actually say it out loud, but for-profit colleges make you look like a loser.

      We tried being even-handed, but almost none of those applicants ever make it through the interview and testing process, therefore their applications are almost always screened out up-front.

      It’s sad they wasted so much money on something that goes beyond not helping them, but is actually a negative in the view of a prospective employer.

  10. Joedragon says:

    the full higher Education system needs to be reworked to many people are going to school and the for-profit ones do tech the skills needed to do the job but are tied down to old college system and have some accreditation issues.

  11. wellfleet says:

    The large state university in my town has a six-year graduation rate in the mid 50%. I agree that certain for-profit colleges are abusing the system and misleading potential students. But a “not for profit” state school that charges even a modest 10K a year for a useless English Lit degree is just as complicit in offering a product that has no hope of leading to a job in that field.

  12. ReasonablePerson says:

    **Disclaimer** For profit colleges are disgusting, predatory business. I’m unsure if I feel they should be regulated, but I am 100% sure that they should be ineligible to receive government funding without locked in accreditation.

    That graph is stupid though.

    To be fair, the comparison between the University of Florida and Everest University is ridiculous.

    UF is, by far, the most competitive public school in the state. A fairer comparison would be to see how much federal money is flowing into schools like University of South Florida, University of Central Florida, Saint Petersburg College, etc.

    UF regularly turns away top tier students from high schools that fall within a certain quality level (Florida high schools are ranked on a A-F scale based on FCAT scores). They aren’t opening the floodgates for military veterans with G.I. bill money. They certainly admit enough to ensure there aren’t any “UF won’t accept veterans” articles floating around, but you’ll likely find the lion’s share of returning troops at different public schools.

  13. Jane_Gage says:

    “Pain funnel.” What a delightful term. /goes back to reading 50 shades of gray.

  14. jacobs cows says:

    This all boils down to stopping all these “Free” Trade Agreements and bringing back the work to the USA.Without work here,most educational programs are doomed to fail.

  15. Press1forDialTone says:

    I love that they used Indiana University, a terrific school and you get a huge bang
    for your buck. Go Hoosiers! Also, schools and technology ranked among the
    best in the country including the Ivy League.

  16. Press1forDialTone says:

    Taxpayer money should -never- be allow at for-profit schools of any kind.
    Let them get eheir banker friends to give the students loans and take on
    -all- the hassle of getting the students to pay.

  17. Carlos Spicy Weiner says:

    And people are always screaming at Public schools for wasting money…geeze, does anyone give a shit about education anymore?

  18. Shinchan - Please assume that all of my posts are sarcastic unless indicated otherwise says:

    Just wait until Michelle Rhee and the Gates folks get their hooks into K-12. Then instead of taxpayers getting a slow return from the college loan scam they will be getting no return for K-12 as the government will be paying these companies’ profits directly…

  19. dush says:

    Cancel these government subsidies.

  20. evilpete says:

    For profit schools WANT you to dropout, it increases their profit margin.