For-Profits Under Fire

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Revised government regulations, expected to be formally proposed any day now, intend to crack down on the for-profit sector of higher education. Stakeholders are eagerly awaiting the final language on one hotly debated proposal: gainful employment.

The proposed regulation would cut federal aid to some schools if graduates debt-to-income ratio exceeds 8 percent. The measure is intended to guard against "bad actors" offering degrees that will place an undue burden of debt on graduates unable to find "gainful employment."

According to a story in the WaPo yesterday, college goers are turning to for-profit schools in droves with public schools strapped for cash and bubbling over capacity. In California, enrollment at for-profit colleges increased by 20 percent last year. Across the U.S., enrollment leaped from 673,000 in 2000 to 1.8 million in 2008.

What the article didn't state is that the market share of for-profit schools is still relatively small, roughly 10 percent. But if they continue to grow at the same rate they have in recent years, they will become more than just a niche player in the post-secondary landscape.

Perhaps that is the reason for increased attention from Congress and the administration.

Chairman of the Senate's Health, Education, Labor, and Pensions committee, Tom Harkin (D-IA) recently announced that he will hold a series of hearings to examine federal education spending at for-profit education institutions. The series will begin on June 24th. Concept Capital, a Washington research group, expects the hearings to tilt heavily against the industry.

For-profits, also known as proprietary schools, rely overwhelmingly on federal aid, primarily in the form of Pell grants. These are need-based grants which go to low-income students and don't have to be repaid.

With pending federal regulations that could effectively put a cap on tuition rates and the upcoming hearings, it raises the question of whether for-profits deserve this extra scrutiny. Given the sector's reliance on taxpayer dollars, I think the public deserves to know about the quality of the return on their investment.

It's a difficult question to answer because accountability in higher education, in general, isn't very good. We don't really know what we are getting for our money. That goes for public, private, and for-profit schools alike. The popular U.S. News College Rankings don't include any criteria about what happens to students after they graduate apart from alumni giving.

That said here are some things to keep in mind:

Without for-profits, it's hard to imagine how the nation will meet President Obama's goal of having the highest proportion of students graduating from college in the world by 2020. Public higher education is in dire straits financially, and students are being turned away. For-profits have the ability to build capacity and help meet some of the demand.

Some of the skepticism toward for-profits is not without reason. Recently, Drake College of Business, a proprietary school, stirred controversy when the media reported on their practice of recruiting homeless students. Last fall, Stephen Burd at the New America Foundation wrote a scathing critique of for-profits for their treatment of disadvantaged students.

Over at Eduwonk, a well-respected education blog, Andrew Rotherham surmises that high-performing for-profits need to "throw the laggards underneath the bus" to knock the bad rap.

Harris Miller, president of the Career College Association, which represents for-profit schools, has no problem admonishing the behavior of Drake Business School: "recruiting students in homeless shelters is a totally unacceptable practice," he wrote in an email.

CCA is pushing back against the pending gainful employment regulation arguing that it will have a devastating effect on the industry by potentially forcing hundreds of schools to shutdown.

When it comes to public image, for-profits fight an uphill battle. At the heart of the issue is a philosophical matter rarely debated in a public forum: Is something inherently wrong with making a profit off of public education dollars?

As long as the quality of the education is good, I don't see why it should be a problem.

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Eliza Krigman covers technology and telecommunications for Politico. More

A former reporter at National Journal, Krigman has also worked at the Center for Responsive Politics and the Brookings Institution. Her work has appeared in the Los Angeles Times and Congress Daily, among other publications.
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